27/08/2003 - THE new generation of oil palm plantations will likely findbetter and greater value functioning as biotech farms by the turn of thenew millennium, said IOI Corp Bhd group executive chairman Tan Sri LeeShin Cheng.

Given the current rapid development in biotechnology, it is notinconceivable that by second half of the new millennium, our oil palmplantations will turn into this (biotech farms), he said.

The oil palm industry was also expected to consolidate over time,following the example of the soybean industry where there were a handfulof dominant global players, Lee said in presenting a paper on BusinessStrategies For the Oil Palm Industry in the New Millennium at the ongoingMalaysian Palm Oil Board's International Oil Congress (PIPOC 2003) inPutrajaya yesterday.

He said the pressure for consolidation of smaller and less competitiveplayers would be driven by the need for cost competitiveness and to remainprofitable when prices were at their cyclical lows. This will also bedriven by food multinationals seeking to establish certifiable linkageswith reputable and sizeable suppliers.

Lee said there was a need to look beyond crude palm oil (CPO) as the solesource of revenue, to value-add one must fully utilise what oil palm sogenerously offers such as full utilisation of bio-mass to optimise totalreturns.

An integrated approach of a well-located super processing complex with oilmill, refinery, oleochemicals, speciality fats processes, nutrientextraction, biomass energy generation and fibre pulp plant next to eachother would be formidable indeed, he added.

Another sensible strategy would be to locate the processing and otherdownstream operations to where the market base was, Lee said, adding thatthis will have the advantage of overcoming discriminating tariffs andbeing nearer to customers thus enabling savings through shorter supplychain, lower inventory holding, fresher oil and providing better batchconfiguration for formulated solutions.

I also see a trend where players move beyond their traditional areas ofkey competency into other parts of the value chain, he added.

This convergence of market segments will lead to an interesting battle inthe middle and making it even harder for smaller, non integrated playersto survive, Lee said.

Despite the challenges ahead, he remained positive about the palm oilindustry, which has many opportunities to be exploited.

Even with existing technology and current planting material, palm oilyields could be substantially improved, he said.

He added that the key to lower production cost for palm oil was higher oilyield. Malaysia's average CPO yield of about 3.8 tonnes per ha is belowits potential of 6 to 7 tonnes for commercial scale production.