Business News

Wednesday, 8 March 2017

Thorny issues

Palm oil industry needs to improve production efficiencies

KUALA LUMPUR: The palm oil industry urgently needs to improve its production efficiencies or risk losing its position in the competitive global vegetable oil market, industry experts warned.

They pointed out that in 2015 and 2016, new production growth slowed and this trend would negatively impact the palm oil market share, as other vegetable oil producers are ramping up production.

Putting things in perspective, United Plantations Bhd vice-chairman Datuk Carl Bek-Nielsen said that over the last 150 years, a total of 18.8 million ha had been used to plant oil palm. In comparison, it took only the last 10 years for 14.5 million ha of soy to be planted.

“Improvements in yields would ensure the sustainable growth of the palm oil industry, especially at a time of limited land availability,” he said.

He said that over the past 16 years, the Malaysian palm oil industry had improved its production yield by 5%, but this was a far cry from the US soybean oil and European rapeseed oil, whose yields had grown by 50% and 45% respectively during that period.

“Among the factors that contribute to stagnant yield growth is the acute labour shortage.

“It doesn’t help if your plantation can produce 30 tonnes of fresh fruit bunches (FFB) per ha, if you only have a labour force to collect 22 tonnes of that production. If this issue is not addressed, Malaysian producers risk losing between two and three tonnes of FFB production per ha this year,” Bek-Nielsen said.

Another industry player pointed out that the usual harvesting cycle of 20 days had now been moved to 30 days in many Malaysian plantations due to this acute labour shortage.

Bek-Nielsen was speaking at the first panel session of the Price Outlook Conference 2017 for Palm & Lauric Oils yesterday.

The need for yield improvement, the labour shortage issue, sustainable certification and the slowing growth of new production were among issues discussed at the roundtable.

It should be noted that oil palm has a yield per ha which is between seven and 10 times higher than that of soybean and rapeseed oil.

“While oil palm is the higher-yielding crop than other vegetable oils, Malaysia and Indonesia are being left behind in terms of productivity improvements,” said Dorab Mistry, a director of Godrej International Ltd and a leading industry analyst.

Indonesia and Malaysia account for around 80% of the global production of palm oil. Palm oil accounts for about 33% of global consumption of major oil and fats.

Mistry said the palm oil industry would hurt in the long run, especially with some plantation companies being reluctant to invest in sufficient replanting exercises.

“The slowdown in new production in 2015 and 2016 is going to impact the industry beyond 2019, which is a problem if you look at the growing demand and supply of other types of vegetable oil,” said Mistry.

Meanwhile, industry expert M.R. Chandran said that with good weather conditions, palm oil production in Malaysia and Indonesia is expected to increase by 11% this year to 65 million tonnes compared to 58 million tonnes last year.

“We have been seeing excellent weather since October. There has been ample rain to boost productivity across Malaysia and Indonesia,” he said.

Indonesia is expected to produce 34.8 million tonnes of crude palm oil (CPO) in 2017, up from 31.8 million tonnes a year ago, while Malaysia is expected to produce 20 million tonnes of palm oil this year, higher than the 17.3 million tonnes in 2016.

In recent weeks, palm oil prices have reached their highest in more than four years, hitting RM3,200 per tonne. This was driven by tight market supplies due to low production levels.

Since last year, palm’s fresh fruit yields have been suffering the effects of the crop-damaging El Nino.

On the downstream sector, Sime Darby Plantation Sdn Bhd senior vice-president Haris Arshad said there was a lingering overcapacity of CPO refineries both in Malaysia and Indonesia.

He said refineries in Malaysia and Indonesia would need to consolidate and reckoned that palm oil refineries should be set up in the importing countries instead.

“For every one tonne of fruit produce, there are two tonnes of capacity available.

“We are seeing consolidation taking place and capacity should be invested when there is demand,” Haris said.

Mistry said setting up refineries in importing countries would further boost partnership and cost-saving benefits. He said the current structure would have negative implications in the long run.

“You are encouraging your government to impose high export taxes on the CPO price and less taxes for refined oil. But this is making life difficult for your customers. One suggestion for this issue is that if you are exporting palm oil, then the final processing and finishing of such bottling should be done at the destination,” Mistry said.

Tags / Keywords: Palm Oil , palm oil , mistry , yield , production

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