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

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

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

Malaysia Has Little Room for Expanding Palm-Oil Production, Minister Says

18/11/2010 (Bloomberg) - Malaysia’s limited room for expanding palm oil cultivation means that industry growth will have to come from improving productivity, its plantation minister said.

About 4.6 million hectares (11.4 million acres) of the southeast Asian nation’s 32 million hectares are planted with oil palms, Plantation Industries and Commodities Minister Bernard Dompok said last night in London. About 58 percent of the country is forested and the government has a commitment to maintain at least half of all land as natural forest.

“I do not see any further large-scale planting of oil palm in Malaysia,” Dompok said during a round-table discussion at the policy analyst Chatham House. “There may be pockets which can be done by people in rural areas that could be turned into palm oil but these are not very much.”

Dompok was trying to allay concerns from environmental groups such as Greenpeace that expansion of palm oil plantations in Malaysia and especially in Indonesia is leading to the further destruction of forests and increasing emissions of greenhouse gases blamed for global warming.

Malaysia, the second-biggest producer of palm oil, this year will produce about 17.6 million tons of crude palm oil and export 15.8 million tons of the substance, which is used in foods and biofuels, Dompok said. Annual productivity per hectare is about 4 tons and this could be increased to 17 tons, he said.

“We can increase the yield per hectare by planting new varieties and new clones,” Kalyana Sundram, deputy chief executive officer of the Malaysian Palm Oil Council, said in an interview in London. “Because of the lack of new land to cultivate oil palms, if you want to be a major player in the industry, that’s the way to go -- increase the yields.”

Power from Waste

Dompok and Indonesian Vice Minister of Agriculture Bayu Krisnamurthi on Nov. 15-16 met with European Union officials to rally support for palm oil. A new European directive governing the use of renewable energy “discriminates” against palm oil compared to other oil crops, they said in a joint statement.

The directive promotes the use of oils in biofuels that cut greenhouse-gas emissions by 35 percent, and palm oil is classified as leading to a cut of just 19 percent. Malaysian Palm Oil Board Director-General Choo Yuen May told the round table meeting that the correct figure is 36 percent because about a third less nitrogen-based fertilizer is used in the Malaysian industry than the EU factored into its assumptions.

Dompok said he’s also trying to promote the burning of waste products from palm oil production to generate electricity. Domestic power prices would have to rise to 35 cents a kilowatt- hour from 21 cents for such a plan to be economical, he said.

“I would like all these palm oil effluents to be used for electrification,” Dompok said. “I am trying to present to the Cabinet that we need incentives to clean up the oil palm industry. We need tariffs.” 

 Malaysian Palm Oil