Not so bleak for palm oil
INCREASING production. Rising inventory. Slumping prices. Recent development suggests the future looks bleak for the palm oil sector. But is that so?
According to the United Nations, global population is set to grow from the current 7.6 billion to 9.8 billion in 2050. By 2027, the middle-income class is expected to reach five billion, representing 60% of global population. This will be accompanied by an ageing population of 60 or above which is expected to rise from 962 million globally in 2017 to 2.1 billion in 2050.
These demographic changes point to greater demand for food, feed, fuel as well as consumer and health products, all of which can be fulfilled by palm oil. Things may not be so bleak after all.
Palm oil is superior to other oil crops in respect of yield productivity to meet growing demand. Based on global statistics, oil palm yields about 3.5 tonnes per hectare. Other oil crops such as rapeseed oil, sunflower seed oil and soya bean oil can only yield 0.8 tonnes/ha, 0.7 tonnes/ha and 0.4 tonnes/ha respectively.
Yet, palm oil cultivation is facing immense environmental pressure. In 2017, the European Parliament passed a resolution to ban palm biofuel from 2021, raising the deforestation bogeyman. Following protests by Indonesia and Malaysia, this stance was softened to only exclude palm biofuel along with all other vegetable oil-based biofuel in 2030.
Is there basis for the deforestation allegation? Statistics suggest not. In fact, livestock rearing is the main culprit while soy cultivation causes forest loss at almost double the rate for oil palm cultivation.
Based on the Malaysian Palm Oil Council’s (MPOC) research, livestock, soy and oil palm cause forest loss of 3.83, 0.48 and 0.27 million hectares per year respectively between 2001 and 2010.
Cost and benefit analysis for palm oil expansion conducted in 2013 by James Fry, a leading palm oil expert, showed that had a moratorium been imposed on oil palm cultivation in 2013, the world would lose an incremental 145 million hectares of forest to plant other oil crops to make up for that loss of production.
Nonetheless, the industry must prioritise a balance between economic development and environmental sustainability, avoid deforestation, optimise land use, protect biodiversity and adopt robust standards.
Primary Industries Minister Teresa Kok recently reiterated the policy of capping palm oil expansion to ensure 50% forest cover. Such bold policy action signals commitment by the government to sustainability.
In fact, adopting a sustainability standard is one of the most impactful approaches. To date, the globally recognised Roundtable for Sustainable Palm Oil (RSPO) has certified a total of 19% of palm oil produced worldwide. Indonesia and Malaysia have both enacted their own national standards, namely Indonesian Sustainable Palm Oil (ISPO) and Malaysian Sustainable Palm Oil (MSPO). But these are not extensively accepted yet.
Higher yield means reduced land use but it is on a declining trend. In Malaysia, the national fresh fruit bunches (FFB) yield has declined from 19 tonnes/ha in 2012 to 18 tonnes/ha in 2017. The declining productivity was due to labour shortage, slow replanting of old palms and therefore slower regeneration of palms with higher-yielding planting materials.
There is a need for faster replanting to create a new generation of oil palm areas that have higher yields and are more labour-friendly. The advent of genome editing (GE) can fast-track new development of planting materials and deliver better results. Desirable traits such as lower palm height, shorter fronds, longer fruit stalks and disease resistance can become reality significantly faster with deployment of GE.
Labour productivity has increased in recent years in Malaysia due to increasing mechanization. Productivity increased from 0.68 tonnes/ day per worker to 0.88 between 2012 and 2017. Yet, more can be achieved to adapt, prototype and deploy existing mature applications from other crops or regions as well as starting the deployment of digitisation, Internet of Things (IoT) and big data analytics right away.
Fossil fuels are here to stay for the foreseeable future. In Indonesia, domestic blending has been mandated at 20%, moving to 30% by 2019. In Malaysia, renewed effort must be made to increase the current blending from seven percent to 10% for both transport and industrial sectors. Elsewhere, commitments to the Paris Agreement by China and India to reduce their greenhouse gas (GHG) emissions per unit of GDP by 33% and 60% respectively by 2030 presents an opportunity for biodiesel blending there.
The beauty of palm oil is in its versatility and efficiency. Not only is palm oil a stable and healthy source of edible oils and fats, it also infiltrates every aspect of human life from food, consumer and household products to fuels and lubricants.
Palm oil can be even more efficient and sustainable, and that may just be enough for it to stay competitive for the long run.
Wither, it will not.