Archive for November, 2012

‘Side effects’ of China’s new edible oil controls

November 27, 2012 Leave a comment
KUALA LUMPUR: China’s new quality control rules on imported edible oils may spur food price inflation and possibly wastage if not properly implemented.

China is Malaysia’s biggest export market, while Malaysia is China’s largest trading partner in Asean. 

One of Malaysia’s significant exports to China is palm cooking oil for daily use. Every year, China spends some US$4 billion to buy close to four million tonnes of the kitchen staple from Malaysia.

It was reported that from January 2013, China’s Inspection and Quarantine Bureau will start to enforce a new set of technical specifications requiring the quality of imported edible oil to be at a cost-adding level.

The current understanding is that as long as palm oil exporters meet Poram’s specifications, shipments from Malaysia are likely to qualify quarantine rules imposed on vegetable oil imports into China.

In a recent interview with Business Times, however, Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad begged to differ. 

He noted that there could be a misunderstanding and that there are actually many uncertainties at play. 

In explaining the implication of China’s new rules on imported edible oils, Jaaffar likened the process to a consumer buying fruits from the supermarket and bringing it home.

“If you buy apples from the supermarket, you accept the quality as it is, at the time of purchase. You do not hold the supermarket responsible, if, on the way back home, the apples got bruised or deteriorate in quality from the high heat of your car parked under the sun,” he said.

The new rules in China, to be effective from January 2013, seemed to hold palm oil exporters responsible for the quality of oil deterioration although the price paid is not that of door-to-door delivery.

“If the China quarantine authorities want guaranteed landing quality, new cost-adding arrangements would have to be factored in. This can be very expensive and will result in unnecessary food price inflation in China,” he said. 

Last month, China’s inflation rate fell to a three-year low, having expanded only 1.7 per cent from a year ago.

“We need to be more discerning of the implication of the new rules. We are well aware authorities from both China and Malaysia need to ensure imported cooking oil remains affordable and safe to consume by China’s 1.3 billion population and at the same time, reap steady income for palm oil exporters here,” Jaaffar said.

Back in April 2011, during his second official visit to Malaysia, Premier Wen Jiabao promised Prime Minister Datuk Seri Najib Razak of closer diplomatic and trading ties. 

Even though China has long been running a trade deficit with Malaysia, Wen reportedly said China have no complaints. In fact, China agreed to continue buying Malaysia’s palm oil. 

“Malaysia and China are facing economic development challenges. Therefore, with deep co-operation, we can together deal with such challenges and fulfil our mutual interests,” Wen reportedly said.

In forging warmer trading ties, Jaaffar expressed hope that both countries will come up with mutually beneficial arrangements.

“It is in the interest of China’s consumers that they should be able to go on buying affordable and nutritious cooking oil. It is also in the interest of palm oil exporters that shipment into China should not be rejected by reasons they have no control over,” he added.

Plantation Industries and Commodities Minister Tan Sri Bernard Dompok is scheduled to visit China for the Malaysia-China Palm Oil Trade Fair & Seminar 2012 in Chongqing from November 29 to 30 2012.

IOI Corp Q1 net profit more than doubles

November 20, 2012 Leave a comment
KUALA LUMPUR: IOI Corp Bhd’s first quarter net profit ended September 2012 more than doubled to RM604.3 million from a year ago, thanks to stronger contribution from its property development and oleochemical businesses.

In its filing to the stock exchange yesterday, IOI said it posted pre-tax profit of RM730.8 million, 72 per cent higher than RM424.1 million, a year ago.

The increase is due mainly to paper gain of RM259.2 million on foreign currency denominated borrowings and higher contributions from all major segments other than plantation segment.

IOI’s oleochemical profits increased to RM73.2 million from RM33.2 million. The group reaped higher profit margins from the product sales of its oleochemical and specialty fats business.

During the quarter, IOI’s plantation profit shrank 28 per cent to RM401.2 million from RM557.1 million reported a year ago. The lower profit was due mainly to lower harvest of fresh fruit bunches coupled with lower palm oil prices. Average palm oil price realised in the first quarter amounted to RM2,941 a tonne, compared to RM3,149 a tonne posted a year before.

Like other plantation companies, IOI’s oil palm business continues to face challenges on manpower constraints and prevailing lower palm oil prices.

However, in the mid-term, the group expects to perform well with resilient demand from the food sector, price competitiveness over other edible oils.This is mainly fuelled by higher consumption of cooking oil in emerging markets like Asia and Africa. IOI expects palm oil price to recover beginning early 2013.

Two months ago, prices plunged to a low of RM2,255 a tonne. It has since bounced back to trade at around RM2,400. Yesterday, the third month benchmark crude palm oil futures on Bursa Malaysia Derivatives Market added RM30 to close at RM2,459 a tonne.

IOI’s property development profit climbed nine per cent to RM111.8 million, thanks to higher share of results from Singapore jointly controlled entities. Back home, its property investment profit jumped 13 per cent to RM15.2 million from RM13.5 million as occupancy rates and rental yields of select real estate improved.

Indonesia’s GAR issue RM1.5b sukuk

November 20, 2012 Leave a comment

KUALA LUMPUR: Golden Agri-Resources Ltd (GAR)’s unit, Golden Assets International Finance Ltd, has  issued RM1.5 billion Islamic medium-term notes (IMTNs) pursuant to its 15-year ringgit-denominated IMTN programme of up to RM5 billion.

GAR, whose parent is Indonesia’s Sinar Mas group, is currently listed on Singapore Exchange Securities Trading Ltd.

In a statement yesterday, GAR said Malaysia is ideal for sukuk issue, given its well-established and advanced sukuk market with abundant liquidity and familiarity with the palm oil industry.

The 5-year IMTNs will mature in November 2017, it said. “The net proceeds will be used for the company’s general corporate purposes which are in compliance with syariah principles.”
OSK Investment Bank Bhd and RHB Investment Bank Bhd are the joint principal advisers/joint lead arrangers for the programme and the joint lead managers/joint underwriters and primary subscribers for the IMTNs.

Its chairman and chief executive officer Franky Oesman Widjaja said the sukuk will help strengthen its balance sheet, extend the overall debt maturity profile, maximise financial flexibility and enhancing its position to execute growth plans. —Bernama

French Senate rejected ‘Nutella Tax’

November 16, 2012 Leave a comment
KUALA LUMPUR: THE French Senate yesterday, had tentatively, rejected a 400 per cent tax hike on palm oil shipped into France. If the proposal was passed, it would undermine Malaysia and Indonesia’s oil palm industry that currently generates employment for some five million farmers.

Initiated by French Senator Yves Daudigny, the new tax on palm oil sought to raise the figure to €400 (RM1,556) a tonne from the current €100.

It is code-named “Nutella Tax” because palm oil is a popular ingredient in Europe’s favourite chocolate hazelnut spread called Nutella.

Following the proposed tax, there will be a six euro cent hike on per kg of Nutella, commonly used in restaurants and creperies across France.

The tax hike on palm oil is based on claims alleging that the food ingredient is bad for health because it contains high levels of saturated fats; and the oil palm industry is causing wanton deforestation.

It was reported that French Senators will have another chance to vote on the proposal and it will still need to be considered by the lower house, the National Assembly.

Malaysian Palm Oil Council chief executive officer Tan Sri Dr Yusof Basiron highlighted that both of the claims are false and recycled from the US anti-palm oil campaign which proved to have no scientific justification. “This French campaign is, at best, 20 years outdated,” he told Business Times in an interview.

First of all, palm oil’s saturated fat content should be analysed in relation to the total fats consumed by the French people.

“The majority of saturated fats consumed in France comes from animal sources — from meat, milk, cheese and butter — not from palm oil,” he said.

The French consume about 101kg of meat per person per year with an average of 15kg of saturated fat content. Milk consumption per person is 92.2 litres, containing 4kg of milk fats which belong to the saturated fats category. Cheese has 30 per cent animal fat content and the French are well known to consume 24kg of cheese per capita, which works out to be 8kg of saturated animal fats. Butter consumption is 7.3kg per capita which is 100 per cent saturated animal fats.

“If we were to add these up, the total animal saturated fats from milk, meat, cheese, and butter per person per year is 34.4kg. In comparison, palm oil consumption per capita in France is only 2kg,” Yusof concluded.

In rebuking allegations that oil palm planters in tropical countries cause rampant deforestation, he noted Malaysian farmers’ track record in efficient land use and conservation.

“Do you know that more than half of Malaysia’s landmass is still under forest cover? Only a quarter of total land area is designated for agriculture. In contrast, forest area in France covers just 28 per cent of total land area while agricultural land takes up more than 50 per cent of the country.

The oil palm tree yields 4.13 tonnes of vegetable oil per hectare, or 10, seven and five times the yields of soyabean, sunflower and rapeseed, respectively. At the same time, oil palms occupy less than five per cent of the world’s land under oil crop cultivation.

Yusof adduced more studies from reputable science journals detailing oil palm trees are actually the most environmentally- friendly among all oil crops. This is because on a per-litre basis, palm oil production requires less energy, land and fewer fertilisers or pesticide usage compared to other vegetable oils.

Oil palms have a productive lifespan of 20 to 30 years while its competitors like rapeseed, soya and sunflower need to be uprooted every four months during harvest and that contributes to soil erosion.

More importantly, a recent study from Fonds Francais Alimentation et Santé finds that replacing palm oil with partially-hydrogenated soft oils is a bad option for French consumers as it would potentially lead to a rise in the level of trans fat consumption.

Yusof concluded the Nutella Tax is irresponsible, ill-informed and ignores the primary source of saturated fats in the French diet.

“We urge the French government to reject the Nutella Tax. The right thing to do is to inform the French public of the truth about palm oil nutrition.

“Oil palm trees are not genetically-modified and that the oil from the fruits is free of dangerous trans fats and contains valuable vitamins,” he said.

One of the biggest risks to France’s economic growth is the cost to the food processing industry which rely on imports to be competitive, and consumers who spend more of their disposable income on less.

If France forges ahead with the Nutella Tax that discriminates palm oil from other vegetable oils, such a move will only serve to make food unnecessarily expensive to the French public.

From an international trade perspective, Alan Oxley, World Growth chairman and former chairman of the GATT, the predecessor of the World Trade Organisation (WTO) commented the Nutella Tax jeopardises France’s trade relationship with fast-growing economies like Malaysia, Indonesia and Africa.

World Growth, in its latest newsletter, noted the 400 per cent tax hike on palm oil will invite retaliation against French exports such as aerospace, automobiles, wine and military equipment.

“It is ironic France finds itself facing this prospect. Just a few months back France’s own trade minister, Nicole Bricq, declared France would practice ‘reciprocity’ if emerging economies erected barriers to French exports. Now France is inviting retaliation against French exports,” said Oxley.

French farm interests, such as producers of higher cost oil seeds — sunflower and rapeseed — appear to have pressured France’s Senate and now retailers like Casino and System U refuse to stock up on products containing palm oil, on the belief it puts human health at risk.

Oxley highlighted that France’s Nutella Tax appears challengeable under WTO rules. “The WTO Sanitary and Phytosanitary Agreement makes it clear that it only permits restrictions on imports on health grounds if there is scientific evidence of the damage to health and there has been a process of risk assessment,” he said.

TH Plantations buys more land from parent

November 14, 2012 Leave a comment
KUALA LUMPUR: Shareholders of TH Plantations Bhd (THP) gave the thumbs-up to a half-a-billion-ringgit deal to buy more agricultural landbank from its parent Pilgrims Fund Board or Lembaga Tabung Haji (LTH).

“All shareholders, except our parent, approved of the acquisitions. They included those holding substantial stake like the Employees Provident Fund,” THP chief executive officer and executive director Datuk Zainal Azwar Zainal Aminuddin said at a press conference after the company’s extraordinary general meeting held here on Monday.

The RM535.64 million deal involves issuance of 209.23 million new THP shares at RM2.56 per share to LTH as payment for 100 per cent of TH Ladang (Sabah & Sarawak) Sdn Bhd and 70 per cent of TH Bakti Sdn Bhd.

This would result in LTH’s 59 per cent stake in THP to increase to 71 per cent, while other investors’ holding dilutes. Logically, these investors would only vote in favour of the deal if there had been a tacit understanding that LTH will, in due time, pare down its stake in THP.

Asked if those holding substantial stake in THP like the Employees Provident Fund and Yayasan Pok & Kasim voted in support of the deal, Zainal Azwar nodded and confirmed their approval.

He then said the proposed acquisition will most probably complete in the next 10 days. “This deal will more than double our landbank to 91,078ha and increase the total oil palm planted area from 38,154ha to 53,805ha,” he said.

TH Ladang (Sabah & Sarawak) and its subsidiaries are in the business of managing oil palm, teak and rubber estates, while TH Bakti’s focus is on oil palm estates.

On the outlook for the company, Zainal Azwar said RM725 million in capital expenditure will go to planting up oil palms across 23,000ha in the next four years until 2016.

Also present at the press conference was THP chairman Tan Sri Dr Yusof Basiron.

Last month, it was reported that Sabah Forestry Department had rejected the execution of the teak and rubber plantation development agreement with TH-Bonggaya.

In response, Yusof said THP had just received written approval from the Sabah Chief Minister’s office. “The initial rejection was brought on by the issue of interpretation. Now, all parties are in agreement that LTH remain the licence holder while TH-Bonggaya carry on with the planting of teak and rubber trees.”

Do more to defend palm oil, RSPO told

November 6, 2012 Leave a comment
This is written by my colleague at Sabah bureau, Kristy Inus.

KOTA KINABALU: The Roundtable on Sustainable Palm Oil (RSPO) has to be more pro-active in defending the palm oil industry’s position.

“The RSPO should be more positive when questions of a negative nature are posed,” Plantation Industries and Commodities Minister Tan Sri Bernard Dompok told reporters after launching the Third International Plantation Industry Conference and Exhibition (IPiCEX 2012) here yesterday.

“Otherwise, it would seem that they do not believe in the work they are doing – you are certifying palm oil as being sustainable and yet at the same time, not putting up any support for the industry. Certification bodies such as RSPO must support the very products that they are certifying.

He was commenting on Malaysian Palm Oil Council (MPOC) chief executive officer Tan Sri Yusof Basiron’s statement that RSPO has failed oil palm growers. Dompok said what MPOC had highlighted needs to be taken into account.

On Saturday, MPOC’s Yusof had lashed out at the international multi-stakeholder organisation for failing in its function. He had stated that there is no point of having 4.78 million tonnes of RSPO-certified oil in the market if it could not even gain access into France.

French retail chains recently campaigned to label their goods “palm oil-free” in support of environmental groups against the destruction of rainforests due to oil palm cultivation.

Yusof had also stated that planters have not been adequately represented in the RSPO, resulting in the resolutions put forward by oil palm growers being repeatedly outvoted every year.

Dompok said the equal representation of stakeholders is a valid point that must be considered by an organisation of this nature.

On the issue of no-palm oil labelling in France, he reiterated that Malaysia and France are working towards forming a joint working committee.

He has been in touch with French Minister for Agriculture Stephane Le Foll on having the joint working committee on oil palm industry. “So far we are awaiting their response,” he said, adding that his ministry’s secretary-general Datin Paduka Nurmala Abd Rahim would take up the matter with the French Agriculture Ministry.

Planters appeal over health insurance plan

November 5, 2012 Leave a comment
MIRI: Oil palm and rubber plantation firms, which are already footing the medical bills of their foreign workers, are pressing on with its appeal to the government to reconsider implementation of the Foreign Workers’ Health Insurance Protection Scheme. 

Since the start of this year, the Health Ministry announced it requires all employers to pay for foreign workers’ medical insurance. Employers who do not comply will not have their foreign workers’ permit renewed by the Immigration Department. 

This add-on scheme to the health screening requirement provides hospitalisation and medical benefits at government hospitals to foreign workers with coverage of RM10,000 a year for all injuries and sickness. 

A total of 25 insurance companies and third party claims administrators are participating in this scheme.

The Health Ministry said this compulsory medical insurance is meant to address the problem of hospital charges owed by foreign workers. It is estimated government hospitals face an annual RM5 million or RM6 million unpaid medical bills incurred by foreign workers. 

So far, foreign workers’ employers in the construction and restaurant sectors are complying with the Health Ministry’s ruling. 

In a telephone interview with Business Times from Miri recently, Sarawak Oil Palm Plantation Owners’ Association (Soppoa) vice-president Paul Wong said this RM120-a-year insurance policy will force oil palm and rubber farmers to pay a further RM50 million to insurance companies.

“Injury-related accident cases are already covered by the Workmen Compensation Insurance. Currently, employers are paying RM72 for each foreign worker. As such, this new ruling mandating us to pay another RM127.20, which include the six per cent service tax, is grossly unjustified. We should not be burdened with additional costs,” he said.

“In Sarawak, we’re already paying the expatriate rate at government hospitals to treat our foreign workers,” Wong said, adding that since plantation companies provide letter of guarantee to hospitals prior to the admission of foreign workers as patients, the question of hospital charge arrears should not arise.

Apart from Soppoa, the Malaysian Palm Oil Association, Malaysian Estate Owners Association, East Malaysia Planters’ Association and Malayan Agricultural Producers Association have also detailed the oil palm and rubber plantation owners’ plight to the government.

Given the prevailing low palm oil prices hovering at around RM2,500 a tonne, Wong said the government should be more mindful, and not further burden planters.

Since the price plunge over the past few months, plantation companies in Sarawak have been losing money as many of the young palms have yet to reach their prime fruit bearing age.

Should the government bulldoze ahead to enforce additional terms and conditions for work permit applications, Soppoa foresee it would worsen the current discouraging situation planters face. 

“With the labour shortage in the state, this will worsen the wastage situation of close to a million tonnes of fresh fruit bunches rotting in the fields,” he said.