Palm Oil: The Future Looks Bright

According to an old saying here, if you stick your finger into Malaysia’s rich earth, it will start to grow. It is definitely a fertile land, which is why the country’s plantations have thrived ever since the colonial residents imported the rubber tree. While rubber still feeds profitable downstream industries, nowadays palm oil is the star of Malaysia’s plantation story. Palm oil and its related products are worth RM 30 billion (US$7.92 billion). Palm oil represents three quarters of Malaysia’s total agricultural output, and the government would like to see that figure grow.
According to Yusof Basiron, CEO of the Malaysian Palm Oil Council (MPOC), “palm oil is the most efficient green house gas reduction crop/product in the world market today.”

Palm oil production has been the subject of many negative myths regarding its role in the deforestation of the tropics. In actual fact, Malaysia is only using about 12 percent of the country’s total acreage for oil palm cultivation. The country’s land use pattern reflects a balance between the need for agricultural development and preservation of forest areas for conservation and biodiversity. Sixty-four percent of Malaysia’s total land area (almost 33 million hectares) is under forest cover. Agriculture occupies only 20 percent. Of that, 4.05 million hectares are used for extracting (and growing) oil palm. In fact, the rate of growth of land under oil palm cultivation has declined in recent years.

According to Basiron, Malaysia’s pristine rain forests are not being chain-sawed around the clock for oil palm cultivation at the expense of wildlife habitats, a frequently heard argument by NGO’s and environmental zealots. The clearing of primary forests is strictly prohibited unless logged over.
“We have a very legitimate right to use 20 percent of our land for agriculture,” says Basiron. “And within that 20 percent allotment, we have the right to plant the crop that gives us the best return on investment, such as palm oil and rubber. This is done with the utmost respect for the environment and in line with conservation and sustainable development goals.”

The crop starts producing oil after 3 years and will continue to do so for 20-25 years.
Malaysia’s sprawling oil palm plantations, some 600 million trees, throw a protective canopy over the environment. The crop is rain forest-neutral and the biomass generated by palm over a 25-year cycle is more than the biomass generated over the same period by the entire rain forest. Oil palm absorbs CO2 and, through photosynthesis, returns oxygen to the atmosphere. The results speak for themselves. The crop reestablishes itself after 25 years.

Recent health concerns among western consumers about saturated fatty acids have proved erroneous. Malaysian medical experts have proven that palm oil is rich in nutrients and if consumed in recommended levels will not lead to high cholesterol levels. The US Food and drug administration has also approved products sold under the popular Smart Balance brand to carry the US patented label. They help increase good cholesterol and improve cholesterol ratio, and they contain up to 50 percent palm oil.

Palm oil has a role as a renewable fuel source and is being converted into biofuel, a “green” alternative to fossil fuel. Malaysia and Indonesia—Indonesia has overtaken Malaysia as the world’s largest palm oil producer—have each agreed to allocate six million tons of palm oil per year for biodiesel production. The Malaysian Palm Oil Board predicts domestic capacity to reach 16.5 million tons by the end of 2007.

Leveraging the demand for biodiesel is part of the government’s strategy to head off other pressures on prices, particularly tariffs in India. Basiron noted that, “the challenge is that buyers like India are using their size as leverage to depress the price. The collection of revenues is then used to subsidize their oilseed farmers and produce more of their own products.”

Pricing stability is key to the market, and this was helped by a 2006 pact between Indonesia and Malaysia, who collectively produce 80 percent of the world’s palm oil. It was designed to prevent unhealthy and disruptive competition between the two countries. “A stronger relationship with Indonesia will help us to coordinate our moves and ensure a level playing field for palm oil to compete against other oils like soya and rapeseed,” Basiron said.

Changing perceptions about palm oil production is the main focus of MPOC’s international branding campaign, which will include television spots to debut in Europe and the US this spring. The idea is to highlight the oil’s nutritional benefits and environmental sustainability, so that producers will not have to rely solely on biodiesel.

Overall, the future for Palm looks promising. The demand for bio-fuels will keep prices buoyant. With hydrocarbon prices likely to remain high, alternative fuels are gaining ground. According to analysts, the demand for competing oils will potentially leave a gap in the market for edible oils or fuel crops, one which palm oil is ready to fill.