Palm Oil Campaign

Malaysia

Economic News

22 Jul 2010
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Malaysia and Indonesia have agreed to coordinate efforts against what the two countries have labelled as anti-palm oil campaigns being waged in the US and Europe.



Malaysia and Indonesia each produce in excess of 15m tonnes of palm oil annually and collectively account for 80% of the world's total supply. In Malaysia, palm oil accounts for 6% of the country's total exports and is a point of pride as well as a valued commodity. Mohd Basri Wahid, director general of the Malaysian Palm Oil Board (MPOB), told OBG, "It is palm oil that kept us going through the financial crisis. Two decades ago, people didn't think we could commercialise its application, and today, its uses can be found in many areas and it is a significant contributor to our economy." The MPOB is the organisation tasked with advancing research, commercialisation and regulation for Malaysia's palm oil industry.



By year-end, Indonesia is forecast to exceed Malaysia's palm oil output for the first time ever. With 20% of Indonesia's palm oil production in Malaysian companies' hands, the success of the two nations output and exports are very much linked.



Palm oil is the world's most consumed vegetable oil with a wide range of other uses including biofuels, soaps and detergents, lubricants, fertiliser and pesticides.



While palm oil demand is surging due to its increasing uses, associated health benefits, and relatively low cost as a raw ingredient, there is opposition from the industries and countries that feel they are adversely affected by its increasing popularity.



Allegations against the industry include environmental damage, deforestation, climate change as well as the killing of orang-utans and the destruction of their natural habitats as companies move to open plantation land. International non-governmental organisations such as Friends of the Earth and Greenpeace are claiming that of the 6.5m hectares of land cultivated in Malaysia and Indonesia for palm oil, almost 4m was previously forest. In addition to environmental issues, the producers of corn, soybean and sunflower cooking oil are waging campaigns about the claimed dangers of palm oil for human health.



Malaysia is upset by these claims, with Plantation Industries and Commodities Minister Peter Chin Fah Kui calling them "misleading allegations that undermine the commodity's image worldwide as a 'green' oil." Chin claims the environmental campaigns launched in Europe last year have halved the usage of palm oil for electricity generation to 500,000 tonnes.



To counter these claims, following last month's the Second Joint Committee Meeting on Bilateral Co-operation on Commodities between Malaysia and Indonesia, the two countries agreed to set up a technical group to mount a pro- palm oil campaign in Europe. Malaysia will also be organising a seminar to address the issue in Brussels on June 6, which Indonesia will attend, and in turn, also plan to attend a seminar being organised by Indonesia in London in July.



Still, the use of palm oil in biofuels, which are created by blending conventional petrol with by-products from agricultural resources and used conventional cooking oils, is gaining a lot of momentum in the US and Europe. Biofuel is said to reduce the amount of hydrocarbon-based fuel needed to run a vehicle, thus reducing the amount of carbon released into the atmosphere. President George Bush, in his state of the union address in January 2007, announced a 15% target for the replacement of petrol by biofuels in US vehicles by 2017. In the UK, the target for 2008 is to have at least 5% biofuel at the nation's petrol stations.



Malaysia started seriously investing in the manufacturing of palm oil as a biofuel when it spotted the market opportunity a couple of years ago, said Mohd Basri from the MPOB when he spoke with OBG. At present, Malaysia produces 6m tonnes of biofuel, with half of its output going to the United States.



India and China, as the world's largest importers and users of palm oil, are also concerned. India is in the midst of a major round of Free Trade negotiations with The Association of South East Asian Nations (ASEAN). So far, a number of deadlines have been missed from failure to reduce or eliminate import tariffs for five 'special products' on which India refuses to cut duties, with palm oil being cited as the main one on which they refuse to budge. While India has indicated a willingness to make concessions on the remaining 'special products', palm oil is the one commodity on which they do not reduce tariffs due to sensitivity issues surrounding the impact this would have on its own agriculture sectors.

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