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Date [ 2015-10-08, 04:55 ]

The call is for it to stop flowing downstream and reverse to upstream directions.

(Kuala Lumpur=Koreanpress)  Azmi Anuar = The country’s palm oil Industry needs to make a directional changes in its productivity. In short it means enhancing upstream productivity and exploiting downstream opportunities.

Malaysia’s palm oil industry currently accounts for about RM50 billion annually. But now with limited land available, Malaysia will need to enhance upstream productivity and exploit the full potential of downstream opportunities.

The Malaysian Palm Oil National Key Economic Area (NKEA) is targeted to reach RM178 billion by 2020, and 98% of funding will be from the private sector, reinforcing their leading role in steering the palm oil industry.

Chris de Lavigne, Global Vice President of Consulting, Frost & Sullivan, states the global palm oil production is expected to grow at a Compound Annual Growth Rate (CAGR) of 5.9% in the period 2011 to 2020 to reach 84.0 million Metric Tonnes (MT).Indonesia, currently the biggest producer with 33 million tones annually, is expected to show the biggest CAGR growth of 7.8%, and production in Malaysia is expected to expand only by 2.7%

“Palm prices have however been challenged in the short terms and not held up by biodiesel as in the past. Weather is one of the key factors in the supply equation of oilseeds and palm oil. It is also an important catalyst to price movement,” said de Lavigne.

The Malaysian palm oil industry faces many challenges including limited land, labour woes, Indonesian competition, trade wars and environmental concerns.

With limited land for further expansion, the only way to substantially increase Malaysia’s production of palm oil is via yield increases. Remember, once upon a time when padi yields needed to be increased, it was not the opening up of more land but increasing yields that saved the situation. Malaysia too has a good record of increasing rubber output per acre. In the case of palm oil, compared to other vegetable oils, it has a high yield. But there is  a poor record in yield improvements.

When compared to soy yields, it improved at an average rate of 1.2% per annum and rapeseed at 2% per annum. However palm oil yields have been growing at a dismal rate of 0.2% per annum.

Malaysia and Indonesia are at slightly different developmental phases and have different policy agendas and objectives. Indonesia is on a fast track to catch up in the refining and downstream sector and their policies reflect this objective.
“In September 2011, Indonesia introduced a new export duty structure to trigger a refinery and downstream boom.  It offered their processed palm oil exporters a substantial cost advantage over Malaysia,” de Lavigne revealed

Another bugbear the industry will have to face is that in the long run, land availability will start to bite in and should uphold palm prices   In Malaysia, growth has slowed as suitable new land for planting is diminishing rapidly. The edible oil market is now “short” over a million planted palm oil hectares over the next decade due to the slowdowns in Malaysian and Indonesian plantings.

In 2012, the Ministry of Agriculture Malaysia commented that Malaysia’s planted area will only increase by approximately 400,000 ha in the coming years – this implies less than four years of planting at the current rates. Meanwhile Indonesia’s  recent moratorium on new land allocations further points to a slowdown in that market as well.

“Malaysia and Indonesia may need to find new applications for palm oil in order to take up the slack caused by increased CPO supply,” continued de Lavigne. “The basic oleochemicals market is saturating and stagnating as well as suffering from low margins. Malaysia’s focus will now have to shift from basic oleochemicals to high value oleo derivatives, from a current 1% share to a forecasted 40% by 2020.”

To achieve this, de Lavigne suggests Malaysia focus on the following 5 key products:
•        Agro-chemicals
•        Surfactants
•        Biolubricants/ chemicals
•        Bio-polyols
•        Glycerol derivatives

This should push Malaysia into a new level of palm oil production. Its upstream products will have higher value-added productions and increase profit margins.


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