13 Aug 2006 (NSTP)  -  NOTHING quite like this has happened to the palm oil industry before.

Sure, the golden crop has saved the country whenever its other exports were hit by recession. But that was largely thanks to people still having to cook their meals as they cut back on less essential consumer spending. Economic recovery thereafter doesn’t necessarily increase the popular appetite for fried foods. The growing fad for alternative fuels such as biodiesel, however, could mean an explosion in the use of palm oil. Crude palm oil (CPO) futures are now tracking crude oil prices and instability in the Middle East, rather than worrying about the global trend to fat-free diets. A long queue for permission to build biodiesel plants has formed on the Plantation Industries and Commodities Ministry’s door.

Concerned that supply might not meet the rush, the ministry has frozen the issuing of licences. But with Indonesia and Malaysia agreeing to allocate 40 per cent of total annual output for biodiesel and only 67 per cent of planned production approved, the suspension can only be temporary. The ministry prefers foreign investment, especially from fuel-hungry countries such as China, that can lock in export contracts to speculators betting to sell in the open market. Some caution is indeed called for. Cost-wise, oil prices would have to fall to US$50 a barrel before biodiesel becomes costlier. On the other hand, with CPO prices nearing RM1,800 per tonne — the break-even point against petroleum diesel at current values — plants without a secure supply line could soon go out of business. The ministry appears to be seeking a balance between the plantation companies and their affiliates (who have assured supplies) and foreign investors (who have assured home markets).

That balance will be critical. Because biofuel components in retail petrol and diesel are usually mandated, governments choose to protect domestic agricultural producers, sometimes subsidising them and imposing tariffs on imports. The great thing about locally renewable energy is their potential for reducing dependence on volatile outside sources. There is certainly money to be made from Malaysia’s vast acreage of oil palm. But the switch from fossil to greener fuels should not be for profit alone. It should be part of a broader push to more energy efficient living, beginning with the National Biofuel Policy due out this year and ending with a lasting cure for our bawling addiction to cheap oil.