KUALA LUMPUR: The government will increase the duty-free quota for crude palm oil (CPO) exports by another two million tonnes, a move which is widely frowned upon by palm oil downstream players.
Downstream players have been hoping for the government to heed their call to scrap the quota as they said it lowered the industry’s competitiveness and reduced national revenue.
“It would be a sad day for the refining industry when the government is giving priority to other countries for the supply of CPO to subsidise their refining industry when we ourselves have invested billions of ringgit to build our refining and manufacturing sector,” said Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad.
The plight of the refiners and others in the local downstream palm oil industry was felt more following neighbouring Indonesia’s review of its export tax structure last year to boost its own refining industry.
“Instead the government must immediately focus on addressing the issue of our uncompetitiveness against the Indonesian export duty structure, which is still undecided for more than 10 months now,” he said in a statement late yesterday.
Mohammad Jaaffar said Poram has appealed to the government to re-consider its decision on allowing more exports of tax-free CPO.
The move was made following a recent Cabinet decision. Plantation Industries and Commodities Minister Tan Sri Bernard Dompok could not be reached for comments but a ministry official confirmed the decision was made.
Mohammad Jaffar said the ministry had assured, during the Palm Oil Lab in May, that it would propose for the suspension of CPO duty-free quota to the Cabinet.
“We are therefore very disillusioned with the announcement that the CPO duty-free quota has now been increased rather than suspended. It also gave us ‘a false promise’ that the government is sensitive to the well-being of the palm oil industry.”
Poram, in response to newsreports stating the government allowing up to 5.5 million tonnes of tax-free CPO yesterday, said: “Such a move will further aggrieve the ailing refining industry, in terms of the availability of CPO and also the utilisation capacity rate to less than 60 per cent, rendering the refining industry totally uncompetitive.”
By allowing exports of another two million tonnes of duty-free CPO, the total allocated quota is raised to 5.5 million tonnes, or almost 30 per cent of total CPO production in Malaysia.
Mohammad Jaffar said the move would also mean a opportunity loss of uncollected tax. Last year, he estimated the government forego the opportunity to collect RM2.45 billion from the export of 3.47 million tonnes of CPO.
PETALING JAYA: KIM Loong Resources Bhd, a small plantation group, has allocated RM10 million for research and development to further drive its downstream activities.
Executive chairman Gooi Seong Lim said the group is hopeful of generating a new income stream from its tocotrienol health supplement brand called E-life Gold. It is scheduled to be launched at the end of the year.
“We’re in the process of fine-tuning our vitamin E extraction plant to suit commercial needs,” he told reporters after the company’s annual general meeting here yesterday. “We hope to supply tocotrienols for health supplement and pharmaceutical markets by the end of this year,” Gooi said.
Kim Loong’s vitamin E extracting plant, which is attached to its Kota Tinggi palm oil mill in Johor, is able to produce 3,000kg of palm tocotrienols a year. Also present was Dr Gee Ping Tou, a scientist attached to Kim Loong’s unit Palm Nutraceuticals Sdn Bhd.
He explained that vitamin E is made up of a family of four tocopherols and four tocotrienols.
Palm oil extracts, which contain tocotrienols, are far more potent than regular fish oil and evening primrose health supplements currently sold at pharmacy shelves that are only fortified with tocopherols extracted from softoils like soya, canola and sunflower.
“We need to educate the public on the superior nutritional benefits of palm tocotrienols over cheap tocopherol health supplements,” Gee said.
So far, preliminary scientific studies by the Malaysian Palm Oil Board suggest that tocotrienols can reduce bad cholesterol, kill cancer cells and slow down aging.
Tocopherols, however, do not possess these beneficial characteristics. In fact, recent studies seemed to show alpha tocopherol, a particular sibling in the vitamin E, is negating the cancer-fighting benefits of its tocotrienol siblings.
Following this development, Kim Loong have, in the last couple of years, redesign and rebuilt its vitamin E plant to extract more of the “good” cancer fighting tocotrienol sibling called delta tocotrienol and sift out the “bad” interfering sibling called alpha tocopherol.
To a question on Kim Loong’s core plantation business, Gooi said the group which has fully planted its 13,000ha oil palm estates, is open to to expand its landbank. “While we have about RM90 million in cash, good land is hard to come by. Price have gone sky high,” he said. “We’re willing to invest in Indonesia but we need to find a good local partner to make it work.”
KUALA LUMPUR: MALAYSIA is losing investments in the palm oil refining industry to neighbouring Indonesia, as it has yet come up with a policy to create a level playing field.
The industry has been suffering since October 2011 because of the duty structure which Indonesia has put in place to boost downstream activities by lowering export taxes for processed palm oil products.
Refiners are crying foul, saying the playing field is no longer fair. “Just because of this export duty structure which will affect our downstream activities in Malaysia, does it mean we should just hand it over to Indonesia after having built up the market for the past 40 years?”
Indonesia’s move has pressed crude palm oil (CPO) prices down, an unfavourable move when the world’s top two producers should cooperate, said refiners in Malaysia.
The Palm Oil Refiners Association of Malaysia (Poram) lamented that the broad supply chain in the RM80 billion industry will also be affected.
“We are not against the export of CPO but it should no longer be subsidised overseas,” Poram chief executive officer Mohammad Jaaffar Ahmad said in an interview.
In Indonesia, all CPO exports have to be taxed (15 per cent) to protect and expand their downstream capacity and collect revenue.
“But we have excess capacity and strong justification to keep CPO for our own downstream industries. Every tonne export of CPO will mean loss of market potential for a tonne of processed oils,” Mohammad Jaaffar said.
Unlike Indonesia, the Malaysian economy has also suffered with the loss of RM7.8 billion over the past seven years through the subsidised export duty on CPO.
“But this cannot continue, especially with Indonesia’s export duty structure in place,” he noted.
Malaysia has several options to look at, including matching the full tax structure of Indonesia, improve the Malaysian CPO export duty structure and create a level playing field on feedstock prices.
Mohammad Jaaffar said a nagging fear is if Indonesia goes a step further and lands a “second assault” by lifting the duty on processed palm oil too, placing Malaysia in a worse scenario.
The industry has already put forth some recommendations to the government to enhance the competitiveness of the palm oil downstream industry in Malaysia.
A refiner, who did not want to be quoted, said the delay in the government’s decision to come up with a new policy, had been costly for the past 10 months. Many refiners here are losing money, in sharp contrast to the Indonesian refiners who are enjoying up to 6 per cent profit margin.
“Unlike the large plantation companies, independent refiners are expected to close down their operations in Malaysia or relocate to Indonesia, and be another competitor to the Malaysian players.”
A market analyst recently pointed out that big Malaysian players are looking to invest in Indonesia to take advantage of the high margin for refiners. Malaysia’s second biggest refiner Mewah Group, for instance, has discontinued its plans in Sabah while Kuala Lumpur Kepong Bhd has decided to build three refineries in Indonesia.
Singapore stock exchange-listed Mewah Group is one of the largest palm oil processors in the world with its current total daily refining capacity of 8,000 tonnes a day or 2.8 million tonnes annually.
Refiners in Malaysia feel the CPO price, above RM3,000 a tonne, is likely the main reason for the government to delay its decision to change the policy.
Take a leaf out of the Indonesian experience, they suggested, referring to Indonesia’s latest moves which were based on its industry’s recommendations.
“Worst still, Malaysia is turning the clock back from selling more olein value-added products to just a CPO exporter, prompting our overseas markets to continually seek more discounts.”
Malaysia, they said, attracted foreign investments in the refining process in the last 25 years because of the availability of CPO and palm kernel oil. Since slipping to become the world’s second biggest palm oil producer in 2007, Malaysia’s oil palm plantation spans across five million hectares.
Last year, Poram members only processed at around 50 per cent capacity which gave rise to losses of US$30 to US$40 a tonne. “That kind of losses are too big and difficult to manage, unlike the US$10 in the past which we can still mitigate with hedging.”
One market analysis projected refiners in Malaysia will bleed more losses in the second half of the year when new refining capacities come onstream in Indonesia.
MPOB statistics showed that in May/June imports of crude palm oil remained high at 40,000 tonnes (May) and 24,000 tonnes (June), while imports of processed palm oil continue to rise from 88,000 tonnes (May) and 112,000 tonnes (June).
“As a refinery industry, what we are saying is that it does not make sense to import processed palm oil when we should be exporting more processed palm oil and import more CPO into the country. It does not augur well for the industry.”
Indonesia produces palm olein at US$70 cheaper than that of Malaysia, which have prompted refiners in Malaysia to import the refined palm products to the tune of 100,000 tonnes a month, rather than face negative margins in converting CPO into olein.
Apart from providing feedstock for the food industry, packing plants, oleochemicals and animal feeds, the industry also provides employment and other spin-off ancillary services such as transportation, trading houses, bulking installations and financing.
The stark reality is that the United Kingdom forest acareage remains at only 12 per cent of the country’s land mass.
In contrast, another important fact that often goes unnoticed is that more than half of Malaysia’s land mass is covered by forest reserves and national parks.
Malaysia’s oil palm companies have long been practising ethical business. In 2006, oil palm planters made a commendable effort by establishing the Malaysian Palm Oil Wildlife Conservation Fund (MPOCWF) to participate in the conservation of wildlife biodiversity in Malaysia. The RM20-million MPOCWF is also part-financed by taxpayers.
Some of MPOCWF initiatives include undertaking a survey of the orang utan population in Sabah. The survey, carried out by the Sabah Wildlife Department, the French non-governmental organisation Hutan and Borneo Conservation Trust, mapped out many of their dwelling sites.
Over in Sarawak, the MPOCWF works with Sarawak Forestry Corp to keep tabs on wildlife habitats that share common boundaries with oil palm plantations.
With the western media frequently implicating oil palm planting as the main cause of deforestation and climate change, one might be inclined to think that the average British shuns any food item containing palm oil.
But that is not true. Many British nationals who have previously resided in Malaysia are familiar with the practice of good agriculture here.
Datuk Leslie Davidson had lived in Malaysia as a young planter from the 1940s to 1960s. At the pinnacle of his career, Davidson was a former chairman of Unilever’s plantation arm.
His passion for the plantation industry never waned and this was reflected in the latest edition of his book, titled East of Kinabalu.
Until today, he continues to keep abreast of developments in the global oil palm industry as “we can’t live without palm oil”.
In a recent interview with the New Sunday Times, the 81-year-old Scotsman shed light on the views of the average Briton on palm oil that is present in our food like cooking oil, margarine, cookies, cakes, biscuits, chocolate and candies.
During his many decades in Malaysia, Davidson consumed palm oil every day in many dishes, including salad dressings and curry chicken. “Now that I’ve come back here to the UK, it is heartening to note that cookies and cakes are baked in palm fats but I still find it difficult to locate red palm oil on supermarket shelves,” he said in an interview from Sussex, the UK.
He said Sainsbury’s, Asda, Tesco and William Morrison were the only few local stores that sold Carotino red palm oil which he put in his porridge every morning for its cardio-vascular benefits. “>It says on the label that “it is ethically sourced from environmentally sustainable plantations”.
“Since nearly all oil palm plantations are sustainable, the label is fairly meaningless,” Davidson said. “If there is one lobby that is more important to the average consumer than the environmental lobby, it is the health lobby.”
Davidson said the British media tended to spin emotion-stirring tales linking palm oil to the destruction of orang utan habitats but the fact remained that palm oil was the world’s most sustainable vegetable oil, yielding four tonnes from 1ha, whereas rivals like soya bean and rape seed take up six to 10 times more land.
He is glad that many European food manufacturers have incorporated heart-healthy palm bakery fats in their range of ready-to serve meals.
He also notes that the United States government has legislated against artificial trans fat from consumers’ diet as more medical studies prove this deadly fat causes heart attacks and stroke.
Artificial trans fat is produced when soft oils like soya bean, canola and sunflower are partially-hydrogenated to make bakery fats.
Health books like The Palm Oil Miracle written by Dr Bruce Fife highlighted the dangers of artificial trans fat and that consumers are better off eating food cooked in palm oil and margarine.
Although this book is sold at major health food stores in the UK, Davidson lamented that many consumers there would be better at making informed choices if there were more public awareness on the health benefits of palm oil. “What I would like to see is not just the book but red palm oil itself on shelves of more supermarkets and major health food chains. So far, it is almost non-existent.”
Davidson’s point of view is an eye-opener. Often, oil palm planters in Malaysia get so worked up responding to attacks from environmental activists that they forget that the average consumer is more moved to buy red palm oil or a tub of palm margarine if it proves to be heart healthy.