28/03/05 KUALA LUMPUR (Dow Jones)--The U.S. may have little choice but toturn to palm oil in the coming years to help reduce the very healthproblems initially blamed on the Southeast Asian-produced oil, said ascientist at a major European palm oil products maker.

In 2006, the compulsory inclusion of trans fatty acid content on labels ofpackaged foods will come into effect.

As trans fats, linked to the increased risk of heart disease, are found inhydrogenated soybean oil, the search is now on among food companies forhealthier alternatives.

Palm oil appears to be the obvious choice, said Gerald McNeill, directorof research and development at Loders Croklaan.

"Palm oil is clearly the best solution. It's versatile. It's healthy,since saturated fats are better than trans fats. The cost, as well, isbetter," he said in an interview.

Loders Croklaan, a specialty oils and fats maker, is part of Malaysianplantations group IOI Corp. Bhd. (1961.KU) and is headquartered in theNetherlands. IOI Corp. is a leading palm oil producer in Malaysia.

A switch to palm oil by U.S. companies is already gathering steam as thelabeling deadline looms, McNeill said.

Kraft Foods Inc. (KFT) and Frito-Lay are among the major food producersthat have started switching to palm oil.

At Loders Croklaan's U.S. manufacturing facility, where McNeill is based,increasing sales have spurred plans for a threefold capacity expansion byyear-end.

"Companies are talking about switching to palm oil between three to sixmonths before (the start of 2006). So we should be seeing a big upsurge(then)," McNeill said.

Malaysian trade data also show an impressive surge in U.S. palm oil demandlately. The U.S. bought close to 350,000 tons of palm oil from Malaysia in2004, up about one-third from 2003.

The uptrend continued in the first two months of 2005, with exports upabout 20% on year.

Malaysia is the world's biggest palm oil producer, followed closely byneighboring Indonesia.

Concerns about the health hazards of trans fat could open the way for palmoil to enter a huge market.

"The total potential market where palm oil might be a solution is about 5billion pounds (2.3 million tons). That is the volume of hydrogenated oilsthat are now being used," McNeill said.

Good Vs Bad Cholesterol

Palm oil has had only a modest presence in the U.S. in the wake of fearsin the 1980s linking saturated fats contained in tropical oils to heartdisease.

Partially hydrogenated soyoil, produced by adding hydrogen to make liquidoils more solid, has therefore been a staple for the food industry in pastdecades.

However, it has come under fire recently after it was discovered thattrans fats found in hydrogenated oils were also unhealthy.

Petitions from health and food safety groups have since culminated in adecision by the U.S. Food and Drug Administration requiring trans fats tobe reported on nutrition labels for all food products containing 0.5 gramor more of the fatty acid per serving.

The requirement will be effective January 2006.

"There's a realization that trans fat is much worse. People want trans fatout of their diet more than saturated fats. That is the mood here in theU.S.," McNeill said.

Central to the comparison between trans fats and saturated fats is therisk of heart disease due to changes in cholesterol levels.

Saturated fats found in palm oil increase LDL, or bad cholesterol, butalso increase HDL, or good cholesterol.

Trans fats have a less favorable ratio. They increase LDL and reduce HDL,or good cholesterol levels.

"So with trans fats, there's a greater risk of heart disease thansaturated fats," McNeill said.

The FDA's labeling requirements have drawn widespread public and mediaattention to the trans fat issue in recent months.

To avoid any backlash from consumers, food companies are now looking tonot only reduce, but eliminate altogether the use of trans fats in theirproducts.

Only A Few Options Available

There's less than a year to go for food makers to find a suitablereplacement for partially hydrogenated soyoil, but thus far, options arefew and far between.

Poly-unsaturated and mono-unsaturated oils like olive oil, corn oil andsoyoil are known to be the healthiest oils, as they lower bad cholesteroland at the same time increase good cholesterol.

However, liquid oils in their pure form aren't suitable for the foodindustry, McNeill said.

"Most baked goods like cookies and cakes and processed foods require solidfats for functionality. Liquid oils are not suitable unless they arehydrogenated," he said.

Liquid oils can be hydrogenated in such a way so as to have lower transfat content, but that may not be a feasible option either. The minimum 0.5gram trans fat/serving requirement would be difficult to meet, and thefact that the oil is hydrogenated would still have to be stated on labels,McNeill said.

Another option is a process called "interesterification."

It involves fully hydrogenating soyoil into a solid, but trans fat-freeform and mixing the product with the original liquid form.

"But it has limited functionality because it's unstable. So it's notsuitable for products that require long shelf lives," McNeill said.

The limited usefulness of unsaturated oils leaves palm oil, which is asemi-solid oil, as the best alternative.

"Palm oil is the ideal functional solution because it's naturally hard,"McNeill said. "It's also naturally stable because saturated fats don'treact with air and have a long shelf life," he added.

The versatility of palm oil also makes it an attractive option because itis easily fractionated into various oils and fats with differentproperties, from a liquid palm olein to a harder palm stearin.

From a health perspective, palm oil is a better alternative because it iscomposed mainly of saturated palmitic acid and unsaturated oleic acid,which are the same fats found in human milk, whereas hydrogenated oils areunnatural, McNeill said.

Besides being the cheapest edible oil in the world, palm oil can easilyreplace hydrogenated oils in the food industry with little addedinvestments, he said.

"In many cases, it's a one to one drop-in solution. It can work straightaway," he said.