Palm oil: Benefits extend globally

The annual 50 million tonnes of palm oil trade contributes some US$39 billion (RM172 billion) to gross domestic product (GDP) of the global economy, says Plantation Industries and Commodities Minister Datuk Seri Mah Siew Keong.

In an interview with NST Business, he referred to the London-based researcher Europe Economics’ recent findings that palm oil contributes billions of dollars in tax and creates millions of jobs in importing countries. 

Mah said among the big purchasers of Malaysian and Indonesian palm oil were India, China, the Netherlands, Germany and the United States. They account for almost half of the world’s palm oil trade.

Europe Economics reported that China ranked the highest in terms of indirect and induced contribution to its economy, and India ranked highest in terms of indirect and induced contribution to employment.

“The bigger the economy of the purchasing country, the larger the impact of palm oil usage, due to the commodity’s versatility and affordability. 

“The value-add comes in the processing of palm oil into ready-to-serve food and beverages and its distribution to wholesalers and, eventually, supermarket shelves,” said Mah.

Other sectors along the palm oil supply chain, such as hotels and restaurants, also see robust business activity.

“Eventually, money earned by workers and investors are spent on goods and services made in the same country. It is a virtuous cycle.

“Palm oil trade benefits are not confined to producing countries, such as Malaysia and Indonesia. As you can see, the annual 50 million tonne palm oil trade adds tremendous benefit to the global economy.

“The success of palm oil as an essential food source and renewable energy must be given due recognition all over the world,” he said.

A hundred years ago, Frenchman Henri Fauconnier established Malaysia’s first commercial oil palm plantation in Tennamaram estate in Selangor, in a bid to replace an unsuccessful coffee estate.

Since then, Mah said the palm oil supply chain had expanded downstream to employ talents in the transport and storage of palm oil at ports, palm oil futures trading at brokerages, design and construction of refineries and biodiesel plants, animal feeds, Vitamin E extraction and even the development of nutrient-enriched cosmetics.

As Malaysia marks its centennial year of commercial oil palm cultivation, the minister reflected on the trials and tribulations oil palm planters face in this fast-paced, knowledge-based economy.

Like any natural order of things, the bigger an industry grows, the easier it becomes a target.

Most recently, Europe’s popular breakfast chocolate spread Nutella was falsely alleged to contain ingredients that are cancerous and should be avoided.

Mah took offence and pointed out the spurious distortion of facts.

“The glycidyl fatty acid esters (GE) and 3-monochloropropanediol (3-MCPD) chemicals, which are present in all vegetable oils including olive oil, have not been proven to be cancerous.”

Commenting on the European Food Safety Authority falsely linking consumption of palm oil, a major Nutella ingredient, to being cancerous, Mah said more needed to be done to correct wrong perceptions.

“We need to reveal the truth about palm oil. Efforts must be sustained to engage and reinforce facts about palm oil nutrition.

“As more bias restrictions are imposed on palm oil, exporters from Malaysia and Indonesia are denied equal opportunities to trade,” he said, adding that these smear campaigns on palm oil on the Internet denied smallholders decent livelihoods and consumers of affordable food and beverages.

Mah said the Indonesian and Malaysian governments would go on more joint-ministerial missions to Europe and the United States.

“We must defeat anti-palm oil campaigns to ensure continued market access for our exporters. It will be carried out under the platform of the Council of Palm Oil Producing Countries (CPOPC).” 

In 2015, the governments of Indonesia and Malaysia initiated the CPOPC as a common platform to promote palm oil and neutralise trade barriers, as both nations collectively produce 85 per cent of the world’s production of this basic cooking ingredient.

CPOPC is also an international platform for downstream investors and smallholders’ forums to outline effective measures towards raising global consumption of palm oil.

Apart from Indonesia and Malaysia, oil palms are cultivated in the tropics. Southeast Asia is the lead producer of palm oil, followed by Latin America, Papua New Guinea and West Africa, all of which are developing countries.

On the topic of value-adding the palm oil supply chain, Mah said it was more cost-competitive to generate more downstream products. Higher demand for palm oil would ultimately deliver more foreign earnings to the country and income to smallholders.

Back in July 2015, Indonesia implemented an export levy of US$10 to US$50 per tonne for palm oil products, on top of export taxes that Indonesian palm oil producers are required to pay when crude palm oil (CPO) prices exceed US$750 per tonne. 

The export levy lowered the domestic CPO price in Indonesia by US$30 to US$50 per tonne and fattened the processing margins of downstream processors in Indonesia. 

Since the tax change, refiners in Indonesia enjoy a margin advantage compared with those in Malaysia, due to the differential in the export levy for refined palm products versus CPO. 

The widening gap between Indonesia’s export duty structure and that of Malaysia for the past 20 months is resulting in hurtful price undercutting and severe loss of market share for Malaysia’s vegetable oils.

In restoring competitiveness for refiners here, Mah said it would be timely for Malaysia to harmonise its CPO export duty structure with that of Indonesia.

“We’re exploring a common tax structure that will be mutually beneficial. We do not want further conflicts in the palm oil trading market,” he said, adding that his team would continue to reformulate strategic initiatives for the industry to be more resilient.

 
 
 
 

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