SUCCESS IN THE PALM OF YOUR HAND

Palm oil industry players have the potential to significantly increase their revenues by exploring options further down the downstream sector.

2017 marks the 100th year of commercial planting of oil palm in Malaysia. Palm has played a major role in Malaysia's economic growth in the last few decades and the country is now the second-largest producer of palm oil in the world. However, as the industry continues to grow, its future success hinges on the diversification of the sector. Malaysia has slowly but surely sought to enact a strategic shift in the palm industry towards moving further downstream and adding greater value to the palm oil it produces. The Southeast Asian nation has yet to realize the full potential of its palm oil industry. Figures have shown that the output of downstream production in Malaysia is up to 50% more lucrative per unit compared to outputs from the upstream sector. Approximately 68.6% of Malaysia's palm oil exports in 2015 comprised crude palm oil and processed oil. However, the export revenues of the upstream and downstream segments vary significantly. The annual export values of crude palm oil and processed oil were MYR12 billion and MYR28.2 billion, respectively, while the downstream sector brought in earnings of MYR14.9 billion for exports of oleo-chemicals and MYR1.7 billion for exports of finished products, this despite only comprising 30.1% of total palm oil exports. In addition, greater activities in the local downstream sector will only increase demand for crude palm oil, benefiting the industry as a whole. A robust downstream sector and diversified products will also help the sector and the country weather volatilities in palm oil prices. Average prices of crude palm oil dropped 9.6% YoY in 2015 as a result of a fall in demand and higher production.

Plantation Industries and Commodities Minister Datuk Seri Mah Siew Keong announced in October 2016 the government would set aside MYR280 million in grants in its Eleventh Malaysia Plan to boost the downstream palm industry and support the manufacturing of food and health products, chemicals, and other derivatives in Malaysia based on palm oil. Of this figure, MYR100 million was set aside for the manufacturing of high-value palm oleo derivatives or chemical products, MYR100 million for food and health products, MYR30 million for clinical trials, and MYR50 million specifically for SMEs. Dedicated grants for SME are a recent addition and there was no such dedicated category in the Tenth Malaysia Plan. In the earlier Tenth Malaysia Plan, MYR416 million in grants was set aside for similar downstream projects in palm oil.

The government has taken the lead in developing a national strategy to identify opportunities in the sector and maximize the value of every ton of palm oil that it produces. One such project involves the massive amount of waste generated in the production of palm oil. Malaysia produces more than 20 million tons of crude palm oil annually, which results in over 100 million tons of solid biomass. Datuk Mark Rozario, CEO of Agensi Inovasi Malaysia (AIM), explaining the government's strategy to TBY, said, “Typically, palm oil biomass is thrown back into fields as fertilizer or is burnt for fuel—both do not give high returns. We seek to diversify the downstream here and explore creating biofuels, biochemical, and bioplastics.” One AIM project in Sabah seeks to turn palm kernel cake, one of the biomasses left after crushing palm shells, into bioethanol and high protein animal feed. In another such initiative, a group of companies involving Airbus, the Malaysia Industry-Government Group for High Technology (MIGHT), Universiti Putra Malaysia (UPM), the French Agricultural Research Centre for International Development, and Biotech Corp have established a Center of Excellence in Malaysia to assess local solutions for sustainable biomass production. Palm oil derivatives are found in various items from household goods and food and nutritional health supplements to oleochemicals, pharmaceuticals, cosmetics, and biodiesel and there are seemingly endless opportunities for companies to enter the more lucrative segments in this area.