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Wednesday January 26, 2011

Sime going big on green

PETALING JAYA: Sime Darby Plantation Sdn Bhd, already one of the biggest plantation companies globally, now wants to be the largest producer of “green” palm oil.

After achieving its Roundtable on Sustainable Palm Oil (RSPO) certification in 2008, the company is preparing its production of palm oil to be environmentally friendly.

The green palm oil is used to describe sustainably produced crude palm oil (CPO); thus in essence, green palm oil and RSPO certified sustainable palm oil (CSPO) are the same.

To date, the company as one of the founding members of RSPO, has a total annual production of 889,000 tonnes of green palm oil from 20 of its strategic operating units that have RSPO certification.

That volume is expected to increase when the next batch of 20 strategic operating units have completed their RSPO certification.

This volume of green palm oil, although still at a fairly low level, is commendable compared with its CPO output of 2.4 million tonnes last year, accounting for 6% of the global CPO output.

RSPO was formed in 2004 with the objective of promoting the growth and use of sustainable palm oil products through credible global standards and engagement of stakeholders.

The RSPO standards are put in place to ensure that no primary forests or any other conservation value areas are cleared for new oil palm plantations. It also aims to minimise the environmental footprint as well as preserve the basic rights of local land owners, farm workers and indigenous people.

But, the RSPO initiative has not been a smooth-sailing journey; it was reported that the continued poor take-up rate of CSPO among major consuming nations called for many oil palm plantation companies to question the effectiveness and credibility of the RSPO.

Of the total combined CSPO production of about 3.4 million tonnes produced by 22 plantation companies, only 60% of the oil was sold in 2010, according to data from the RSPO.

But, given the strong pressure by the Western non-governmental organisations, which maintained that the Malaysian and Indonesian oil palm plantations should comply with the RSPO sustainability criteria, many planters and exporters view that CSPO would gain faster market access in the European Union.

However, the premium CSPO, which is sold at US$50 per tonne higher than the normal crude palm oil (CPO) price, has yet to prove its acceptance among major Western consumers.

Landbank expansion

In terms of its landbank expansion, Sime Darby Plantation has recently revealed that it was to start its maiden oil palm planting in Liberia by April.

It would initially use 10,000ha out of its 220,000ha concession land in Liberia to plant oil palm.

Additionally, Sime Darby Plantation wants to focus on its balance of landbank in Indonesia.

Its total landbank in Malaysia and Indonesia currently stands at 631,792ha where 530,987ha are planted with oil palm.

For upstream operations, it has set higher future targets for yield and oil extraction rate (OER) via operational research and development.

For the financial year ended June 30, 2010, it had an average of yield of 21 tonnes per ha and OER of 21.9%.

Nevertheless, 35% of its estates has already reached a yield of between 26 tonnes and 30 tonnes per ha.

In terms of production, Sime Darby Plantation is not spared from the inevitable weather factors. For the current financial year ending June 30, it only expects production to be slightly better or in line with the previous financial year's 9.9 million tonnes of fresh fruit bunchs.

However, its executive vice-president Franki Anthony Dass expected production to pick up by the second half of this year.

For downstream operations, its business is divided into food and non-food categories. Its food-based business is operated by eight refineries located in Malaysia, Singapore, Thailand, Vietnam, the Netherlands and South Africa. For its non-food sector, the company is involved in biodiesel, oleochemicals and nutraceuticals.

For the financial year ended June 30, 2010, the company contributed about 56% of the Sime Darby group's total operating profit of RM3.78bil on total group revenue of RM10.85bil.

In the first quarter ended Sept 30, 2010, of the current financial year, it registered an operating profit of RM492mil, representing a decline of 22% compared with the previous corresponding quarter, due to lower production of FFB.

Sime Darby Plantation or specifically its parent company, Sime Darby Bhd, emerged from the merger of Kumpulan Guthrie, Golden Hope Plantations and Kumpulan Sime Darby in 2007.

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