Industry in

Skills & Knowledge for Sustained Development in Africa

24 June 2009

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Origin of Palm Oil

! The oil palm tree ( 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 ! Cooking to ! Separate ! Softening ! Pressing ! Oil collection fruit sterilise fruit fruitlets the out oil bunches bunches from the fruitlets bunch

The oil palm tree ( 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.

2 Source: MPOC Publications Global Palm Oil Industry ! Today, palm oil is one of the 17 major oils traded in the global edible oils & fats market. ! Palm oil can be found in one out of every ten food products worldwide. ! Key importers of palm oil today are China, India, EU-27 & Pakistan.

Global supply (M MT) 250 952 1,000 3% 3%

Supply Growth 207 1,840 200 (2010 -2020F) 6% 14% 28.17 4.8% 11,748 40% 161 17% 23.39 4,532 150 14% 22.85 15% 129 121 13% 20.59 29% 15% 60.7 19.7 16% 19.05 16% 100 20.03 16% 18.91 33% 53.38 5,223 17% 35% 45.44 33% 40.36 50 46% 94.3 40% 4,694 34% 64.57 16% 35% 43.58 43.03

0 China EU-27 India Pakistan Bangladesh United States 2008 2010F 2015F 2020F Others

Palm Oil Soybean Oil Rapeseed Oil Others 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), USDA Database – April 2009 3

Palm Oil Value Chain & Applications

Downstream Consumer Upstream Midstream Processing Products

ACTIVITIES ! Seed ! Trading ! Refining ! Packaging and production ! Crude palm oil ! Fractionation branding ! Nursery bulking ! Oleochemical ! Food products ! Cultivation ! Esterification ! Non-food products ! Harvesting ! Refined product ! Milling storage

PRODUCTS ! DxP seeds ! Crude palm oil ! RBD Palm Oil ! , frying fats ! Fresh fruit bunches ! ! Palm Fatty Acid Distillate ! Margarine ! Crude palm oil ! Crude palm kernel ! RBD Palm Olein ! Shortening ! ! RBD ! Vanaspati ! (Empty ! Palm kernel cake ! RBD PK Olein ! Ice cream, non-dairy Fruit Bunches, ! RBD PK Stearin creamers kernel shell, fronds) ! Cocoa Butter Equivalent ! Candles, soap ! Palm oil mill effluent ! Emulsifiers 20% ! Cocoa Butter Substitute 45,000 ! Cocoa Butter Replacers ! Vitamin E supplements 40,000 974/1975976/1977978/1979980/1981982/1983984/1985986/1987988/1989990/1991992/1993994/1995996/1997 1 1 1 1 1 1 1 1 1 1 1 1 ! Confectionery 35,000 ! Fatty acid, alcohols, Food Use Non- Food Use amines, amides ! Bakery fats 30,000

25,000 ! Glycerines !

20,000 ! Palm methyl esters ! Energy generation

15,000 ! Tocotrienol ! Animal feed 10,000 ! Organic fertiliser from 5,000 biomass

0 80%

7 9 1 7 9 3 7 9 7 9 5 6 6 7 7 7 8 8 8 9 9 0 9 9 9 9 9 9 9 9 9 9 0 /1 /1 / 1973 /1 /1 / 1985 /1 /1 / 1995 /1 /2 6 8 2 6 8 4 6 8 4 8 4 6 6 7 7 7 8 8 9 0 9 9 9 9 9 9 9 9 0 1964/19651 1 1970/1 1 1974/19751 1 1980/19811982/1 1 198 1 1990/19911992/19931 1996/1 199 2000/20012002/20032 2006/2007 These days, palm oil and derived products are channeled into worldwide industrial and commercial activities to churn out food products as well as non-food applications. 4 Source: MPOC Publications, USDA Database Palm Oil Benefits

Versatile Healthy • As the cheapest traded edible oil, palm oil • Balanced composition of saturated can be used for food and non-food and unsaturated fatty acids purposes " Saturated (44%), • Examples of food use " Monounsaturated (40%) " Cooking Oil " Polyunsaturated fatty acids (10%) " Shortening • Can be blended with other soft oils to " Margarines meet AHA1 recommended ratio of " Vanaspati 1:1:1 (saturated, monounsaturated, and polyunsaturated fatty acids) " Cocoa butter substitutes • High carotene content " Key ingredient in instant noodle production ¥ 15x higher than carrots • Examples of non-food use ¥ 50x higher than tomatoes " Oleochemicals • Cholesterol-free, no risk of trans fatty acids " Biodiesel " Does not require hydrogenation in " Energy generation 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. American Heart Association Source: MPOC publications 5

Palm Oil Benefits

Sustainable • Compared to other oilseeds, 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.g. " 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, but it is also a versatile, healthy and a sustainable source of oil. Source: MPOC publications 6 Oil Palm Cultivation Area Physical Conditions for Oil Palm Planting

- Prime Area - Plantable Area Plantable = +/- 10 degrees off the equator. Prime areas = +/- 5 degrees off the equator. ! 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 ~ 2,000mm ! Soil pH <7.5 ! Relative humidity ~ 85% ! No stagnant water Oil palm hectarage in Malaysia has grown from 320,000 ha in the 1970s to over 4million ha today

t Source: MPOC publications, The Oil Palm 4 edition by R.H.V. Corley, P.B. Tinker 7

Oil Palm Cultivation Area

6,000 ! Global oil palm mature areas: 5,000 10.5m ha in 2007 5,000 Oil Palm Mature Area (000 Ha) " Indonesia: 5.0m ha 3,900 (2007) " Malaysia : 3.9m ha 4,000

3,000 ! Other oil crops

" Soybean : 94.6m ha 2,000 " Groundnut : 21.9m ha 1,282 " Sunflower : 24.0m ha 1,000 450 405 " Rapeseed : 27.2m ha 230 0 Indonesia Malaysia Thailand Nigeria Colombia Oth countries

Rapeseed 0.69 ! Average lifespan of a oil palm tree ~25 Sunflower 0.45 years

Groundnut 0.19 ! Palm clones planted in Malaysia & Indonesia : Tenera

Soybean oil 0.40

Palm oil 3.65 = 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 X

Oil Yields (MT/Ha) Tenera Dura Pisifera

Relative to other oilseeds, the oil palm tree is the highest yielding oil crop at an average yield of 3.65MT/ha

Source: Oilworld Database (June 2008) 8 Palm Oil Industry Against Economic Cycles

Historical GDP growth and CPO Prices (1980- 2008)

15.00 3,000 ! There has been several recession periods since

2,500 1980. 10.00 Dot-Com Crash (RM/MT) Price 2000-2002 2,000 ! CPO prices cycles have 5.00 been influenced by

1,500 supply and demand

0.00 dynamics impacted by

1,000

GDPGrowth (%) economic conditions

-5.00 US Recession Recession 500 ! However Malaysian 1982 1990-1991 Asian Financial Crisis palm export data has 1997-1998 -10.00 0 shown historical 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 200420062008 upside trend World GDP Growth Msia GDP Growth CPO Price ! As a food necessity, demand for palm oil 18.00 Malaysia palm oil export data (1980-2008) has always been on 16.00 increasing trend due 14.00 to world population

12.00 growth. 10.00 ! Outlook on CPO prices 8.00 expect to range 6.00 between RM2,000-

Million MT 4.00 2,300/MT (US 570- 660/MT) by end of 2.00 2009. 0.00 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 200420062008

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.

Source: MPOB website, OECD Financial Indicators database 9

Palm Oil Production & Midterm Prospects

Palm Oil Production (M MT) 0.83 1.41 1.9% 4.33 100 94.30 3.3% 10.1%

6.12 90 Supply Growth 2.15 (2010 -2020F) 2.85 80 8.0%

64.57 70 27.84 17.31 40.2% 4.92 60 1.52 1.89 19.15 50 44.5% 43.58 43.03 42.34 4.33 3.70 3.86 22.77 40 0.83 0.93 1.03 1.41 1.26 1.27

30 17.31 17.77 55.34 17.17

20 33.47 Indonesia Malaysia Thailand Colombia Rest of the World

10 19.15 19.28 19.65 Total Production = 43m MT

0 World Palm Oil Production 2008 2009F 2010F 2015F 2020F (2008) Indonesia Malaysia Thailand Colombia Rest of the World

At a forecasted supply growth of 8%, palm oil is well positioned to meet global food and non- food demands. Malaysia is the second largest producer and leading exporter of palm oil.

Source: LMC – Oilseeds Outlook for Profitability to 2020 (Jan 2009) 10 Economic Importance To Malaysia

! Today, the palm oil industry has become a key economic growth driver in Malaysia " Second largest contributor to 2008 external trade (~6.9% at RM 46bn) " Direct employment ~570,000 people " Estimated total employment ~860,000 (incl. downstream)

Electronics & electrical products Sector No. Capacity Others 41.8% (MT/annum) 32.5% FFB Mills 408 93.2m Palm Kernel 41 5.2m Crushers Refineries 50 19.2m Oleochemical 17 2.6m

Chemicals & chemical Palm oil products 6.9% 6.2% Crude oil and Liquefied natural gas condensates (LNG) 6.5% 6.1% 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, especially Malaysia & Indonesia

Source: LMC – Oilseeds Outlook for Profitability to 2020 (Jan 2009) 11

History Of The Malaysian Palm Oil Industry TODAY Key Milestones 1970s-1980s Market Expansion & 1960s Product Diversification Industrialisation & Origin Refining ! Malaysia and 1917 Crop Indonesia are Diversification ! 1970s: top palm oil 1800s Expansion of producers Oil Palm ! 1960s: Commercialisation domestic ! Existence of Malaysia refining & world’s largest Oil Palm increased fractionation Introduction ! First listed cultivation commercial facilities plantation pace of oil company via planting in ! 1980s: ! 1875: palms the Synergy Tennamaran Malaysianisation Introduced to 2 Estate, ! Introduction of Drive merger Malaya by the of 3 plantation land companies, ! China, India, & British as an settlement EU are key ornamental namely , schemes (e.g. Golden Hope and consumers of plant 1 FELDA ) as palm oil means to eradicate ! Founding of KL poverty Commodity ! Malaysia Exchange (KLCE) overtook for price setting, Nigeria as hedging and world’s largest dissemination of exporter of market info palm oil

1. FELDA: Federal Land & Development Authority 2. The corporate merger of Guthrie, Golden Hope Plantations and Sime Darby was completed in 2007 Source: MPOC Publications 12 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. Crop Diversification Efforts ! Despite threats of the Emergency during the 1960s, 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 Federal Land Development Authority (FELDA) first introduced the oil palm in 1961 on an initial size of 375 ha to help the landless farmers. " Due to the fall in rubber and tin prices, 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. " In 1966, Malaysia overtook Nigeria as the world’s leading exporter of palm oil. ! Compared to Malaysia, the Indonesia government only started to directly invest in state owned plantations in 1968. Export Diversification ! Realising from historical experience with rubber and tin that dependence on narrow product lines can bring price downswings, the Malaysian government embraced diversification as a way to sustain production and exports. " Acting against the advice of international agencies, the Malaysian government began in the late 1970s to encourage a shift from CPO exports to refined products through taxation and incentive policies. " The 1980s saw the “Malaysianisation” of 3 major plantation companies previously run by the British i.e. Sime Darby, Guthrie and Harrison & Crossfield (later Golden Hope Plantations) " 1980 also saw the founding of the Commodity Exchange (KLCE), a key instrument for price setting, hedging and dissemination of market information to reduce market risk in the trading of palm oil.

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History Of The Malaysian Palm Oil Industry Industrialisation & Market Expansion ! Seeing the need for product development to sustain the upstream development of palm oil, the industry was flagged for sectoral support under the Industrial Master Plan of 1986 (IMP1). " The IMP1 emphasised on the rationalisation of refining and fractionation to increase efficiency and competitiveness of Malaysian palm oil in the world market. " As a result, 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. " While Malaysia became a leading exporter of refined oil, demand for CPO exports then shifted to Indonesia as further oil palm expansion was encouraged through Indonesian government initiated smallholder schemes. ! By the time the Industrial Master Plan 2 (IMP2) was launched in 1996, Malaysia’s processing capacity has exceeded the supply of CPO. " IMP2 led to the expansion of oil palm hectarage to and also encouraged the private sector to seek raw materials from abroad. " 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. " 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. ! Despite Indonesia having overtaken Malaysia as a leading producer of palm oil since 2007 due to its vast landbank expansion and labour opportunities, the industry is still thriving in Malaysia. " Malaysia is still a leading exporter of palm oil to major consumers in China, EU and India. " In fact, Sime Darby and FELDA, both Malaysian-based companies are today the world’s largest plantation companies (based on planted area).

14 Malaysian Oil Palm Area Planted Area (‘000 ha) -2007 (‘000 ha) Total= 4.3 m ha 5,000 470 11% 2,599 4,500 61%

4,000 314 7% 3,500

CAGR 1975-2007 922 3,000 21% 5.9%

2,500 Private Estates Govt. Schemes State Schemes Smallholders 2,000 ! Oil palm estates in were 1,500 mainly converted from rubber plantations ! Oil palm hectarage has grown at a compound 1,000 growth rate of 5.9% from 1975 to 2007 ! Planted Area by region 500 " 55% – Peninsular Malaysia " 45% – East Malaysia 0 ! Planted area by ownership 1975 1980 1985 1990 1995 2000 2005 2007 " 60% – Private estates " 29% – Government schemes (e.g. FELDA) P.Malaysia Sabah Sarawak " 7% – State schemes Planted Area " 11% – Smallholders

While oil palm planting expansion in Peninsular Malaysia is likely to plateau, 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, FELCRA and RISDA) to allow plantation developed land to be distributed to the landless poor. " Management expertise from the government was used to run the organised smallholdings.

The FELDA story ! Involvement with oil palm began in 1961 with an initial area of 375 ha. " Today planted oil palm hectarage stands at 722,946 ha. " 250 settlement schemes incorporating 95,000 families ! Selection criteria " Age bracket of 21-50 years, 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, processing & marketing. " 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:

Settlers manage Co-operative system small blocks of land Settlers given • Prepare settlers with • Encourage individual titles know-how self reliance

FELDA’s success story has tied the prosperity of rural Malaysia with the palm oil industry. Today it is the largest plantation player with 723k ha planted area.

Source: MPOC Publications, FELDA website 16 Private Sector

! The private sector in the palm oil industry today consists mostly of integrated players with plantation estates and refineries. ! There are currently 41 plantation companies listed in . ! However, there are also diversified and private unlisted companies participating in the palm oil industry. ! Sime Darby is currently the world’s largest listed plantation player by planted area (~530k ha), " Contributing 6% of world CPO production. " Market capitalisation of RM41bn

As at 18 June 2009 Main Second Total Board Board # of Plantation Companies 38 3 41 Market Capitalisation (RM bn) 71.7 0.6 72.3

! Current Malaysian plantation PE ratios range from 10x-17x ! Today, most Malaysian private companies have expanded their coverage beyond the Malaysian border, owning plantation estates and running destination refineries overseas. ! The private sector has also played a role in developing smallholder plantations. " E.g. Native Customary Rights (NCR) plantation development in Sarawak " Private sector contribute up to 60% of capital; 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.

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 " Purpose of maintenance and development of Import infrastructure Substitution Before 1970s ! Financial incentives for palm oil refining ! 40% abatement of corporate income tax for 2 years ! 7 year tax holidays for pioneer status refineries Methods Taxation ! Introduced duty differences between CPO and processed Incentives & palm oil Allowances " To stimulate palm oil processing activities in the country " Avoid overburdening CPO producers Export Diversification " Protect duty revenue as much as possible " Avoid providing financial support from other sources Late 1970s onwards ! Subsequently tax credits were focused to stimulate further downstream processing (fractionated products, cooking oil, margarine, 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, SIRIM2, MPOPC3, PORLA4 & PORIM5

Since the 1960s, the Malaysian Government policies have moved from import substitution initiatives to export-oriented diversification detailed in the Industrial Malaysia Plan

1. MITI – Ministry of International Trade & Industry 2. SIRIM – Standards & Industrial Research Institute of Malaysia 3. MPOPC - Malaysian Palm Oil Promotion Council 4. PORLA – Palm Oil Registration & Licensing Authority 18 5. PORIM – Palm Oil Research Institute Malaysia Key Drivers of the Malaysian Palm Oil Sector Government Policies in Malaysia Industrial Master Plan 1 Industrial Master Plan 2 (1985-1995) (1996-present) Area focus ! Peninsular Malaysia ! East Malaysia ! Call for development of different ! Call for productivity gains segments of the industry in the value ! Encouraged Malaysia to seek raw chain especially oleochemicals materials from abroad

Human ! Training institutes, universities ! Training focused on downstream products Resources ! On the job training ! Training of R&D personnel ! Overseas training

Technology ! Adapt process and R&D technology ! Localisation of machinery & equipment from PORIM production ! Local fabrication " Reduce downtime and costs from freight and exchange rate fluctuations

Infrastructure ! Rationalisation of palm oil refining and ! Expansion of bulking, onshore pumping, fractionation storage and handling facilities in East " To increase efficiency and Malaysia competitiveness in world markets

Tax & ! Government incentives ! Market coordinated incentives regulatory " Double deduction tax benefit on agencies export sales " Export tax on CPO to reduce supplies to destination refineries in Europe 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 Industry Associations Smallholders/Govt Schemes • Create vital institutions, MPOB •Provide ex-ante •Plantation owners and MPOC for coordination discussions between with: captains of industry and " Universities for research government officials MITI for promotion of Private Sector " • Examples: international trade " MPOA1 •Plantation owners " Private sector for 2 smooth informational " PORAM • Palm oil refiners and flows " MOSTA3 downstream processors

Policy Implementation R&D Collaborations Promotional & Marketing (Examples) • Research undertaken by Activities • Replanting subsidies universities (local & abroad) •Coordinated trade policies " Timed with glut in CPO • Grants from government prices • Overseas promotional and • Joint support and business efforts (2000 & 2009) commercialisation by private • Regulation and incentives on sector palm oil refineries, biodiesel plants •Mandatory blending of palm B5 1. MPOA – Malaysian Palm Oil Assocation biodiesel (2009) 2. PORAM – Palm Oil Refiners Association Malaysia 3. MOSTA – Malaysian Oil Scientists and Technologist Association

Trust and systematic coordination between the government and associations of planters, processors and manufacturers have provided a smooth development and flow of industry information 20 Key Drivers of the Malaysian Palm Oil Sector Skills and Knowledge Developed By The Malaysian Palm Oil Players

Upstream Downstream processing • Major plantation companies today ensure • Prior to the 1970s, palm oil refineries implementation of best estate practices: were mostly located in Europe. " Engage experiences estate managers " Palm oil refiners initially acquired as plantation advisors machinery & equipment from suppliers at arms-length transactions " Developed Agricultural Research Manual (ARM) as reference for • Subsequently Malaysian companies have planters since acquired destination refineries in Europe (e.g. Sime Darby and IOI) • Skills training for harvesters • PORIM1 (subsequently MPOB2) have • Introduction of mechanisation to reduce spearheaded process improvement labour dependencies technology •Development of standard mill operating " Today, most machinery & equipment procedures are produced and fabricated locally " Minimise oil losses " Reduces downtime and costs " Minimise machinery breakdown 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. PORIM – Palm Oil Research Institute Malaysia (established in 1979) 2. MPOB – (merger of PORIM and Palm Oil Registration & Licensing Authority – PORLA) 21

Key Drivers of the Malaysian Palm Oil Sector Research & Development

Breeding • In 1960, 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, calls were focused on mass tissue culture and genetic engineering to improve planting material quality

Education • Establishment of an agriculture-focused education institution - 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.g. Sime Darby Academy) to provide on-the-job training.

Agencies • Set up of PORIM2 (subsequently MPOB3) to undertake R&D support " Conduct training on chemistry, quality, analytical techniques, processing operations, transportation and handling of palm oil products " Under IMP, role expanded to include training and R&D in oleochemicals, 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. IMP - Industrial Malaysia Plan 2. PORIM – Palm Oil Research Institute Malaysia (established in 1979) 3. MPOB – Malaysian Palm Oil Board (merger of PORIM and Palm Oil Registration & Licensing Authority – PORLA) 22 Malaysia & Indonesia Palm Oil Industry Comparisons Malaysia Indonesia

Institutional support

• Policy •PORLA •MPOB • Directorate General of Estate Crops Formulation (merger of PORLA & • Research • Indonesian Oil Palm Research Institute • PORIM PORIM in (IOPRI) 2000)

• Associations •Malaysian Palm Oil • Gabungan Pengusaha Kelapa Sawit Indonesia Association (MPOA) (GAPKI) • Palm Oil Refiners Association • Assosiasi Minyak Makan Indonesia (AIMMI) (PORAM)

Relative to Malaysia, representation of the palm oil industry in Indonesia was seen to be fragmented. Research efforts in Indonesia were focused on expansion of oil palm area rather than product innovation.

Type of Policies Implemented

• Export Oriented interventions • Import substitution interventions " Resulted in deliberate " Stabilise domestic price of cooking oil export shift from CPO to " Focused on upstream area expansion to refined products increase CPO production " Motivated product " Less successful in creating dynamic development environment to encourage forward " Encouraged competition & linkages market efficiency " Encouraged rent seeking

Malaysia pursued a more proactive policy to drive learning & innovation through key instruments of agencies, funding, network coordination. Lack of such instruments has largely restricted Indonesia to cultivation and processing to meet domestic demand. 23

Issues & Responses

Current Issues Policy levers/ Responses ! Maintain Malaysia’s position as a leading palm ! Productivity enhancement efforts through: oil producer " Estate practices " Landbank expansion limitations " Mill practices " Efforts to improve operational efficiency " R&D to produce high yielding planting and productivity materials

! Susceptibility to price fluctuations ! Existing government policies " Replanting subsidies " Reduce supply for mature trees to give way to new plantings " Palm biodiesel mandate, B5 in government transportation ! Environmental/Sustainability concerns on: ! Ensure RSPO compliance by plantation estates ! Oil palm plantation expansion " Subsidies to smallholders to obtain RSPO (especially East Malaysia) certification " Allegations of open burning, planting ! Government policies on land conversion on peat soil, endangering orang utan " Oil palm in Malaysia can only be planted on habitats 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, pest control " Highlight policies on planting on peat soil conditions

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