Sime Darby Plantations head of downstream operations Haris Arshad notes that the dietary requirements for the feed of ruminants, like cattle, and poultry are quite different.

11/05/2017 (The Star) - Sime Darby Plantation Sdn Bhd has taken its first step into the poultry feed business with an innovative system that processes a by-product of palm kernel oil into a high quality ingredient to be used in chicken feed.

While the company has been exporting the by-product, called palm kernel cake (PKC), to Europe for years, the commodity has traditionally been used mainly in cattle feed.

PKC, being high in fibre and low in protein, is suitable for cattle but cannot be consumed by poultry.

Head of downstream operations Haris Arshad (pic) said the dietary requirements for the feed of ruminants, like cattle and poultry, are quite different.

“In the case of cattle, they need fibre, and this is where PKC comes in.

“The protein level in PKC is quite low, and while this is suitable for ruminants, it cannot be used in poultry feed,” he said.

He added that Malaysia has been exporting the cheap commodity to Europe, and at the same time, spending millions of ringgit importing ingredients for poultry feed such as maize or corn and soybean meal.

“What we have done is come up with a system that processes this commodity so it is suitable to be used as an ingredient that can replace maize in poultry feed,” he toldStarBiz.

Livestock farming is a billion ringgit industry in Malaysia, whereby feed and nutrition constitute over 25% of the total livestock production cost.

Malaysia spent US$736mil in 2015 to import maize from Argentina and Brazil as the main ingredient for animal feed.

After two years of research and tests, completely funded by the Malaysian Palm Oil Board (MPOB), Sime Darby Plantations recently launched its new animal feed ingredient, which is in essence – enhanced palm kernel expellers – called ‘Purafex’.

“Two years ago, when it was proposed that we develop this system, the first thing we asked was – will there be a demand for it? We found that even domestically, the demand would be huge,” said Haris.

Over 50% of chicken feed in the market consists of raw imported components including maize and soybean meal.

According to the Plantation Industries and Commodities MInistry, using about 30% of locally-produced components such as the PKC, could lower costs by about 72 sen for each bird, a savings of RM1.3mil a day or RM473mil a year.

In 2016, Malaysians consumed 1.8 million chickens daily, or about 657 million chickens a year, and as the population continues to grow, these numbers are set to rise.

“With the system we have put in place, we have the capacity to produce enough of the ingredient to meet about 10% of the current demand, and we will expand production as demand picks up,” he said.

Apart from significantly cutting costs for poultry farmers, Haris said these savings could then be passed to the consumer as well. The innovation, he noted, is in line with the company’s vision of being a differentiated player, moving away from being a commodity player.

“We want to add value to whatever we do.

“We have done a lot with palm oil, moving further downstream, and now we are looking at animal feed as a new area to explore further,” he said.

Over the past two years, the team behind the innovation conducted various trials with Purafex, and found that it produced healthier chickens with significantly lower fat content. The mortality rate was low at 3%, compared to the industry average of 4% to 5%.

“It took us about two years and the results have been encouraging,” he said.

He says the company was optimistic about the demand, despite being a new player in a matured market.

“Of course, there will be challenges ahead

“We have to find innovative ways to reach the farmers, and this will take some time,” he said. Another benefit of using PKC, he says, is that farmers move away from using antibiotics in livestock.

Some livestock producers are known to routinely give antibiotics to animals to promote growth or prevent diseases.

“Palm kernel oil has a fatty acid called C16 which is a natural antibiotic, and PKC has some remnants of oil in it after extraction.

“These natural antibiotics are not present in other major poultry feed ingredients like corn meal or soybean meal.

However, at the end of the day, the biggest concern for poultry farmers will be the cost.

“If farmers don’t see cost benefits of using this material, they will not change.

“This is what will make all the difference,” he said.

The cost difference between the imported ingredients and Purafex is quite significant, Haris notes. Corn meal, he says, can cost anywhere between RM1,300 and RM1,500 per tonne, while Sime Darby Plantation will be selling PKC at RM500-RM600 per tonne.

“It is less than half the cost of imported feed ingredients.

“If we calculate based on a 30% content of PKC in chicken feed, we are looking at savings of RM200 to RM250 per tonne of the feed,” he said.

And this, he says, is in addition to healthier chickens and a lower mortality rate.

Moving forward the company has to map out its stategies to get the products to farmers. “We have to see how far down the value chain we want to go. For now, our objective is to gain acceptance for the product and make it mainstream – and we can only do this by conducting more trials,” he said.

He noted that market access was limited, unless they partner an integrator, which will then formulate the feed to be sold to farmers.

“The industry is such that you have to be an integrator in order to sell to the farmers.

“Integrators provide the farmers with the birds as well as the feed – this is how the model works,” he said.

On potential revenue for the company, Haris reckons it is still a long way ahead, and they are targeting to achieve RM20mil annual profit in four years. “This is very small, but the aim is to add value, and this will take time. “In the long term we believe this has huge potential,” he said.