Palm Oil Industry in Malaysia

Skills & Knowledge for Sustained Development

in Africa

24 June 2009

1
1

Origin of Palm Oil

! The oil palm tree (Elaeis 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 (Elaeis Guineensis 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 vegetable oil supply (M MT)

250
952
1,000
3%
3%

Supply Growth 207 1,840

200 6%
(2010 -2020F)
14% 28.17
4.8%
11,748
161 17% 23.39 40%

150 14% 22.85 4,532

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 ! Cooking oil, frying fats
! Fresh fruit bunches ! Palm kernel ! Palm Fatty Acid Distillate ! Margarine
! Crude palm oil ! Crude palm kernel ! RBD Palm Olein ! Shortening
! Palm kernel oil ! RBD Palm Stearin ! Vanaspati
! Biomass (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 ! Cocoa Butter Substitute ! Emulsifiers
5

20%
97

97

97

98

98

98

98

98

99

99

99

99

45,000
Vitamin E supplements
/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

! Cocoa Butter Replacers !

74

76

78

80

82

84

86

88

90

92

94

96

40,000
19

19

19

19

19

19

19

19

19

19

19

19

! Fatty acid, alcohols, ! Confectionery

35,000
Food Use Non-Food Use
30,000
amines, amides ! Bakery fats
25,000
! Glycerines ! Biodiesel
20,000 ! Palm methyl esters ! Energy generation
15,000 ! Tocotrienol ! Animal feed
10,000 ! Organic fertiliser from
5,000 biomass
0 80%
5

7
96

96

96

97

97

97

97

97

98

98

98

98

98

99

99

99

99

99

00

00

00

00
/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

/1

/2

/2

/2

/2
64

66

68

70

72

74

76

78

80

82

84

86

88

90

92

94

96

98

00

02

04

06
19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20

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 palmitic acid (44%),
• Examples of food use " Monounsaturated oleic acid (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 , 0 00

! Global oil palm mature areas: 5,000

10.5m ha in 2007 5 , 0 00
Oil Palm Mature Area (000 Ha)
" Indonesia: 5.0m ha
3,900 (2007)
" Malaysia : 3.9m ha
4 , 0 00

3 , 0 00

! Other oil crops

" Soybean : 94.6m ha 2 , 0 00

" Groundnut : 21.9m ha 1,282

" Sunflower : 24.0m ha 1 , 0 00

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.
GDP Growth (%)

10.00
Dot-Com Crash

Price (RM/MT)
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 economic conditions
-5.00
US Recession
Recession 500 ! However Malaysian
1982
1990-1991
Asian Financial Crisis palm export data has
-10.00
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
1997-1998
2002 2004 2006 2008
0 shown historical
upside trend
World GDP Growth Msia GDP Growth CPO Price

! As a food necessity,
18.00 Malaysia palm oil export data (1980-2008) demand for palm oil
has always been on
increasing trend due
16.00

14.00
to world population
12.00 growth.
Outlook on CPO prices
10.00

!
Million MT

8.00
expect to range
6.00
between RM2,000-
4.00 2,300/MT (US 570-
2.00
660/MT) by end of
2009.
0.00
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

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%

70
64.57 27.84
17.31
40.2% 4.92
60 1.52
1.89
19.15
44.5% 50
43.58
43.03 42.34 3.86
4.33 3.70 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
2008 2009F 2010F 2015F 2020F
World Palm Oil Production
(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: domestic ! Existence of
Commercialisation
Malaysia refining & world’s largest
Oil Palm increased
! First fractionation listed
Introduction
cultivation facilities plantation
commercial
pace of oil company via
planting in ! 1980s:
! 1875: palms the Synergy
Tennamaran Malaysianisation
Introduced to ! Introduction of Drive2 merger
Estate, of 3 plantation
Malaya by the land
Selangor companies, ! China, India, &
British as an settlement namely Guthrie, EU are key
ornamental schemes (e.g. Golden Hope and consumers of
plant FELDA1) as Sime Darby 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 Kuala Lumpur 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.

13

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 East Malaysia 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
61%
4,500

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 Peninsular Malaysia 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 Bursa Malaysia.
! 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
" Protect duty revenue as much as possible
Diversification
" 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.
4.
MPOPC - Malaysian Palm Oil Promotion Council
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 • Plantation owners
" MPOA1
" Private sector for
smooth informational " PORAM2 • 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 – Malaysian Palm Oil Board (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 • PORIM • Indonesian Oil Palm Research Institute
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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