Palm oil players: Participants at the second annual The Star Roundtable on Palm Oil, (from left) Bas Melssen, Abdul Halim Ahmad,
Tan Sri Dr Yusof Basiron, Errol Oh, Tan Sri Lee Oi Hian and Tan Sri Dr Mohd Noor Ismail.

16/11/2013 (The Star) - At The Star Roundtable on Palm Oil held at Menara Star in Petaling Jaya, Selangor, recently, The Star’s executive editor Errol Oh led the discussion joined by Malaysian Palm Oil Council CEO Tan Sri Dr Yusof Basiron, Kuala Lumpur Kepong Bhd CEO Tan Sri Lee Oi Hian, Tradewinds Plantation Bhd group corporate adviser Tan Sri Dr Mohd Noor Ismail, Felda Global Ventures Holdings Bhd executive vice-president (downstream) Abdul Halim Ahmad, and Agensi Inovasi Malaysia executive vice-president and head of strategic innovation projects Bas Melssen.

The topics: Sustainability and the soon-to-be-launched Malaysian Sustainable Palm Oil (MSPO); the National Biomass Strategy 2020; the anti-palm oil lobby; and, Budget 2014.

The Malaysian Palm Oil Board (MPOB) is expected to launch the Malaysian Sustainable Palm Oil (MSPO) standards next year. Is it a good idea for Malaysia to have its own sustainability framework when there is already the Roundtable on Sustainable Palm Oil (RSPO)?

Mohd Noor: Of course it is a good idea that Malaysia should have its own sustainable standard MSPO. RSPO should not have swerved away from the philosophy of its establishment. But now it is seen as an instrument of protectionism and trade barrier. The important part of the RSPO is its certification which emphasises on standards. However, Malaysia as a producer of palm oil can also establish its own sustainable palm oil standard.

The standard is supposed to be universally agreed upon, but with different sets, will there be confusion and overlapping as well?

Lee: First of all, KLK is fully committed to the RSPO. Although there are many common and overlapping standards between MSPO and RSPO, it is a good idea for MSPO as it includes many requirements particular to our country’s legislation and policies. The same goes for ISPO (Indonesian Sustainable Palm Oil). There should be no issue to comply with both MSPO (or ISPO) and also RSPO.

Yusof: The RSPO was conceived in such a way that it has a cut-off date to comply with its principles and criteria, which are against the interests of developing countries. So if the RSPO wants to have a universal value that applies to every country, it is not likely to be acceptable because developing countries would want to continue developing. That is why the RSPO is going to upset a lot of new oil palm development – for example in Africa – if it insists on applying the rules and regulations in terms of land opening and others. That is why our MSPO will be based on Sirim, an accredited body of the world standard, to develop its sustainable standard. And also, cater to the international way of developing standards, but definitely not the non-governmental organisations’ (NGOs) way. We are also making the MSPO to be aligned with the rules set by the ISO, the world standard making body, and hopefully MSPO can be applicable to all countries. The MSPO standard can cater to all producers in the local palm oil industry, and not just mimic the RSPO standard. We have to think hard about how the MSPO standard can apply methods used by the European Union, the US and Canada, in terms of qualifying their oil seeds like canola and soy as sustainably produced. This is done via the aggregate compliance approach or cross compliance approach. It is one simple process to certify the entire US soybean producers, Canadian rapeseed producers and the EU soya and rapeseed producers as compliant with sustainablity. These oil seed producers do not have to undergo the dirty audits one-by-one. The RSPO process is only imposed upon, or has to be complied with by, developing countries like us. So why should we follow the arduous and costly way of complying with the RSPO when Western oil seed producers can just get their ministers to sign a sustainable compliant statement to say their farmers have complied with the standards. If the MSPO were to follow the RSPO, it would have been regression.

(Addressing Abdul Halim) As a downstream person, how important is sustainability certification from the perspective of producers and consumers?

Abdul Halim: The RSPO is a good initiative if it is without ulterior motives. Thus it is good for oil palm planters to maintain a certain standard that is accepted internationally. However, if you have ulterior motives and start putting in unfair elements, that makes it hard for planters to comply with the RSPO regulations such as life cycle assessment and carbon balance. You have to understand that RSPO certification is a non-tariff barrier. But why is there no roundtable on sustainable rapeseed oil, corn oil or soy oil (equivalent to RSPO)? With that, I think Malaysia should have its own MSPO. But the local standard should not be made too easy as it has to be in line with international standards but within our control – unlike those elements in RSPO which make it difficult for planters to get the RSPO certification but without it we can’t qualify to export.

Lee: Influenced by their clientele and many NGOs, the large consumer companies are actively pursuing sustainability and traceability as their commitment as responsible citizens. As a responsible industry, oil palm plantations and our downstream companies have similiar commitments to responsible practices and fully adopting RSPO standards and criteria.

For MSPO, what needs to be put in place for the standard to work?

Mohd Noor: The MSPO should consist of all the common compliances. I think the RSPO has a structural problem within its administration. We must make sure that the MSPO has all the standard features so that nobody can just change the rules and regulations at their whims and fancies. Just as in our Financial Reporting System, the IFRS (International Financial Reporting Standards), we abide by it.

Yusof: The MSPO should only be modifiable by Sirim, unlike the RSPO which can move the goalposts based on votes; whoever has the majority votes could always get away with whatever changes they want in the RSPO. The MSPO may be based on the Sirim standard-making process but of course it is open to public scrutinity and comment. It is also done through the ISO mechanism of formulating and changing the standard components. We hope to do this well so that Malaysian-produced palm oil can be 100% certified. We want to be seen as responsible producers of palm oil. It can also be a strong motivation to both producers and buyers/consumers.

Lee: The MSPO is what the country requires. It is obvious the oil palm industry must be farmed in a responsible way. Through this, we can also disseminate more responsible practices especially to the oil palm smallholders. Both the MPOB together with its Indonesian counterpart that sets up the ISPO have the infrastructure to make it happen. This will help bring the sustainable palm oil standards of the two countries closer together and also, both plantation owners and smallholders.


Tapping Biomass for Energy

How does the National Biomass Strategy 2020 fit into the palm oil industry?

Melssen: Oil palm biomass represents the majority of total biomass available in Malaysia. We have been looking at creating new industries from this resource. It is very diverse as you can produce animal feed, wood products, electricity, energy pellets, solid biofuels, liquid biofuels and ultimately, bio-based chemicals. More so, this is an entirely new industry not covered by just one ministry, but cuts across many different sectors, government ministries and agencies. That is why Agensi Inovasi got involved to develop a separate strategy altogether on how the owners of biomass can be involved in downstream value creation from their biomass, rather than just packaging the biomass and supplying it as a commodity. Hopefully, in the near future, the palm oil industry players are going to benefit from this new revenue stream derived from the biomass.

Abdul Halim: FGV has experience working both in downstream and biomass. When I talked to a couple of foreign groups, they pointed out that it is difficult to implement any biomass project in Malaysia. They have to deal with several government ministries and different agencies to seek approval. So I would like to see a one-stop agency to ensure that our biomass projects can take off smoothly. As an example, when FGV set up its first biogas plant in Serting Hilir, we had to extend the cable as far as 8km away (to supply to the grid line). In Thailand, they can just connect the line to the nearest grid supply. So this is an additional cost and sometimes getting the approval takes a long time. We also have a problem with our plant in Jengka as the design and approval kept on changing when the approving engineers from the authorities changed, resulting in a bit of difficulty to do the project in speed time. And so, I’m really for a one-stop centre for approval.

Melssen: This is a very good point. Agensi Inovasi realises that biomass doesn’t have a natural home because it cuts across so many industries such as energy, chemicals, fuels, wood products and so on. That is why Prime Minister Datuk Seri Najib Razak launched the 1Malaysia Biomass Alternative Strategy (1MBAS) in March last year. I think a one-stop government centre is definitely something that we should consider as the next step in the National Biomass Strategy 2020, and it is only natural for the 1MBAS unit to be this one-stop centre.

It is interesting that you use the term “owners of biomass”. I always think of KLK and Tradewinds as plantation players, but here they are being addressed as biomass owners. How does biomass fit into KLK’s business plan?

Lee: When we talk about solid biomass, in plantations it is either turned into organic fertiliser through composting or direct application in the fields. Some of us use the biomass for energy generation through our boilers or use the fibre or palletisation for export. KLK is actually watching the next generation usage of biomass like bioethanol. The Malaysian Palm Oil Board (MPOB) is currently actively promoting the reduction of methane gas from our palm oil mill effluents (POME). Here the potential is huge as we can generate electricity at 35 sen/kW versus solar energy cost of RM1.20/kW. Also many issues exist like connection to the national grid. However, many bureaucratic problems still exist and our Government needs to co-ordinate better to make this reduction of methane gas an economic viability for the palm oil mills.

Tan Sri Mohd Noor, as a member of the Malaysian Palm Oil Association (MPOA), what are the discussions on biomass among the palm oil industry in general?

Mohd Noor: First, we have to understand what exactly is oil palm biomass – empty fruit bunches (EFB), fibre, sludge, POME, etc. At MPOA, our first emphasis is on palm oil productivity which involves reconditioning of the soil by sending back the EFB for composting and mulching. The long-term focus is on R&D, such as new high-yielding and disease-resistant clones or varieties which are responsive to the nutrients applied. The short-term focus is on revenue expenditure, labour and cost of fertiliser. Of course the industry is excited over biomass. If it makes money, we will participate. But our palm oil mills are so scattered, the production of energy from methane for example is not easily connected to the grid.

Melssen: There are two main points here. Some plantation companies say that all biomass should go back to the fields and who are we (the Government) to say that they shouldn’t? Because if a company feels this could affect its oil palm yields, which is its core business, then who are we to say they should do something else with it? The second point which Tan Sri Mohd Noor has pointed out is about palm oil mills being scattered all over the country. This is what we found out after producing the National Biomass Strategy 2020 which is a beautiful book but it will not mean anything if nobody does anything with it. We went to the ground and talked to mill owners asking why, when there are so many opportunities, nothing is happening? We soon found out that it doesn’t matter how big your company is or how many mills you have. It matters where the palm oil mills are (located), as nobody has a lot of mills in one single location. Then we identified the highest concentration of mills in the country is in Lahat Datu. We have developed a structure which will be finalised before the end of the year, with a number of individual private palm oil millers, medium-sized and several big plantation companies there. Basically, they pool all their biomass into a single entity created that is 100% owned by them, with the amount of biomass they commit representing their ownership percentage of the entity. Then, an independent management team will manage their biomass into a portfolio of different downstream activities. Downstream companies that want to make use of this resource require large volumes of biomass. That is why it was never happening (the biomass industry), because there is no company that can give a long term commitment for big volumes of biomass. But also, to be fair to the biomass owners, they need to participate in the value creation activities. Since they bring the biomass commitment, in exchange the company with the downstream technology and off-take should pay biomass owners replacement cost for current use. On top of that, biomass owners should be getting a percentage of profit from the downstream industry, based on their commitment of long term supply of biomass. This is the structure that we have developed, and many mill owners, big and small, have already subscribed to this.

Yusof: Just look at Germany where 6,000 small methane plants there are able to produce electricity whenever possible and this is in addition to the windmill farms that they have also set up aggressively. They have small-scale methane power plants all over Germany, whereas in Malaysia we have 450 palm oil mills. So you can imagine how funding or incentives can drive this development with the right subsidy and pricing. These methane-powered plants were initially conceived to use household wastes but later they found out that there was so little waste supply. So Germany imported corn from the US and elsewhere and started corn fermentation to generate methane to convert into energy. Just imagine the German government is funding such projects that will effectively be profitable for the operators. The same thing can work here when you have efficient technology and government support. Bureaucratic issues cannot be the stumbling block to the development of a new industry. Also, productivity in oil palm areas can be enhanced if we have very efficient conversion technology using methane to generate electrity for machines to irrigate the palm trees during the dry season because irrigation during the dry season can increase yield by at least 50%. So if planters can increase yield with irrigation using energy from methane, that should be the focus for the industry to convert methane gas into energy.

Lee: This is a very good suggestion for the industry because many of the mills are using generator sets to produce power, costing us about RM120 to RM140 per kW. If you can come up with a small plant converting POME into energy, then the mills can have a partial replacement for diesel to run the mills. But like what Tan Sri Yusof says, there is not enough R&D done on designing for smaller driven capacity. Smaller mills cannot get connected to the grid given their remote location. I think one of the roles of MPOB and Agensi Inovasi is to further stimulate such industry to enable such ideas to come to fruition. Anyway, we are just copying technology and it is not rocket science.


Anti-Palm Oil Lobby Ups The Ante

The campaigns against palm oil in the West and Australia have been persisting for years. They focus on social, environmental and nutritional issues. Lately, they have sought to influence consumers and legislators. Should we be worried?

Yusof: The anti-palm oil lobby among Western non-governmental organisations (NGOs) and some of the politicians is a matter of great concern to our industry because it will influence consumers’ acceptance of palm oil thus affecting the demand and opportunities for palm oil. Hence, we have to take necessary actions to counter the allegations levelled at us. Some of these lobbyists, who are actually supporters of other vegetable oils, put their interests together with the environmental NGOs and anti-palm oil campaigners because this will mean better market share for their vegetable oils. In fact, this is sheer protectionism. We have to understand the motivation behind these campaigns. If they are environmental NGOs, their objectives are not met because they cannot reduce deforestation, methane gas emission or saturated fat consumption just by targeting the palm oil industry. The Food and Agriculture Organisation (FAO) has published a report saying it is the cattle industry that devastates forests as the scale to convert them into farms is thousand times greater compared to that of the palm oil industry. If they want to raise the deforestation issue, they should understand the side effects of the cattle industry. Besides, saturated fats via the consumption of meat and dairy products as well as greenhouse gas emission are all attributed to the cattle industry.

How do you view Malaysia’s response to the lobby so far?

Mohd Noor: I think it’s not an individual but rather a group effort. The Malaysian Palm Oil Association, the Malaysian Palm Oil Board and the Malaysian Palm Oil Council should join hands to protect and promote our palm oil industry. Palm oil is a national commodity, so we also need to constantly communicate with the Government to protect the industry.

Do you see change in the characteristics of the lobby over the years?

Lee: Yes, there has been a drastic change. In the past, they brought up nutritional issues and saturated fats in palm oil. Now, they have moved on to sustainability issues. Their statements are based on emotions but not on science or logic. For example, they make many sweeping statements that deforestation in the world is due to oil palm plantations. Logging and land clearing are bigger issues compared to planting oil palm. If you take a look at Malaysia, we only have six million hectares of oil palm land. In Brazil alone, there are 24 million hectares of land for soya bean plantations, not including other countries like Argentina. When they expand for other crops, they have to clear the land too. The NGOs are also uncompromising. Many companies want to work openly or have dialogues with them to understand and improve the situation relating to sustainability and compliance with Roundtable Sustainable Palm Oil (RSPO) principles, as well as the community’s welfare and serving environmental issues but they distorted the facts just to promote their agenda. We are open and committed to RSPO principles but many of the NGOs want to set up their own principles or criteria which are unrealistic.

From a downstream perspective, how do you see changes in the way things are done?

Abdul Halim: As the global market opens up, and the World Trade Organisation said there is less protectionism, the lobbyists resort to something else. They are now criticising deforestation in this part of the world and making emotional statements but all they are doing is protect their own industries. The only way to counter them is to fight back with knowledge. (In France) what they have is worse than what we have. If you talk about saturated fats, their consumption of saturated fats is higher at 30kg compared to palm oil consumption, which is 2kg. We have to fight knowledge with knowledge.

Can politics and diplomacy address these issues?

Yusof: As we get more research done on saturated fats, scientific literature suggests that saturated fats are not linked to heart-related diseases or stroke. These are published Harvard-based research that the scientific community respects. Sixty years ago, there was an article that said saturated fats would raise twice as much cholesterol compared to unsaturated fats, resulting in the fear of getting cardiovascular diseases. This is not quite true now (based on recent studies) but that fear persists till today. The politicians, not knowing head and tail, put the claims of saturated fats being bad on the table now and try to formulate regulations to avoid or minimise consumption of saturated fats. They are even confusing (the consumers) by naming palm oil as a source of saturated fats. Palm oil is not the only source of saturated fats. In fact, saturated fat content in meat is much higher. If you are trying to protect the cattle industry and harm the palm oil industry, that is politics at play. When there is no scientific evidence, how is it going to support the kind of regulation imposed on palm oil? If there is, there has to be a lot of scientific concord in order to support such a regulation.

Do you see an end to this?

Mohd Noor: Deforestation in the palm oil industry is basically 25% reforestation because we replant. In two years, the palm trees are able to carry out photosynthesis and produce oxygen. Essentially, we are mindful about providing scientific research and proof.

Lee: The anti-palm oil lobby is ongoing and the accusations have accelerated. Planting of oil palm even in backward underdeveloped nations is unacceptable to many NGOs, so how are the communities going to have an uplift in their livelihood? I think NGOs should be able to compromise on controllable deforestation. It is necessary to put the right perspective to the consumers that a balanced development is the key, taking into account preserving forests and the people’s need for productive agriculture.


Replanting Incentive Boosts Sustainability

There are only two references to the palm oil industry in the Budget 2014. What stands out?

Yusof: The Budget has been low key on the palm oil industry. Prior to the Budget, industry members have made the usual requests to ensure the steady development of the palm oil industry. The palm oil industry is under the Plantation Industries and Commodities Ministry, so internally the ministry would have to provide growth catalysts like implementing the biodiesel programme. Programmes like replanting and biodiesel will help regularise palm oil stock and this will ensure excess stock is capped.

What about other components of the Budget beyond the palm oil industry?

Lee: Although the palm oil sector is a major income contributor to the nation, the subsidies we receive from the Government are often offset by the taxes we pay. Replanting is a very good incentive and a continuation of previous policies. I am glad that the Government recognised the need to reduce cooking oil subsidies, which were borne by industry players in the past. This is to reduce abuses of the subsidies.

Mohd Noor: Between 30% and 40% of the oil palm (trees) are more than 20 years old. We have our own replanting programme – at around 5% per year. We are mindful of our own industry and do not expect another windfall in respect of price increase too soon.

Abdul Halim: The replanting subsidy is a good move especially for the smaller planters. There are other things the Government can look into. One is the subsidy for biodiesel, which will decrease stock and increase (crude palm oil) prices. Increase in CPO prices will also benefit the Government. Biodiesel benefits the biodiesel players and will uplift Malaysia’s green image while at the same time boost the palm oil industry. The Government should also review export tax from time to time so that we remain competitive, especially compared to Indonesia’s tax structure. As we are invested globally, the prices in Pakistan, for example, are no longer favourable to us as the export quota (which was tax exempted) was abolished and we have to pay duties on our palm oil export. As a result, Malaysia lost its competitive edge and risks losing its market share in Pakistan which we have developed since 1993. The Government should also give special quota to local companies which have overseas investments. Overall, what the Government has done, including giving subsidies for fertiliser, is fair.

Melssen: From a biomass point of view, the incentive given under the Malaysian Biotechnology Corp for piloting (initiatives) is interesting. Hopefully, this will get more people to start piloting in Malaysia and eventually scale up to commercial levels. In the National Biomass Strategy 2020, we try to attract technologies where local and international players can work with the local biomass owners.