Saturday May 12, 2012

New frontiers


To meet the strong global demand for palm oil, local plantation companies are seeking to expand cultivation in Africa, Latin America and South-East Asia.

THE global expansion move by many oil palm plantation players in Malaysia is inevitable, particularly in sourcing new landbank and export markets, as the local industry needs to take advantage of the continued strong worldwide demand for palm oil on the back of a supply-constraint environment.

Palm oil is the vegetable oil that can fulfill the global oils and fats market demand. — MAMAT

According to industry experts, the global market in the past 10 years has become increasingly dependent on palm oil given the versatility of the commodity as feedstock in many industries particularly food, oleochemicals and biofuel.

This year, world demand for palm oil is expected to hit 51 million tonnes (in 2011, it was 48.7 million tonnes), while the world production is expected to remain at last year's figure about 50.5 million tonnes.

“In the past 10 years, palm oil production has grown by 7% annually while prices increased 15% indicating a supply-constraint market,” says industry consultant M.R. Chandran.

Currently, both Malaysia and Indonesia are the world's two largest producers of palm oil, capturing about 85% of the total production at 42.8 million tonnes.

Land shortage

Chandran points out that major palm oil producers are facing tougher operational challenges to cater to the rapidly growing global demand.

For example, Indonesia, the major crude palm oil (CPO) producer and exporter, is encountering a slowdown in acreage expansion due to its recent moratorium on oil palm cultivation, while the need to comply with the strict Roundtable on Sustainable Palm Oil (RSPO) requirement on sustainability will curb future production. This is despite 16 million hectares of land mainly in Kalimantan and Papua regions available for oil palm planting, says Chandran.

Non-major producers of oil palm have started to venture into the business. — CHANDRAN

Malaysia, the second world largest CPO producer, is hampered by limited landbank for new planting, labour shortage and unsatisfactory yields, he adds.

“I believe Malaysia can only push (the most) up to 500,000ha for new oil palm cultivation area that will mostly be located in Sarawak.

“Sarawak which now has about 900,00ha of land planted with oil palm is said to trying to achieve similar oil palm hectarage as Sabah at about 1.5 million hectares in the near future,” he says.

Within the next eight years, Chandran expects that Malaysia will only manage to have 5.5 million hectares planted with oil palm compared with 5 million hectares currently.

To match the strong demand from major palm oil consumers such as Asia, Europe and Africa, oil palm plantation companies from Malaysia facing limited landbank and acute labour shortage will need to expand to new frontiers in Africa, Brazil, Equador and Asia namely Laos, Cambodia and Myanmar.

New competitors

Interestingly, there is also an emerging trend among major consumers of palm oil like China and India venturing into palm oil-related operations, says Chandran.

He says that India-based companies are moving into oil palm development, downstream processing and trading in Cameroon, Ivory Coast, Gabon, Ghana and Madagascar.

China is reported to have secured the right to grow oil palm for biofuel feedstock on a 2.8 million hectare land in Congo; currently, it is also negotiating for a two million hectare-plot in Zambia.

“Such developments also warrant the attention of Malaysian oil palm players as there is this sudden interest among non-major producers of oil palm to cultivate oil palm,” he says.

In demand: A grocery store worker in Penang displaying cooking oil at his shop. World demand for palm oil is expected to hit 51 million tonnes this year. In three years’ time, demand is anticipated to hit 60 million tonnes.

High yield

Malaysian Palm Oil Association (MPOA) chief executive officer Datuk Mamat Salleh believes that palm oil is best placed as the future vegetable oil that can fulfill the high demand in the global oils and fats market.

Given the growing world population and income per capita, Mamat says it is projected that palm oil demand will increase from 45 million tonnes in 2010, to 60 million tonnes in 2015, and hit a whopping 75 milllion tonnes in 2020.

In terms of yield, palm oil production is one-tenth more than other oilseed rivals like soybean oil and rapeseed oil.

It is also more economical to produce CPO, which is about 5,000 tonnes per hectare per year compared with 600 to 700kg of soybean per hectare per year.

Malaysia, for example, only needs to utilise landbank of about 5 million hectares to produce 20 million tonnes of CPO annually, compared with soybean which needs 40 million hectares to produce 20 million tonnes annually.

Mamat also points out that many of MPOA members such as the big plantation boys Sime Darby, IOI Corp, KL Kepong and Felda have taken the intiatives to expand globally given the scarcity of landbank and labour problems in Malaysia.

Indonesia has over the past two decades successfully attracted Malaysian oil palm plantation players, given the republic's large tracts of attracive plantation landbank, says Mamat.

African venture

Lately, there is also growing interest to start cultivating oil palm in Africa, where the plant is native.

The ventures involved expansion of large-scale plantations where many African governments are opening the doors to corporations for cultivating vast areas of land with oil palm.

“Apparently, this trend is not only happening in West and Central African countries, but is even expanding to parts of Eastern Africa,” says Mamat.

It is likely that future production of palm oil could shift to Africa where the governments of some African countries such as Liberia, Nigeria, Ghana, Congo, Ivory Coast, Cameroon and Gabon have been pro-active in supporting the plantation sector.

In 2009, Sime Darby Plantation was granted 220,000ha under a 63-year concession agreement with the Liberian government to develop oil palm and rubber plantations in four counties Grand Cape Mount, Gbarpolu, Bong and Bomi. Sime Darby's current venture in Liberia is its third; its previous two attempts were disrupted by wars.

Mamat says Brazil and Colombia in Latin America are also keen on oil palm plantations but “given the unfavourable logistics and infrastructure, many of our local plantation investors are reluctant to invest in these countries.”

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