14/07/05 KUALA LUMPUR (Dow Jones) -- Growing concerns about food safetyare putting not only the quality of palm oil, but also the machinery andequipment used in the processing, storage and transport of the oil, underincreasing scrutiny, a senior Malaysian industry official said.

Mohd. Radwan Alami, group chief executive of the Alami Group, said thatwith health and hygiene standards in the global food industry becomingstricter every year, the pressure is on for the palm oil industry toenhance and modernize facilities.

Central to any upgrade would be a switch to stainless steel as thepreferred alloy in all hardware used along the commodity's entire supplychain, Alami said.

The Alami Group owns a fully stainless steel-based palm oil processing andpacking plant set up in 2000, making it the only one of its kind inMalaysia.

"We believe that the palm oil industry will witness a huge shift very soontoward the use of stainless steel equipment and facilities for storage andprocessing," Alami said in an interview.

Already, the world's edible oils and fats industry players have agreed, inprinciple, to require all shipments of palm oil to be transported instainless steel vessels by 2008.

"The new regulations on the transport of edible oils are a very goodindication that things are changing," Alami said.

"Slowly, this (stainless steel requirement) will go to the industryitself. After transport, then to the storage of the oil and then to theprocessing of the oil," Alami said.

Epoxy coated mild steel, which is cheaper, has been the main material usedin the palm oil industry for decades and continues to dominate the sector.

Alami said his company's decision to opt for a stainless steel-based plantwas motivated purely by the increasingly stringent quality standards onfood imports in key palm oil consuming markets, particularly in Europe andJapan.

The way palm oil is handled, and the equipment used, is these daysbecoming just as crucial as the quality of the oil itself. Industryplayers that remain indifferent to this emerging trend could risk one daybeing shut out by consumers.

Having a stainless steel plants "is not something we did to show off. Itis something really needed because standards are going up."

"People are now looking into food safety as a matter of priority. Theywant to know exactly how, when and where (a product) is made, how it isstored, how it is moved" before they buy the product, he said.

Industry Seen Upgrading Gradually

High food quality standards aren't confined to rich nations alone. Even inlesser developed nations such as Sudan, where Alami Group has a jointventure processing palm oil, requirements are surprisingly high, Alamisaid.

"We were surprised to see that a country like Sudan was insisting onstainless steel storage facilities for all edible oils. I haven't heardMalaysia or even the big countries adopting such a system yet."

While the benefits of switching to stainless steel may be evident, thepace of any industry upgrade would more likely be gradual than rapidbecause the cost can often be restrictive, Alami said.

Stainless steel can cost twice as much as epoxy coated mild steel, hesaid.

As one of the newer players in the palm oil processing business, the AlamiGroup was at an advantage because its later arrival on the scene gave thecompany the flexibility of choosing from which alloy its facilities shouldbe made.

However, the decision isn't nearly as straightforward for a lot of olderrefiners and processors in an industry dating back more than 50 years.

"What the industry is facing today is a tremendous challenge. For thepeople who have already built their facilities, do they demolish it andrebuild? Or just (should they) let go of the old facilities and build anew one altogether?" Alami said.

An immediate wholesale change would be unlikely as it may be too costlyfor the industry to completely write off their existing facilities, hesaid.

Instead, companies are likely to introduce more advanced equipment as partof their expansion or to replace older ones that have exceeded their lifespan.

"That's why we can see a mix of old and new in much of our industry. Thereplacement will take time," Alami said.

The Alami Group started as a trader and exporter of palm oil products morethan 15 years ago before it set up its own Malaysian manufacturingoperations in Banting, in central Selangor state.

Today, the company exports about 15,000 tons a month of processed palm oilproducts ranging from cooking oil to shortenings and margarines to 34countries.

Besides in Sudan, the group has a processing joint venture in SaudiArabia, as the Middle East and Africa are among its main markets.