10/3/2005 (Business Line) - Recently in Mumbai - By the end of next year,Malaysian companies could control up to 60 per cent of the edible oilrefining capacities in Europe.

There are two reasons for this. One, it helps Malaysia to overcome theissue of traceability of its palm oil products. Two, it is an avenue forMalaysian corporates in the business of palm products to invest upstream,especially when opportunities at home have declined.

According to Mr M.R. Chandran, former Executive Director, Malaysian PalmOil Association (MPOA), European stores have tightened up food standardsand are insisting on tracing the origin of any food. Traceability requiresa manufacturer to provide details of the farm where a particular foodproduct is grown, the unit where it is processed, places where it isstored and unit where it is finally packed.

The Malaysian companies strategy is in contrast to approach of the IndianGovernment, which is opposed to the traceability in the World TradeOrganisation talks and plans to shelve the clause in the Integrated FoodLaw introduced in Parliament during the monsoon session.

"For example, European stores which buy noodles from China are keen on thetraceability issue and want to know from which estate the palm oil used inmaking the noodle," said Mr Chandran, who was in India in connection withan international edible oil conference. "Malaysian companies feel theissue will assume more serious proportions in the days to come and havehence begun investing in refineries in Europe," he said.

Companies such as IOI Corp Bhd and Golden Hope and Kuok Oil & Grains areamong those that have invested in edible oil refineries in Europe. IOIrecently bought a refinery from Unilever and is currently setting up a 0.8million tonne refinery, stated to be the biggest in Europe.

"Once the refinery goes on stream, Malaysian companies will gain controlof at least 60 per cent of the oil refining capacity in Europe. Currently,they control about 30 per cent," Mr Chandran said.

The feature of these companies buying refinery is that crude palm oil issourced from the plantations of the respective companies back home andeven the vessels in which the consignments are shipped are dedicated ones.

"The European stores are carrying out quality audits from the farm to therefinery gate since food safety and quality have become paramount," hesaid.

Similarly, Malaysian companies are investing in refineries in SaudiArabia, Vietnam, Bangladesh, and Pakistan.

The other strategy for Malaysian companies to look for investment abroadis that it helps them increase their global market share for their palmoil products. "Our Government has asked the companies to invest abroad asland for extending palm plantations is limited. As a result, we controlabout 25 per cent of Indonesia's palm oil plantations," Mr Chandran said.

At home, the plantation companies are looking at sustainability byimproving productivity, according to Mr Chandran. Currently, averageproductivity of oil palm trees is four tonnes of oil per hectare. Some ofthe best estates' productivity is 6.5 tonnes, while that of bestcompanies' is 5.2-5.3 tonnes. In comparison, Indonesia's productivity is3.2 tonnes.

"Our vision is to improve the productivity to 4.5 tonnes by 2007 and fivetonnes by 2010," he said, adding that improving yield was important inview of scarce land availability.