Palm Oil Industry in Malaysia

Skills & Knowledge for Sustained Development

in Africa
24 June 2009

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
fruit
bunches

Cooking to
sterilise fruit
bunches

Separate
fruitlets
from the
bunch

Softening
the
fruitlets

Pressing
out oil

Oil collection

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

1,000
3%
207

Supply Growth
200

(2010 -2020F)

1,840
6%

14% 28.17

4.8%
161

129

121

4,532
15%

13% 20.59

15%

29%
60.7

19.7

16% 19.05

11,748
40%

17% 23.39

14% 22.85

150

952
3%

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
16%

64.57

34%

35%

43.58

43.03

China
Pakistan
Others

0
2008

2010F

Palm Oil

2015F

Soybean Oil

2020F

Rapeseed Oil

Others

EU-27
Bangladesh

India
United States

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

Palm Oil Value Chain & Applications

Upstream

Downstream
Processing

Midstream

ACTIVITIES

Seed
production

Nursery

Cultivation

Harvesting

Milling

Trading
Crude palm oil
bulking

Refining
Fractionation
Oleochemical
Esterification
Refined product
storage

Consumer
Products

Packaging and
branding
Food products
Non-food products

PRODUCTS

99

/1

20%

19

96

/1

99

99
/1

92

19

94

Food Use

19

19

90

/1

99

98
/1

/1
19

19

88

/1

98

98

Crude palm oil

Palm kernel
Crude palm kernel
oil
Palm kernel cake

86

98

19

84

/1

98

/1
80

19

82

97

/1

97

78

/1

35,000

19

40,000

19

74

19

19

76

/1

97

45,000

DxP seeds
Fresh fruit bunches
Crude palm oil
Palm kernel
Biomass (Empty
Fruit Bunches,
kernel shell, fronds)
Palm oil mill effluent

Non-Food Use

30,000

25,000
20,000
15,000
10,000
5,000

Cooking oil, frying fats

Margarine
Shortening
Vanaspati
Ice cream, non-dairy
creamers
Candles, soap
Emulsifiers
Vitamin E supplements
Confectionery
Bakery fats
Biodiesel
Energy generation
Animal feed
Organic fertiliser from
biomass

7
/2

00

00

06
20

00

/2

/2
02

04
20

20

00

99
/1

98

00
20

99

99

96

94

/1

/1
19

19

/2

99
/1

92
19

19

99

98
90
19

88

/1

/1

5
98

98
/1

/1

86
19

19

3
98

98
/1

/1

84

82
19

19

97

/1

80

78
19

19

/1

/1
76

19

97

5
97

3
74
19

72

/1

/1
19

70
19

97

1
97

96

96

96
/1

/1

/1
66

68
19

19

64

80%

19

RBD Palm Oil

Palm Fatty Acid Distillate
RBD Palm Olein
RBD Palm Stearin
RBD PK Olein
RBD PK Stearin
Cocoa Butter Equivalent
Cocoa Butter Substitute
Cocoa Butter Replacers
Fatty acid, alcohols,
amines, amides
Glycerines
Palm methyl esters
Tocotrienol

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
As the cheapest traded edible oil, palm oil
can be used for food and non-food
purposes
Examples of food use
 Cooking Oil
 Shortening
 Margarines
 Vanaspati
 Cocoa butter substitutes
 Key ingredient in instant noodle
production
Examples of non-food use
 Oleochemicals
 Biodiesel
 Energy generation

Healthy
Balanced composition of saturated
and unsaturated fatty acids
 Saturated palmitic acid (44%),
 Monounsaturated oleic acid (40%)
 Polyunsaturated fatty acids (10%)
Can be blended with other soft oils to
meet AHA1 recommended ratio of
1:1:1 (saturated, monounsaturated, and
polyunsaturated fatty acids)
High carotene content

15x higher than carrots

50x higher than tomatoes

Cholesterol-free, no risk of trans fatty

acids
 Does not require hydrogenation in
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

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

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

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

Oil Palm Cultivation Area

6 , 0 00

Global oil palm mature areas:

10.5m ha in 2007
 Indonesia: 5.0m ha
 Malaysia : 3.9m ha

5,000

Oil Palm Mature Area (000 Ha)

5 , 0 00

(2007)

3,900

4 , 0 00

3 , 0 00

Other oil crops

 Soybean
 Groundnut
 Sunflower
 Rapeseed

:
:
:
:

94.6m
21.9m
24.0m
27.2m

ha
ha
ha
ha

2 , 0 00

1,282
1 , 0 00

450

405

230

Indonesia

Rapeseed

Soybean oil

0.45

0.19

Nigeria

Colombia

Oth
countries

Average lifespan of a oil palm tree ~25

years
Palm clones planted in Malaysia &
Indonesia : Tenera

0.40
3.65

Palm oil
0.00

Thailand

0.69

Sunflower
Groundnut

Malaysia

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

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)

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
1980.

CPO prices cycles have

been influenced by
supply and demand
dynamics impacted by
economic conditions

However Malaysian
palm export data has
shown historical
upside trend

As a food necessity,
demand for palm oil
has always been on
increasing trend due
to world population
growth.

Outlook on CPO prices

expect to range
between RM2,0002,300/MT (US 570660/MT) by end of
2009.

Dot-Com Crash
2000-2002
2,000

5.00

1,500

0.00
1,000

-5.00

US Recession
1982

Recession
1990-1991

500

Asian Financial Crisis

1997-1998

-10.00
1980

1982

1984

1986

1988

World GDP Growth

1990

1992

1994

1996

1998

2000

Msia GDP Growth

2002

2004

Price (RM/MT)

GDP Growth (%)

2,500
10.00

2006

2008

CPO Price

Malaysia palm oil export data (1980-2008)

18.00

16.00

14.00

12.00

Million MT

10.00

8.00

6.00

4.00

2.00

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

Palm Oil Production & Midterm Prospects

Palm Oil Production
(M MT)
0.83
1.9%

1.41
3.3%

4.33
10.1%

94.30

100

90

6.12

Supply Growth

2.15
2.85

(2010 -2020F)
8.0%

80

64.57

70

27.84

17.31
40.2%

4.92

60

19.15
44.5%

1.52
1.89

50

43.03

4.33

40

30

42.34

43.58
3.86

3.70
0.93

0.83
1.41
17.31
17.17

22.77

1.03
1.27

1.26

55.34

17.77

20

Indonesia

Malaysia

Thailand

Colombia

33.47

Rest of the World

10

Total Production = 43m MT

19.15

19.28

2008

2009F

19.65

World Palm Oil Production

(2008)

Indonesia

Malaysia

2010F
Thailand

2015F
Colombia

2020F

Rest of the World

At a forecasted supply growth of 8%, palm oil is well positioned to meet global food and nonfood 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
41.8%

Others
32.5%

Sector

No.

Capacity
(MT/annum)

FFB Mills

408

93.2m

Palm Kernel
Crushers

41

5.2m

Refineries

50

19.2m

Oleochemical

17

2.6m

Palm oil
6.9%

Chemicals & chemical

products
6.2%
Liquefied natural gas
(LNG)
6.1%

Crude oil and

condensates
6.5%

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
1917

Crop
Diversification

1800s
Oil Palm
Commercialisation
Oil Palm
Introduction

1875:
Introduced to
Malaya by the
British as an
ornamental
plant

First
commercial
planting in
Tennamaran
Estate,
Selangor

Product Diversification
Industrialisation &
Origin Refining

1960s:
Malaysia
increased
cultivation
pace of oil


palms
Introduction of
land
settlement
schemes (e.g.
FELDA1) as
means to


eradicate
poverty
Malaysia
overtook
Nigeria as
worlds largest
exporter of
palm oil

1970s:
Expansion of
domestic
refining &
fractionation
facilities

1980s:
Malaysianisation
of 3 plantation
companies,
namely Guthrie,
Golden Hope and
Sime Darby

Malaysia and
Indonesia are
top palm oil
producers
Existence of
worlds largest
listed
plantation
company via
the Synergy
Drive2 merger
China, India, &
EU are key
consumers of
palm oil

Founding of KL
Commodity
Exchange (KLCE)
for price setting,
hedging and
dissemination of
market info

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 worlds 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, Malaysias 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 worlds
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
922
21%

CAGR 1975-2007

3,000

5.9%

2,500

Private Estates

Govt. Schemes

State Schemes

Smallholders

2,000

1,500

1,000

500
0

1975

1980

1985

1990

P.Malaysia

1995
Sabah

2000

Sarawak

Planted Area

2005

2007

Oil palm estates in Peninsular Malaysia were

mainly converted from rubber plantations
Oil palm hectarage has grown at a compound
growth rate of 5.9% from 1975 to 2007
Planted Area by region
 55% Peninsular Malaysia
 45% East Malaysia
Planted area by ownership
 60% Private estates
 29% Government schemes (e.g. FELDA)

7% State schemes
 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)

15

Source: MPOB website

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 FELDAs 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:
Co-operative system
Prepare settlers with
know-how

Settlers manage
small blocks of land
Encourage
self reliance

Settlers given
individual titles

FELDAs 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 worlds 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
Board

# of Plantation Companies
Market Capitalisation (RM bn)

Second
Board

Total

38

41

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

17

Source: Bursa Malaysia

Key Drivers of the Malaysian Palm Oil Sector

Government Policies in Malaysia

Revenue from export tax of CPO

 Purpose of maintenance and development of
infrastructure

Import
Substitution
Before 1970s

Methods

Taxation

Financial incentives for palm oil refining

40% abatement of corporate income tax for 2 years
7 year tax holidays for pioneer status refineries

Introduced duty differences between CPO and processed

palm oil
 To stimulate palm oil processing activities in the
country
 Avoid overburdening CPO producers
 Protect duty revenue as much as possible
 Avoid providing financial support from other sources

Subsequently tax credits were focused to stimulate further

downstream processing (fractionated products, cooking
oil, margarine, vanaspati & shortening)

Incentives &
Allowances

Export
Diversification
Late 1970s onwards

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.
2.
3.
4.
5.

MITI Ministry of International Trade & Industry

SIRIM Standards & Industrial Research Institute of Malaysia
MPOPC - Malaysian Palm Oil Promotion Council
PORLA Palm Oil Registration & Licensing Authority
PORIM Palm Oil Research Institute Malaysia

18

Key Drivers of the Malaysian Palm Oil Sector

Government Policies in Malaysia
Industrial Master Plan 1
(1985-1995)

Industrial Master Plan 2

(1996-present)

Area focus

Peninsular Malaysia
Call for development of different
segments of the industry in the value
chain especially oleochemicals

East Malaysia
Call for productivity gains
Encouraged Malaysia to seek raw
materials from abroad

Human
Resources

Training institutes, universities

On the job training

Training focused on downstream products

Training of R&D personnel
Overseas training

Technology

Adapt process and R&D technology

from PORIM
Local fabrication

Localisation of machinery & equipment

production
 Reduce downtime and costs from
freight and exchange rate
fluctuations

Infrastructure

Rationalisation of palm oil refining and

fractionation
 To increase efficiency and
competitiveness in world markets

Expansion of bulking, onshore pumping,

storage and handling facilities in East
Malaysia

Tax &
regulatory
agencies

Government incentives
 Double deduction tax benefit on
export sales
 Export tax on CPO to reduce
supplies to destination refineries
in Europe

Market coordinated incentives

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
Create vital institutions, MPOB
and MPOC for coordination
with:
 Universities for research
 MITI for promotion of
international trade
 Private sector for
smooth informational
flows

Policy Implementation
(Examples)
Replanting subsidies
 Timed with glut in CPO
prices
(2000 & 2009)
Regulation and incentives on
palm oil refineries, biodiesel
plants
Mandatory blending of palm B5
biodiesel (2009)

Industry Associations
Provide ex-ante
discussions between
captains of industry and
government officials
Examples:
 MPOA1
 PORAM2
 MOSTA3

Smallholders/Govt Schemes
Plantation owners

Private Sector
Plantation owners
Palm oil refiners and
downstream processors

R&D Collaborations
Research undertaken by
universities (local & abroad)
Grants from government
Joint support and
commercialisation by private
sector

1.
2.
3.

Promotional & Marketing

Activities
Coordinated trade policies
Overseas promotional and
business efforts

MPOA Malaysian Palm Oil Assocation

PORAM Palm Oil Refiners Association Malaysia
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
20
information

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

implementation of best estate practices:

Prior to the 1970s, palm oil refineries

were mostly located in Europe.
 Palm oil refiners initially acquired
machinery & equipment from suppliers
at arms-length transactions

 Engage experiences estate managers

as plantation advisors
 Developed Agricultural Research
Manual (ARM) as reference for
planters

Subsequently Malaysian companies have

since acquired destination refineries in
Europe (e.g. Sime Darby and IOI)

Skills training for harvesters

PORIM1 (subsequently MPOB2) have

spearheaded process improvement
technology

Introduction of mechanisation to reduce

labour dependencies
Development of standard mill operating
procedures
 Minimise oil losses
 Minimise machinery breakdown

 Today, most machinery & equipment

are produced and fabricated locally
 Reduces downtime and costs
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.
2.

PORIM Palm Oil Research Institute Malaysia (established in 1979)

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.
2.
3.

IMP - Industrial Malaysia Plan

PORIM Palm Oil Research Institute Malaysia (established in 1979)
MPOB Malaysian Palm Oil Board (merger of PORIM and Palm Oil Registration & Licensing Authority PORLA)

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Malaysia & Indonesia Palm Oil Industry Comparisons

Malaysia

Indonesia

Institutional support
Policy
Formulation

PORLA

MPOB
(merger of
PORLA &
PORIM in
2000)

Directorate General of Estate Crops

Research

PORIM

Associations

Malaysian Palm Oil

Association (MPOA)

Gabungan Pengusaha Kelapa Sawit Indonesia

(GAPKI)

Palm Oil Refiners Association

(PORAM)

Assosiasi Minyak Makan Indonesia (AIMMI)

Indonesian Oil Palm Research Institute

(IOPRI)

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
 Resulted in deliberate
export shift from CPO to
refined products
 Motivated product
development
 Encouraged competition &
market efficiency

Import substitution interventions

 Stabilise domestic price of cooking oil
 Focused on upstream area expansion to
increase CPO production
 Less successful in creating dynamic
environment to encourage forward
linkages
 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.
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Issues & Responses

Current Issues

Policy levers/ Responses

Maintain Malaysias position as a leading palm

oil producer
 Landbank expansion limitations
 Efforts to improve operational efficiency
and productivity

Productivity enhancement efforts through:

 Estate practices
 Mill practices
 R&D to produce high yielding planting
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:

Oil palm plantation expansion
(especially East Malaysia)
 Allegations of open burning, planting
on peat soil, endangering orang utan
habitats

Ensure RSPO compliance by plantation estates

 Subsidies to smallholders to obtain RSPO
certification

Government policies on land conversion
 Oil palm in Malaysia can only be planted on
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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Issues & Responses

Current Issues

Policy levers/ Responses

Consumer misconceptions on palm oil especially

in new markets e.g. China, Eastern Europe
 Low quality oil
 Unhealthy

Private sector cooperation with government

agencies (e.g. MPOB, MPOC, MITI) to market
and dispel misconceptions about palm oil

Joint cooperation with renowned universities or
R&D entities to publish reports on benefits of
palm oil products

25

Conclusion

Malaysia today has become a leading palm oil hub of trade and knowledge.
 The palm oil industry is a profitable business that provides opportunities to diversify
into food and non-food products.
 The industry has been resilient, withstanding several economic recessions over the past
century.

However, this is subjected to several pre-requisites:

 Suitable soil and agronomic conditions
 Good infrastructure support in place
 Availability of good planting material
 Knowledge in plantation management and best practices
 Integration with modern milling and mechanisation processes
 Marketing capabilities & Quality control
 Access to R&D competencies for sustained development

Network cohesion and sharing of information flow are also key between :
 Government and plantation sector
 Government to government
 Plantation sector and stakeholders

Unlike other industries, benefits from the palm oil industry will only be reaped years
later. We have to be passionate:
 ~ 3 years for commercial harvesting of new plantings
 Minimum payback of upstream greenfield investment ~6-7 years
 The economic cycle for upstream investment ~ 25 years
 ~ 2 years for a mill or even a refinery to begin operations

26

Thank you