Palm Oil Industry in Malaysia

Skills & Knowledge for Sustained Development in Africa 24 June 2009

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Origin of Palm Oil
The oil palm tree (Elaeis Guineensis Jacq.) originated from West Africa in a belt from Angola to Senegal. The earliest archaeological evidence on palm oil consumption was found in an Egyptian tomb in Abydos. As no palm oil was produced in the country, the evidence implied that the oil had been traded during the time of the Pharaohs, 5,000 years ago

Original steps to extract palm oil

Harvesting fruit bunches

Cooking to sterilise fruit bunches

Separate fruitlets from the bunch

Softening the fruitlets

Pressing out oil

Oil collection

The oil palm tree (Elaeis Guineensis Jacq.) originated from West Africa with a history of consumption dating back to 5,000 years. Today it feeds ~3 billion people in 150 countries.

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Source: MPOC Publications

57 34% 43. India.17 (2010 -2020F) 4.3 64.000 5.44 40% 35% 43.59 29% 60.Global Palm Oil Industry Today. non-dairy creamers Candles.000 Food Use Non-Food Use 19 96 /1 20% RBD Palm Oil Palm Fatty Acid Distillate RBD Palm Olein RBD Palm Stearin RBD PK Olein RBD PK Stearin Cocoa Butter Equivalent Cocoa Butter Substitute Cocoa Butter Replacers Fatty acid.58 4.03 0 2008 Palm Oil 2010F Soybean Oil 2015F 46% 94.000 3% Supply Growth 200 952 3% 207 14% 28. palm oil is one of the 17 major oils traded in the global edible oils & fats market.000 74 76 86 88 90 92 94 19 19 19 19 19 19 19 40.000 15.000 20. Global vegetable oil supply (M MT) 250 1.223 17% 45. 4 Source: MPOC Publications.36 50 5.38 35% 33% 40.91 20. palm oil and derived products are channeled into worldwide industrial and commercial activities to churn out food products as well as non-food applications. soap Emulsifiers Vitamin E supplements Confectionery Bakery fats Biodiesel Energy generation Animal feed Organic fertiliser from biomass 5 5 7 9 1 3 5 99 97 98 98 99 99 99 7 0 5 5 1 1 3 1 3 3 5 1 3 7 5 7 7 9 7 9 9 9 96 97 98 99 99 00 00 5 97 98 97 98 98 99 99 96 96 97 97 98 99 00 00 7 80% /1 /1 /1 /1 /1 /1 /1 /2 /2 /1 /1 /1 /1 /1 /1 /1 /1 /1 /1 70 74 80 82 90 92 96 00 02 /2 04 20 20 66 68 72 76 78 84 88 94 06 86 98 /2 19 64 /1 19 19 19 19 19 19 19 19 19 20 These days. alcohols.7 100 33% 53. EU-27 & Pakistan.000 35.748 40% 4.85 121 16% 19.532 15% 17% 23. Key importers of palm oil today are China.39 150 14% 22.000 25.000 10. USDA Database 20 19 19 19 19 19 19 19 19 .03 19.05 129 15% 16% 16% 18.000 30.840 6% 11. frying fats Margarine Shortening Vanaspati Ice cream. Palm oil can be found in one out of every ten food products worldwide.8% 161 1.7 13% 20. amines. kernel shell.694 16% 2020F Others China Pakistan Others EU-27 Bangladesh India United States Rapeseed Oil World Palm Oil Imports(2008) Palm oil is expected to make up 34-46 % of vegetable supply (2010-2020F) Source: LMC – Oilseeds Outlook for Profitability to 2020 (Jan 2009). amides Glycerines Palm methyl esters Tocotrienol Cooking oil. USDA Database – April 2009 3 Palm Oil Value Chain & Applications Upstream ACTIVITIES Seed production Nursery Cultivation Harvesting Milling PRODUCTS DxP seeds Fresh fruit bunches Crude palm oil Palm kernel Biomass (Empty Fruit Bunches. fronds) Palm oil mill effluent 7 9 1 3 97 97 98 98 98 /1 /1 /1 /1 /1 78 80 82 84 19 19 19 19 Midstream Downstream Processing Consumer Products Trading Crude palm oil bulking Refining Fractionation Oleochemical Esterification Refined product storage Packaging and branding Food products Non-food products Crude palm oil Palm kernel Crude palm kernel oil Palm kernel cake /1 /1 /1 /1 /1 /1 45.

American Heart Association Source: MPOC publications 5 Palm Oil Benefits Sustainable • Compared to other oilseeds. Source: MPOC publications 6 .Palm Oil Benefits Versatile • As the cheapest traded edible oil. the oil palm tree: Has the highest oil yield per ha Requires the lowest fertiliser inputs (~1MT of fertiliser per planted ha) Productive cycle of ~25 years • RSPO-compliant producers are required to meet specific environment & social criteria • Eco-friendly practices • Wastage from plantations are reused e. no risk of trans fatty acids Does not require hydrogenation in food use • Contains vitamin E Highest content of tocotrienols among edible oils Also contains tocopherols Meets the FAO/WHO Food Standard requirements under the CODEX Alimentarius Commission Programme. 1. monounsaturated. but it is also a versatile. EFB – mulched as fertilisers back in estates Palm kernel shells – biomass feedstock at mills for steam generation Palm oil mill effluent – biogas for electricity generation Not only does palm oil have the potential to feed world due to its abundance. healthy and a sustainable source of oil. palm oil can be used for food and non-food purposes • Examples of food use Cooking Oil Shortening Margarines Vanaspati Cocoa butter substitutes Key ingredient in instant noodle production • Examples of non-food use Oleochemicals Biodiesel Energy generation Healthy • Balanced composition of saturated and unsaturated fatty acids Saturated palmitic acid (44%). and polyunsaturated fatty acids) • High carotene content • • 15x higher than carrots 50x higher than tomatoes • Cholesterol-free. Monounsaturated oleic acid (40%) Polyunsaturated fatty acids (10%) • Can be blended with other soft oils to meet AHA1 recommended ratio of 1:1:1 (saturated.g.

Located within the equator band Humid tropical climate Temperature range of 24-32 C throughout the year Ample sunshine (~ 5-7 hours a day in all months) Evenly distributed annual rainfall of ~ 2.000 ha in the 1970s to over 4million ha today Source: MPOC publications.5 degrees off the equator.5m ha in 2007 Indonesia: 5.00 = X Oil Yields (MT/Ha) Tenera Dura Pisifera Relative to other oilseeds.B.H.Plantable Area Plantable = +/.Oil Palm Cultivation Area Physical Conditions for Oil Palm Planting .0m 27.50 2.69 0.Prime Area .65MT/ha Source: Oilworld Database (June 2008) 8 . Tinker t 7 Oil Palm Cultivation Area 6 . The Oil Palm 4 edition by R.900 4 .9m 24.50 3.50 0.6m 21.00 2.45 Average lifespan of a oil palm tree ~25 years Palm clones planted in Malaysia & Indonesia : Tenera 3.00 0. P.9m ha Other oil crops Soybean Groundnut Sunflower Rapeseed 5. 0 00 1.5 Relative humidity ~ 85% No stagnant water ° Oil palm hectarage in Malaysia has grown from 320.10 degrees off the equator. 0 00 (2007) 3 .50 4.0m ha Malaysia : 3.000mm Soil pH <7.V. 0 00 Global oil palm mature areas: 10. Corley.2m ha ha ha ha 2 . 0 00 Oil Palm Mature Area (000 Ha) 3.282 1 .65 1.19 0.00 1. the oil palm tree is the highest yielding oil crop at an average yield of 3.00 3.000 5 . 0 00 : : : : 94. 0 00 450 0 405 230 Colombia Oth countries Indonesia Malaysia Thailand Nigeria Rapeseed Sunflower Groundnut Soybean oil Palm oil 0. Prime areas = +/.40 0.

00 Million MT 8. demand for palm oil has always been on increasing trend due to world population growth.52 1.00 10.85 90 Supply Growth (2010 -2020F) 80 8.57 4.00 There has been several recession periods since 1980. Malaysia is the second largest producer and leading exporter of palm oil.00 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 Asian Financial Crisis 1997-1998 2000 2002 2004 2006 2008 0 World GDP Growth Msia GDP Growth CPO Price 18.83 1. Price (RM/MT) Dot-Com Crash 2000-2002 2.17 55.93 1.86 1.28 19. Source: LMC – Oilseeds Outlook for Profitability to 2020 (Jan 2009) 10 .00 4.03 1.58 3.65 33. Outlook on CPO prices expect to range between RM2.Palm Oil Industry Against Economic Cycles Historical GDP growth and CPO Prices (1980.34 43.77 30 17.34 20 Indonesia Malaysia Thailand Colombia Rest of the World 10 19.00 1.300/MT (US 570660/MT) by end of 2009.15 2. -5. OECD Financial Indicators database 9 Palm Oil Production & Midterm Prospects Palm Oil Production (M MT) 1.77 3.83 1.31 40.00 14.00 0.00 2.500 0.27 22. palm oil is well positioned to meet global food and nonfood demands.5% 50 43.2008) 15.84 1.000 CPO prices cycles have been influenced by supply and demand dynamics impacted by economic conditions However Malaysian palm export data has shown historical upside trend As a food necessity.15 19.00 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Msia Palm Oil Export Volume Historical data shows that demand for palm oil as a food product has always been increasing despite peaks and troughs in economic cycles Note: IMF regards periods when global growth is less than 3% to be global recessions.41 42.33 10. Source: MPOB website.0% 70 64.3% 0.00 1.15 44.03 40 4.00 US Recession 1982 Recession 1990-1991 500 -10.47 Total Production = 43m MT 0 World Palm Oil Production (2008) 2008 Indonesia 2009F Malaysia 2010F Thailand 2015F Colombia 2020F Rest of the World At a forecasted supply growth of 8%.00 6.000 5.500 10.70 0.00 12.26 17.41 3.12 2.1% 100 94.30 6.33 0.31 17.000 GDP Growth (%) 2.89 19.9% 4.0002.00 Malaysia palm oil export data (1980-2008) 16.2% 60 27.00 3.92 17.

FELDA: Federal Land & Development Authority 2. downstream) Others 32. The corporate merger of Guthrie.2% Liquefied natural gas (LNG) 6. Golden Hope Plantations and Sime Darby was completed in 2007 Source: MPOC Publications 12 .000 (incl.g.9% Crude oil and condensates 6.2m 5. 408 41 50 17 Capacity (MT/annum) 93.1% Palm oil 6.8% Sector FFB Mills Palm Kernel Crushers Refineries Oleochemical No.2m 2.000 people Estimated total employment ~860. Selangor 1960s: Malaysia increased cultivation pace of oil palms Introduction of land settlement schemes (e. & EU are key consumers of palm oil 1. namely Guthrie.5% Malaysia External Trade (2008) Total= RM663bn The palm oil industry has been a key economic growth driver by creating jobs and triggering downstream activities to bring in revenue for national development and stability. India. hedging and dissemination of market info Malaysia and Indonesia are top palm oil producers Existence of world’s largest listed plantation company via the Synergy Drive2 merger China.5% Electronics & electrical products 41.6m Chemicals & chemical products 6.9% at RM 46bn) Direct employment ~570. the palm oil industry has become a key economic growth driver in Malaysia Second largest contributor to 2008 external trade (~6. Golden Hope and Sime Darby Founding of KL Commodity Exchange (KLCE) for price setting. FELDA1) as means to eradicate poverty Malaysia overtook Nigeria as world’s largest exporter of palm oil 1970s: Expansion of domestic refining & fractionation facilities 1980s: Malaysianisation of 3 plantation companies.2m 19. especially Malaysia & Indonesia Source: LMC – Oilseeds Outlook for Profitability to 2020 (Jan 2009) 11 History Of The Malaysian Palm Oil Industry Key Milestones 1970s-1980s Market Expansion & TODAY 1960s 1917 1800s Oil Palm Commercialisation Oil Palm Introduction Product Diversification Industrialisation & Origin Refining Crop Diversification 1875: Introduced to Malaya by the British as an ornamental plant First commercial planting in Tennamaran Estate.Economic Importance To Malaysia Today.

While Malaysia became a leading exporter of refined oil. Crop Diversification Efforts Despite threats of the Emergency during the 1960s. By the time the Industrial Master Plan 2 (IMP2) was launched in 1996. IMP2 led to the expansion of oil palm hectarage to East Malaysia and also encouraged the private sector to seek raw materials from abroad. estate planting of oil palm tended to be on old rubber estate land when the prospects of high yields and profitability of palm oil were recognised. Guthrie and Harrison & Crossfield (later Golden Hope Plantations) 1980 also saw the founding of the Kuala Lumpur Commodity Exchange (KLCE).e.History Of The Malaysian Palm Oil Industry Oil Palm Introduction and Commercialisation The oil palm tree was first introduced to Malaya by the British as an ornamental plant in 1875 but it was only commercially planted in Tennamaran Estate. Selangor 1917 by Henri Fauconnier. The Federal Land Development Authority (FELDA) first introduced the oil palm in 1961 on an initial size of 375 ha to help the landless farmers. 14 . Due to the fall in rubber and tin prices. the industry was flagged for sectoral support under the Industrial Master Plan of 1986 (IMP1). Sime Darby and FELDA. Compared to Malaysia. the oil palm expansion in Malaysia was rapid as its economic potential was recognised by the Malaysian Government as a complementary crop to rubber in the poverty eradication programme. the Malaysian government embraced diversification as a way to sustain production and exports. Malaysia’s processing capacity has exceeded the supply of CPO. demand for CPO exports then shifted to Indonesia as further oil palm expansion was encouraged through Indonesian government initiated smallholder schemes. Malaysia overtook Nigeria as the world’s leading exporter of palm oil. Malaysia became a hub of palm oil downstream processing as it was more economical to export refined products than to have them processed in Europe. 13 History Of The Malaysian Palm Oil Industry Industrialisation & Market Expansion Seeing the need for product development to sustain the upstream development of palm oil. Malaysia is still a leading exporter of palm oil to major consumers in China. Despite Indonesia having overtaken Malaysia as a leading producer of palm oil since 2007 due to its vast landbank expansion and labour opportunities. The 1980s saw the “Malaysianisation” of 3 major plantation companies previously run by the British i. The Malaysian Palm Oil Council (MPOC) was tasked to develop a comprehensive strategy to position Malaysia as an international leader in the oils & fats market through promotional activities. As a result. a key instrument for price setting. In fact. EU and India. hedging and dissemination of market information to reduce market risk in the trading of palm oil. the industry is still thriving in Malaysia. the Malaysian government began in the late 1970s to encourage a shift from CPO exports to refined products through taxation and incentive policies. both Malaysian-based companies are today the world’s largest plantation companies (based on planted area). Sime Darby. the Indonesia government only started to directly invest in state owned plantations in 1968. The IMP1 emphasised on the rationalisation of refining and fractionation to increase efficiency and competitiveness of Malaysian palm oil in the world market. Export Diversification Realising from historical experience with rubber and tin that dependence on narrow product lines can bring price downswings. Acting against the advice of international agencies. In 1966. IMP2 also saw stimulated participation in R&D to meet the call for productivity gains and further value-added product development along the value chain.

Management expertise from the government was used to run the organised smallholdings.000 3.000 4.Malaysia Sarawak Planted Area Oil palm estates in Peninsular Malaysia were mainly converted from rubber plantations Oil palm hectarage has grown at a compound growth rate of 5. Settlers only given subsistence payment until the first crop harvest Settlers entitled to same sale prices of the produce as private estates Three stage development package: Co-operative system • Prepare settlers with know-how Settlers manage small blocks of land • Encourage self reliance Settlers given individual titles FELDA’s success story has tied the prosperity of rural Malaysia with the palm oil industry. FELDA website 16 .500 1. 250 settlement schemes incorporating 95.599 61% 5. FELDA) 7% – State schemes 11% – Smallholders While oil palm planting expansion in Peninsular Malaysia is likely to plateau. FELCRA and RISDA) to allow plantation developed land to be distributed to the landless poor.946 ha.9% from 1975 to 2007 Planted Area by region 55% – Peninsular Malaysia 45% – East Malaysia Planted area by ownership 60% – Private estates 29% – Government schemes (e.000 families Selection criteria Age bracket of 21-50 years. Today planted oil palm hectarage stands at 722.000 2. Schemes Smallholders 922 21% 314 7% P. Source: MPOC Publications.500 2.3 m ha 470 11% 2. married and physically fit FELDA settler home Key success factors: Highly centralised administration and management Through FELDA’s integrated business operations along the palm oil value chain. FELDA provides support services to settlers ranging from basic community infrastructure to financing.Malaysian Oil Palm Area (‘000 ha) Planted Area (‘000 ha) -2007 Total= 4.000 500 0 1975 1980 1985 1990 1995 Sabah 2000 2005 2007 CAGR 1975-2007 5.9% Private Estates State Schemes Govt.000 1.g. Sabah & Sarawak has been mooted for further expansion outlined in the Industrial Master Plan 2 (1996) Source: MPOB website 15 The FELDA Story Poverty Eradication Concept adopted: Government agencies were set up (FELDA. Today it is the largest plantation player with 723k ha planted area.500 3.500 4. processing & marketing. The FELDA story Involvement with oil palm began in 1961 with an initial area of 375 ha.

Market capitalisation of RM41bn As at 18 June 2009 # of Plantation Companies Market Capitalisation (RM bn) Main Board 38 71. the Malaysian Government policies have moved from import substitution initiatives to export-oriented diversification detailed in the Industrial Malaysia Plan 1. 4.g. The private sector currently accounts for 60% of planted area in Malaysia and have been active participant in shaping the Malaysian palm oil downstream and export sector Source: Bursa Malaysia 17 Key Drivers of the Malaysian Palm Oil Sector Government Policies in Malaysia Revenue from export tax of CPO Import Substitution Before 1970s Purpose of maintenance and development of infrastructure Financial incentives for palm oil refining 40% abatement of corporate income tax for 2 years 7 year tax holidays for pioneer status refineries Introduced duty differences between CPO and processed palm oil To stimulate palm oil processing activities in the country Avoid overburdening CPO producers Protect duty revenue as much as possible Avoid providing financial support from other sources Subsequently tax credits were focused to stimulate further downstream processing (fractionated products. cooking oil. Native Customary Rights (NCR) plantation development in Sarawak Private sector contribute up to 60% of capital.Private Sector The private sector in the palm oil industry today consists mostly of integrated players with plantation estates and refineries. vanaspati & shortening) Success of Malaysian downstream industry attributed to: Big processors coordinated easily with MITI Major palm oil processors were also oil palm cultivators Strong support from MITI1. However. 5. 2. providing funding & management expertise Smallholders contribute land and workforce The private sector has also acknowledge the importance of R&D and infrastructure development in the palm oil industry. margarine. 3. MPOPC3. most Malaysian private companies have expanded their coverage beyond the Malaysian border. there are also diversified and private unlisted companies participating in the palm oil industry. There are currently 41 plantation companies listed in Bursa Malaysia. PORLA4 & PORIM5 Since the 1960s.6 Total 41 72.3 Current Malaysian plantation PE ratios range from 10x-17x Today.7 Second Board 3 0.Malaysian Palm Oil Promotion Council PORLA – Palm Oil Registration & Licensing Authority PORIM – Palm Oil Research Institute Malaysia Methods Taxation Incentives & Allowances Export Diversification Late 1970s onwards 18 . Sime Darby is currently the world’s largest listed plantation player by planted area (~530k ha). SIRIM2. The private sector has also played a role in developing smallholder plantations. E. MITI – Ministry of International Trade & Industry SIRIM – Standards & Industrial Research Institute of Malaysia MPOPC . owning plantation estates and running destination refineries overseas. Contributing 6% of world CPO production.

MPOA – Malaysian Palm Oil Assocation PORAM – Palm Oil Refiners Association Malaysia MOSTA – Malaysian Oil Scientists and Technologist Association Trust and systematic coordination between the government and associations of planters. 2.Key Drivers of the Malaysian Palm Oil Sector Government Policies in Malaysia Industrial Master Plan 1 (1985-1995) Area focus Peninsular Malaysia Call for development of different segments of the industry in the value chain especially oleochemicals Training institutes. processors and manufacturers have provided a smooth development and flow of industry 20 information . universities On the job training Industrial Master Plan 2 (1996-present) East Malaysia Call for productivity gains Encouraged Malaysia to seek raw materials from abroad Training focused on downstream products Training of R&D personnel Overseas training Localisation of machinery & equipment production Reduce downtime and costs from freight and exchange rate fluctuations Expansion of bulking. onshore pumping. MPOB and MPOC for coordination with: Universities for research MITI for promotion of international trade Private sector for smooth informational flows Industry Associations • Provide ex-ante discussions between captains of industry and government officials • Examples: MPOA1 PORAM2 MOSTA3 Smallholders/Govt Schemes • Plantation owners Private Sector • Plantation owners • Palm oil refiners and downstream processors Policy Implementation (Examples) • Replanting subsidies Timed with glut in CPO prices (2000 & 2009) • Regulation and incentives on palm oil refineries. biodiesel plants • Mandatory blending of palm B5 biodiesel (2009) R&D Collaborations • Research undertaken by universities (local & abroad) • Grants from government • Joint support and commercialisation by private sector Promotional & Marketing Activities • Coordinated trade policies • Overseas promotional and business efforts 1. 3. storage and handling facilities in East Malaysia Human Resources Technology Adapt process and R&D technology from PORIM Local fabrication Infrastructure Rationalisation of palm oil refining and fractionation To increase efficiency and competitiveness in world markets Government incentives Double deduction tax benefit on export sales Export tax on CPO to reduce supplies to destination refineries in Europe Tax & regulatory agencies Market coordinated incentives The support for the palm oil industry outlined under the IMP emphasised on supply security and development of different segments in the downstream value chain 19 Key Drivers of the Malaysian Palm Oil Sector Network Cohesion Between the Government and Private Sector Government • Create vital institutions.

IMP . processing operations. PORIM – Palm Oil Research Institute Malaysia (established in 1979) MPOB – Malaysian Palm Oil Board (merger of PORIM and Palm Oil Registration & Licensing Authority – PORLA) 21 Key Drivers of the Malaysian Palm Oil Sector Research & Development Breeding • In 1960. transportation and handling of palm oil products Under IMP. 2. specialty fats and processed palm kernel oil Palm oil R&D efforts in Malaysia have seen an increase in value added and new product development breakthroughs 1. most machinery & equipment are produced and fabricated locally Reduces downtime and costs exposure to freight and exchange rate fluctuations Golden Jomalina Unimills Austral Edible Oil Infrastructure development and integration from upstream to downstream was possible due to economies of scale built up by local palm oil players and stable geopolitical conditions 1. Agencies • Set up of PORIM2 (subsequently MPOB3) to undertake R&D support Conduct training on chemistry. Malaysian Department of Agriculture established exchange program with West African economies and 4 private plantations to set up the Oil Palm Genetics Laboratory • Under the second IMP1. 3. 2. calls were focused on mass tissue culture and genetic engineering to improve planting material quality Education • Establishment of an agriculture-focused education institution .g.Key Drivers of the Malaysian Palm Oil Sector Skills and Knowledge Developed By The Malaysian Palm Oil Players Upstream • Major plantation companies today ensure implementation of best estate practices: Engage experiences estate managers as plantation advisors Developed Agricultural Research Manual (ARM) as reference for planters • Skills training for harvesters • Introduction of mechanisation to reduce labour dependencies • Development of standard mill operating procedures Minimise oil losses Minimise machinery breakdown Downstream processing • Prior to the 1970s.Industrial Malaysia Plan PORIM – Palm Oil Research Institute Malaysia (established in 1979) MPOB – Malaysian Palm Oil Board (merger of PORIM and Palm Oil Registration & Licensing Authority – PORLA) 22 .g. Sime Darby and IOI) • PORIM1 (subsequently MPOB2) have spearheaded process improvement technology Today. analytical techniques.Universiti Putra Malaysia To train agricultural and agro-industrial engineers and agro-business graduates to conduct research in the field Set up of training academies by private sector (e. Palm oil refiners initially acquired machinery & equipment from suppliers at arms-length transactions • Subsequently Malaysian companies have since acquired destination refineries in Europe (e. quality. palm oil refineries were mostly located in Europe. role expanded to include training and R&D in oleochemicals. Sime Darby Academy) to provide on-the-job training.

funding. Research efforts in Indonesia were focused on expansion of oil palm area rather than product innovation. representation of the palm oil industry in Indonesia was seen to be fragmented. Lack of such instruments has largely restricted Indonesia to cultivation and processing to meet domestic demand. B5 in government transportation Ensure RSPO compliance by plantation estates Subsidies to smallholders to obtain RSPO certification Government policies on land conversion Oil palm in Malaysia can only be planted on idle land or designated agriculture land Private sector and government agencies should highlight existing sustainable practices: Zero-burning replanting technique Biological control in weed control. 23 Issues & Responses Current Issues Maintain Malaysia’s position as a leading palm oil producer Landbank expansion limitations Efforts to improve operational efficiency and productivity Susceptibility to price fluctuations Policy levers/ Responses Productivity enhancement efforts through: Estate practices Mill practices R&D to produce high yielding planting materials Existing government policies Replanting subsidies Reduce supply for mature trees to give way to new plantings Palm biodiesel mandate. endangering orang utan habitats 24 . network coordination. Type of Policies Implemented • Export Oriented interventions Resulted in deliberate export shift from CPO to refined products Motivated product development Encouraged competition & market efficiency • Import substitution interventions Stabilise domestic price of cooking oil Focused on upstream area expansion to increase CPO production Less successful in creating dynamic environment to encourage forward linkages Encouraged rent seeking Malaysia pursued a more proactive policy to drive learning & innovation through key instruments of agencies. pest control Highlight policies on planting on peat soil conditions Environmental/Sustainability concerns on: Oil palm plantation expansion (especially East Malaysia) Allegations of open burning. planting on peat soil.Malaysia & Indonesia Palm Oil Industry Comparisons Malaysia Institutional support • Policy Formulation • Research • PORLA • PORIM • MPOB (merger of PORLA & PORIM in 2000) • Directorate General of Estate Crops • Indonesian Oil Palm Research Institute (IOPRI) • Gabungan Pengusaha Kelapa Sawit Indonesia (GAPKI) • Assosiasi Minyak Makan Indonesia (AIMMI) Indonesia • Associations • Malaysian Palm Oil Association (MPOA) • Palm Oil Refiners Association (PORAM) Relative to Malaysia.

MITI) to market and dispel misconceptions about palm oil Joint cooperation with renowned universities or R&D entities to publish reports on benefits of palm oil products 25 Conclusion Malaysia today has become a leading palm oil hub of trade and knowledge. withstanding several economic recessions over the past century. China. The palm oil industry is a profitable business that provides opportunities to diversify into food and non-food products. However. We have to be passionate: ~ 3 years for commercial harvesting of new plantings Minimum payback of upstream greenfield investment ~6-7 years The economic cycle for upstream investment ~ 25 years ~ 2 years for a mill or even a refinery to begin operations 26 . MPOC. The industry has been resilient. MPOB.Issues & Responses Current Issues Consumer misconceptions on palm oil especially in new markets e.g. benefits from the palm oil industry will only be reaped years later.g. this is subjected to several pre-requisites: Suitable soil and agronomic conditions Good infrastructure support in place Availability of good planting material Knowledge in plantation management and best practices Integration with modern milling and mechanisation processes Marketing capabilities & Quality control Access to R&D competencies for sustained development Network cohesion and sharing of information flow are also key between : Government and plantation sector Government to government Plantation sector and stakeholders Unlike other industries. Eastern Europe Low quality oil Unhealthy Policy levers/ Responses Private sector cooperation with government agencies (e.

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