The Palm Oil

Oil palm, Elaeis guineensis, was introduced to Malaya in 1870 from West Africa. This hardy crop starts bearing fruit within 2 1/2 to 3 years and keeps bearing fruit for up to 25 years, making it the longest yielding crop in the world.

The fleshy outer layer produces crude palm oil and the seed yields palm kernel oil.

Palm oil is used in a variety of industries from the commercial manufacturing of food and beauty products to the manufacturing of non-food products.

Wednesday, December 22, 2010

Dealers unsung heroes in palm oil supply chain

FFB dealers are vital as they address the major logistical issue of transporting a steady supply of quality FFBs from the plantations to the mills. — Reuters

WHILE planters and palm oil millers are often seen as key players in the production of crude palm oil (CPO), licensed dealers of oil palm fresh fruit bunches (FFB) are in fact the unsung heroes in the entire palm oil supply chain.

The existence of FFB dealers is vital as they address the major logistical issue of transporting a steady supply of quality FFBs from the plantations to the mills.

To ensure the oil palm sector stays well regulated, the Malaysian Palm Oil Board (MPOB) has strictly imposed the MPOB grading manual which millers need to adopt when receiving the FFB from suppliers, namely the plantations, smallholders and licensed FFB dealers.

Given such a strict grading system, recent claims by some independent millers that FFB dealers have been providing them with low quality or unripe FFB are mostly unfounded.

The quality of the FFB depends on growers, and never with FFB dealers, according to experienced planter Mahbob Abdullah.

Some growers cut unripe bunches because it makes for easier collection without many loose fruits to be picked up. He does not care about the oil extraction rate (OER) as he gets payment earlier.

Some smallholders also do not understand the amount of loss incurred by cutting unripe bunches. The oil is not yet formed fully. Where the grower leaves it to the harvester, a lack of supervision adds to the problem. However, the MPOB is doing a good job providing training to smallholders, but more training and guidance will be needed.

To lay the blame squarely on FFB dealers is also not acceptable as the failure to produce quality CPO owes to a large extent the performance of some independent millers and bad weather. Millers are prohibited from accepting unripe black bunches and are at liberty to reject any FFB which are unripe or poor in quality.

Having said that, it has been a normal and accepted practice for most millers to make a calculated tonnage deduction for less-than- good quality FFB in accordance with the grading manual.

FFB dealers also do not have the luxury of retaining the FFB for a duration of more than 24 hours as millers would and most likely refuse acceptance or make tonnage deductions. 

Suffice to say, the economic repercussions would be gross and extensive to the FFB dealers!

Some independent millers have been observed to operate inefficiently as a result of poor housekeeping, high breakdown duration and a backlog of FFB dumping.

Another point is that millers cannot complain how dealers get their fruits. The dealers will go all out to get volume, and will pay competitively, even to small estates which usually produce higher quality FFB due to better control.

Owners of small estates know dealers can provide a service, and would sell part of their crops to them as diversification helps to maintain their sales channels. In times of high crop yields, the dealers can find buyers when some mills cannot accept any more fruits.

On the whole, perhaps some independent millers have a lot to answer for. This includes the state of the equipment used, management expertise, practices such as blending inferior quality oil with fresh CPO as well as the payment system to dealers and owners.

Are millers paying as promptly as dealers, who also, in many cases, provide loans and advances to independent smallholder so that they can get their supply of fertiliser?

Unripe FFB bunches in the country is said to be losing an extraction rate of about 2% against the 20% achieved now, meaning that one-tenth more oil could have been produced from the FFB needed to produce 17 million tonnes of CPO.

The loss of 1.7 million tonnes of CPO, due to premature harvesting, can be as high as RM4bil a year in sales.

Deputy news editor Hanim Adnan believes the relationship between FFB dealers and palm oil millers is generally harmonious, but that one or two bad hats in the industry could spoil it.


Crop Dealer


Palm Oil and Small Chop. John GobleEnvironmental Management in the Malaysian Palm Oil IndustryWhat's in it for me?: Working with competitors in the palm-oil industry: To improve environmental sustainability and competitive advantage?Market Power: Empirical Analysis in the Indonesian Crude Palm Oil IndustryRenewable energy from palm oil - innovation on effective utilization of waste [An article from: Journal of Cleaner Production]

Monday, December 20, 2010

Why Indonesia needs ISPO

Sustainable palm oil and RSPO

Sustainable palm oil has been the topic of discussion among the members of the palm oil sector since 2003, the year when the players in the sector held the first meeting to set up is the Roundtable on Sustainable Palm Oil which was eventually formed a year later and registered in Zurich, Switzerland on April 8, 2004 as an association. It was created by private stakeholders or the so-called B to B (business to business) establishment as no governments were involved.

The principal objective of RSPO is “to promote the growth and use of sustainable palm oil through co-operation within the supply chain and open dialog between its stakeholders.” The not-for-profit association will have members representing major players along the palm oil supply chain, namely the oil palm growers, palm oil processors and traders, consumer goods manufacturers, retailers, banks and investors, environmental/nature conservation NGOs and social/development NGOs. The RSPO is a unique platform for pragmatic co-operation to contribute to the expansion of sustainably produced palm oil and its uses.

The application of RSPO standards is voluntary for its members, although its members are recently required to implement these standards and given a time limit to apply the standards. As of Nov. 25, 2010, RSPO members from Indonesia totaled 74, consisting palm oil growers, processors, traders and NGOs. The total members of the association as of Nov. 25, 2010 reached 500; they include:

* Banks and Investor (8)
* Consumer Goods
* Manufactures (99)
* Environmental or Nature Conservation Organization (NGOs) (12)
* Oil Palm Growers (84)
* Palm Oil Processors and Traders (160)
* Retailers (22)
* Social or Development Organization (NGOs) (9)

The organization actively tries to increase public awareness of the need for sustainable palm oil and the need to preserve the environment along in conjunction with palm plantation activities. But until now, there is a lack of consumer awareness about sustainable products, especially if the prices of these products are higher than the non-sustainable products.

The challenges for Indonesia’s palm oil

In recent years, Indonesia’s palm oil sector has faced various problems, including never-ending allegations by NGOs, the strict demands from the RSPO and conditions imposed by the EU. The EU has issued the EU Directive on Promotion of the use of energy from renewable resources, amending and subsequently repealing Directive 2001/77/EC and 2003/30/EC (EU RED).

The RSPO has importantly ruled that any new plantation opening after 2007 is not allowed in primary forest and peat land and must protect the High Conservation Value, while the EU Renewable Energy Directive (EU RED) has set criteria on the use of palm oil as feedstock for biofuel production.

The EU RED rules a new plantation for biofuel raw material (not applicable only for biodiesel from palm oil but for all types of biofuels) which is opened after the year 2008 should not come from lands containing high biodiversity and land containing a high carbon stock. The regulation is pretty tough as it uses the forest definition in accordance with the provisions of the IPCC. In addition, the EU has set a target to achieve GHG emission saving of 35 percent by 2017. By 2020, the GHG saving emission should reach 60 percent. Palm oil biodiesel cannot meet this requirement because the default emission saving value is only 19 percent.

According to an EU study, only two commodities are not included in the category of 35-percent saving emission: palm oil and soybean biodiesels.

The EU RED will cover many new criteria and requirements related with biodiversity, such as the high biodiversity grassland, the Land Use Change (LUC) and Indirect Land Use Change (ILUC), for which the standard will be added later. This is a tough challenge for the producers of biodiesel and raw materials producers for biodiesel, especially those made from oil palm. 

Check the rest of the article here...

Wednesday, December 15, 2010

Sustainable palm oil clusters

15/12/2010 (The Star Online) - VARIOUS activities has been implemented by the Plantation Industries and Commodities Ministry aiming to develop sustainable palm oil clusters (SPOC) in the country in collaboration with the Malaysian Palm Oil Board (MPOB).

Implementation of SPOC is envisaged to increase smallholder productivity from the current 12 to 15 tonnes of fresh fruit bunch (FFB) per hectare per year to 18 to 20 tonnes per hectare in the short term.

More than 7,000 smallholders who merged to form 10 clusters nationwide had been identified as pioneers for the setting up of the SPOC.

The Malaysian Palm Oil Board (MPOB), which will be implementing the SPOC seeks to achieve these objectives.

Firstly, the MPOB seeks to increase the productivity of independent smallholders through among others, implementation of Good Agriculture Practices (GAP) and the production of higher quality FFB.

The second objective is to facilitate certification of smallholder crops under the Roundtable on Sustainable Palm Oil (RSPO). The RSPO is a global multi-stakeholder association made up of players along the palm oil value chain.

The objective of RSPO is to promote the growth and use sustainable oil palm products through credible global standards.

Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said the government had allocated RM50mil for this certification and the involvement of smallholders would complete the entire chain of the country’s palm industry in producing products recognised by RSPO.

“The smallholder sector presently accounts for about 40% of the total oil palm areas and over 28% of national palm oil production,” he said when opening the National Conference of Smallholders in August.

He said smallholders also played a role in realising Vision 35:25 which envisages an FFB yield of 35 tonnes per hectare per annum and an oil extraction rate of 25% by 2020.

Complementing the sustainability requirements, SPOCs will be encouraged to establish cooperatives to empower smallholders to raise income levels.

Thirdly, the MPOB aims to increase smallholder income by establishing cooperatives in SPOC to undertake other income generating activities.

This is to be achieved through among others, replanting of unproductive palm oil trees and the implementation of GAP, which involves fertilizer application, pesticide control and harvesting of FFB.

The cooperatives are envisaged to participate in activities relating to creating supplementary income to smallholders which include raising cattle and goats, integrating palm oil planted area with other short-term crops such as bananas and, marketing of these products on behalf of the smallholders.

The cooperatives are also expected to collectively purchase on behalf of smallholders agriculture inputs such as fertilizers and pesticides.

The significance outcome arising from the establishment of SPOC is the increase in smallholders’ income by way of enhanced productivity.

This is envisaged to accrue remunerative pricing as well as contribute towards the overall improvement if the social economic levels of the smallholders. In addition, the establishment of cooperatives in SPOC will empower the smallholders in decision making and undertake business activities to complement their income levels.

Malaysia’s palm oil industry is the fourth largest contributor to the economy and currently accounts for RM1,889 (or 8%) of the gross national income (GNI) per capita. The industry spans the entire value chain from plantations to downstream activities.

Malaysia Industry
Industrialization in Malaysia: Import Substitution and Infant Industry Performance (Routledge Studies in the Growth Economies of Asia)Tiger Economies Under Threat: A Comparative Analysis of Malaysia's Industrial Prospects and Policy OptionsMaking of Malaysia Inc.: A 25-year Review of the Securities Industry of Malaysia & SingaporeTechnical Progress and Economic Growth: An Empirical Case Study of Malaysia

Increased Planting May Boost Indonesian Palm Oil Production by 8.5% in 2011

05/12/2010 (Jakarta Globe) - Indonesia’s palm oil output may grow by 1.8 million metric tons to 22.8 million tons in 2011 because of increased planting, Indonesian Palm Oil Board vice chairman Derom Bangun said in on Friday.

“World demand will be more than 2 million tons, maybe 3 million tons,” Bangun said in Bali. “From that point of view, I consider that supply through 2011 will be very tight.”

Palm oil output has been lower than usual this year because of heavy rainfalls caused by the La Nina weather event disrupting harvesting.

Global demand for edible oils will exceed supply for a third straight year, increasing by 4.5 million tons, as supply expands 3.5 million tons, said Dorab Mistry, director of Godrej International, on Sunday.

He predicted prices will reach 3,600 ringgit ($1,140) a ton this month.

Bangun said prices will remain at about that price until January, after which demand will be relaxed, sending prices about 10 percent lower by the end of the first quarter.

Prices will increase “significantly,” by as much as 10 percent by September, after the end of peak production season, assuming there is no fluctuation in fuel prices, he said.

Indonesia’s palm oil output this year is expected to be 21 million tons, a slight increase from 20.3 million tons in 2009, because of bad weather and because aging trees are overdue for replanting, Bangun said.

The industry has grown rapidly over the past few years but is facing rising criticism from environmental groups over deforestation and the annual slash and burn tactics which leaves large parts of Malaysia and Singapore blanketed in haze.

Palm oil, however, is a major export revenue earner for the country and palm oil companies have registered healthy profits. 

World Edible Oil Market

Bailey's Industrial Oil and Fat Products, Edible Oil and Fat Products: Oils and Oilseeds (5th ed. Vol 2) (2nd of a 5 Vol Set) (Volume 2)Edible Oil Processing (Sheffield Chemistry and Technology of Oils and Fats)The 2009-2014 Outlook for Edible Oils in Greater ChinaEdible Oils & Fats

Monday, December 13, 2010

Palm Oil Prices to Rise 11% as China Buys to Rebuild Inventory, Patel Says

09/12/2010 (Bloomberg) - Palm oil prices may climb 11 percent to the highest level in almost three years on increased imports by China and as dry weather hurts soybean planting in Argentina, according to Govindlal G. Patel, director of GGN International.

Futures may advance to as much as 4,000 ringgit ($1,272) a metric ton by March, Patel said in an interview from Rajkot in western India. A seasonal decline in output in Malaysia, the second-biggest producer, will contribute to the gains, he said.

Palm oil has rallied 36 percent this year, headed for its second straight annual advance, on optimism that rising demand in China may strain global supplies curbed by rain and drought in producing nations. Global demand for eight vegetable oils will exceed output for the first time in eight years in 2010- 2011 and China’s import reliance is at “an alarming level,” Oil World said in a Nov. 19 report.

“China, I believe, is already buying large quantities to rebuild stockpiles and prices will stay firm,” said Patel, who has been trading vegetable oils for more than three decades. “The already-low inventories will be drawn down further.”

February-delivery futures rose as much as 1.3 percent to 3,640 ringgit, a 29-month high, and traded at 3,617 ringgit at 12:13 p.m. on the Malaysia Derivatives Exchange.

China, the biggest user of commodities, has pledged to control prices by cracking down on the use of bank credit to speculate in agricultural markets and by selling soybeans and vegetable oil from state reserves.

The biggest buyer of soybeans is expected to import 57 million tons in the year from Oct. 1, up 13 percent from a year ago, the U.S. Department of Agriculture data show. Imports may exceed 14.2 million tons from October through December, up 4 million tons from a year earlier, Oil World said this week.

La Nina

Heavy rains caused by a La Nina weather event have reduced oil-palm yields in Indonesia and Malaysia, the top producers. La Nina has also caused drought that curbed South American planting of soybeans, threatening global edible oil supplies and driving prices higher. Malaysia’s production dropped 1 percent to 14.3 million tons in the first 10 months of the year, according to data from the nation’s palm oil board.

“The yield and quality of palm oil output in Malaysia will be affected because of excess rain,” said Patel. “The increase in output next year won’t be sufficient to meet demand.”

Soybean output in Argentina, the third-biggest shipper, may decline to 52 million tons in the year starting April 1 from an estimated 54.5 million tons this year, the Foreign Agricultural Service said in a report on Dec. 6. Exports may fall to 11.5 million tons from 14.7 million tons, according to the report

“While concerns about weather in Brazil have eased, the Argentine soybean crop is still under threat from dry weather,” Patel said. 


Palm Oil Exports
The 2011 Import and Export Market for Palm Oil and Its Fractions in the United StatesLiving in a Material World: The Commodity Connection (Wiley Finance)Commodity Chains and World CitiesCommodity Options: Trading and Hedging Volatility in the World's Most Lucrative MarketWorld Agriculture and the Environment: A Commodity-By-Commodity Guide To Impacts And Practices