An uphill battle for CPO

When it comes to the palm oil sector, like most traded commodities, ‘smooth sailing’ is something rarely mentioned by experts of the field in regards to the prospects of this industry.

Palm oil experts are generally painting a good short- term outlook for the sector in 2018 – but palm industry players are more sceptical over this year’s prospects.

The sector still faces mounting challenges from the West as the European Union (EU) threaten to ban the usage of palm oil as biofuel while experts also believe that there could be a possible influx in palm oil supply as major buyers such as India and China seek alternative food or crop products.

This would inadvertently affect crude palm oil (CPO) prices as well as its attractiveness towards importers.

Industry players believe that CPO prices are projected to decline by 12 per cent, on the back of mounting inventory for the commodity.

According to a report by Bernama, plantation consultant and Gan Ling Sdn Bhd director Ling Ah Hong said CPO prices are expected to be on a downtrend, unless there is a disruption in oilseed production, which could reverse the trend.

“The rising CPO inventory in Malaysia and Indonesia is indicative of supply outweighing demand. Therefore, boosting biodiesel usage, especially in Indonesia, would be a good thing for the industry,” he was quoted as saying during the ‘Global Palm Market Outlook 2018’ session which is part of the Reach and Remind Friends of the Industry Seminar 2018 and Dialogue organised by the Malaysian Palm Oil Council (MPOC).

Due to the absence of extreme weather conditions such as La Nina or El Nino, palm oil inventory this year could be more robust, hence, pressuring CPO prices particularly in the second half of this year.

“According to the Ganling weather- based CPO forecast for 2018, Malaysia would see an additional 6.6 per cent growth of its inventory and hit 21 million tonnes of plam oil, whereas, Indonesia’s inventory would increase 7.5 per cent to 37.2 million tonnes.

“Both countries account for 85 per cent of the global supply and if we combine both producing countries’ inventories, the growth would be 7.2 per cent or four million tonnes,” he said.

Aside from that, experts also pointed out that Malaysia’s palm oil supply could also be affected by the EU’s threat to ban the usage of palm oil in its biofuel by 2021.

Bernama reported that Singapore- based Palm Oil Analytics owner and co-founder Dr Sathia Varga said the website projected that Malaysia’s supply would be at 20.52 miilion tonnes, whereas Indonesia’s would stood at 39 million tonnes.

“Among the challenges that lie ahead for the industry are the debate on the European Union (EU) proposed ban on palm oil, the US and the EU anti-dumping duties on Indonesia’s biodiesel, India’s import tariff on the palm oil, and labour market reform,” he said.

However, he stressed that Malaysia’s move in removing export tax for the period of three months is expected to assist in reducing the inventory and a positive element for CPO price in the first half of this year.

“This makes Malaysia’s CPO more attractive,” he said. The government is also more optimistic on the performance of the palm oil sector this year.

Plantation Industries and Commodities Minister Datuk Seri Mah Siew Keong believed that Malaysia’s export earnings from crude palm oil (CPO) and palm oil products could increase increase to RM80 billion this year.

Bernama reported that the government expected CPO production this year to exceed 20 million tonnes from an estimated 19.5 million tonnes in 2017, he said, adding that CPO and palm oil product exports this year are expected to increase by RM5 billion through more promotional activities.

Mah said: “The palm oil industry is an important component of the agriculture sector in Malaysia and has been instrumental in addressing rural poverty and employment opportunities.

“This industry is important to the livelihood of more than 550,000 small farmers who accounts for close to 40 per cent of the total planted area.”

With that, BizHive Weekly takes a look at developments in the palm oil sector:

Last year, the Malaysian palm oil sector was once again shaken by the need to ensure that its production operations and its methods are environmentally friendly and meet the global requirements for sustainable cultivation of palm oil.

This came as the European Union (EU) has signaled its intention to possibly restrict the trade of food and feed crops as bio-oil into the region.

With that, Malaysia has pushed its efforts to boost certified sustainable palm oil (CSPO) players across the nation in order to demonstrate its commitment towards being a sustainable and ethical source for palm oil.

In his for ‘ The Way Forward For Malaysian Sustainable Palm Oi Oil l Certification’ forum held earlier last year, Minister of Plantation Industries and Commodities Datuk Seri Mah Siew Keong said: “Being the second largest producer and one of the world’s biggest exporter of palm oil and palm-based products, Malaysia has an important role to play in fulfilling the increasing global requirements for oils and fats sustainably.” He highlighted that for many years now, the cultivation of oil palm has been subjected to various scrutiny from environmental organisations as well as ethical consumer advocacy groups for various reasons. “The palm oil industry has been portrayed as advocating environmentally unfriendly practices such as deforestation, contributing to loss of biodiversity, greenhouse gas ( GHG) emissions, degradation of peat land, global warming as well as destroying critical habitat for endangered species including orangutans, tigers and elephants.

“Apart from that, the palm oil industry is also facing other evolving issues related to health concern and inaccurate information about nutritional benefits of palm oil.

“Thus, it is imperative for us to brand our Malaysian palm oil as a nutritional, sustainable and safe for human consumption,” he said.

For Malaysia, some of the major palm oil sustainability certification schemes that could be obtained by palm oil players in Malaysia include the CSPO certification issued by an international certification body; the Roundtable on Sustainable Palm Oil (RSPO), and Malaysian Sustainable Palm Oil (MSPO) certification which is overseen by the Malaysian Palm Oil Certification Council (MPOCC).

The RSPO is a global, multistakeholder initiative on sustainable palm oil. Members of RSPO, and participants in its activities come from many different backgrounds, including plantation companies, processors and traders, consumer goods manufacturers and retailers of palm oil products, financial institutions, environmental NGOs and social NGOs, from many countries that produce or use palm oil. The RSPO vision is to ‘transform the markets by making sustainable palm oil the norm’.

As at January 11, 2018, 19 Malaysian companies are certified sustainable palm oil growers, with a total CSPO production capacity of 3.67 million tonnes out of the 989,892 hectares of plantation area certified under RSPO.

As a major palm oil exporter, Malaysia has been involved in RSPO for since its inception over 10 years ago. However, the take-up rate for the certification under RSPO has been low in Malaysia, particularly among independent palm oil smallholders and growers.

In order to encourage the more plantation growers to adopt a sustainable and more ethical way of running their operations, the Malaysian government introduced the MSPO certification which cater more towards the needs and criteria of local planters.

To further demonstrate its commitment towards a more sustainable future in the palm oil industry, early last year, the Malaysian government has made it compulsory for Malaysian planters to obtain the MSPO certification by the end of 2019.

According to MPOCC, for palm oil plantation entities that are already certified with RSPO standards, they need be certified against MSPO standard by December 31, 2018 while palm oil entities without RSPO certification, the timeline to be MSPO certified is by June 30, 2019, and for independent and organised smallholders; December 31, 2019.

It pointed out that the government will be making available financial incentives to support the industry with the MSPO certification compliance processes.

“As a move towards branding our palm oil as sustainable palm oil, it is vital to make MSPO certification scheme mandatory. As of December 2016, the total planted area that has been certified under MSPO is 222,778.22 hectares, constituting of 215,979.67 hectares under the plantation companies and 6,798.55 hectares under the independent and organised smallholders.

“Therefore for MSPO to be successful, it requires the cooperation and support from the whole supply chain of the industry.

“All members of the industry need to play a vital and pivotal role in producing high quality palm oil, branded as premium oil which is to be associated with MSPO.

“MSPO will not only assure consumers of the quality of the Malaysian palm oil but it also will raise the image of Malaysian palm oil products and strategically brand the products in the international market,” Mah said, noting that the government strives to make MSPO accepted internationally.

“Being the second largest producer and one of the world’s biggest exporter of palm oil and palm-based products, Malaysia has an important role to play in fulfilling the increasing global requirements for oils and fats sustainably.” Datuk Seri Mah Siew Keong, Minister of Plantation Industries and Commodities