23/2/06 KUALA LUMPUR (Bernama) -- The price of palm oil should reflect its true value given its diversification, nutritional and functionality content, rather than be under-quoted as mostly determined by big importers.

This would ensure extra revenue for the country that could be allocated for other use such as subsidising bio-diesel programmes, says newly-appointed Malaysian Palm Oil Promotion Council (MPOPC) chief executive officer Tan Sri Dr. Yusof Basiron.

Presently, palm oil prices are undervalued due to a lack of negotiating power, he told Bernama in an interview here recently.

"Palm oil cannot be forever denied its true values simply because at the moment we don't have the competitive bargaining power especially with big importers," he said.

With bio-fuel on the card, to some extent, palm oil prices should have moved upwards and enjoy the same treatment as rapeseed oil, which currently hovers between RM2,000 and RM2,400 per tonne.

Palm oil should have seen similar pricing, said Dr Yusof who was previously the director general of the Malaysian Palm Oil Board (MPOB).

He replaced Datuk Harun Siraj, 62, who retired on Jan 6, 2006.

Currently, crude palm oil prices hover between RM1,400 and RM1,500 per tonne.

Dr Yusof cited India, which is a large importer of palm oil as an example, saying that it has leveraged the price downward by imposing heavy import duties.

Such a method suppresses palm oil prices and the undervalued price level is rather good for the Indian government as it generates revenue, he said.

However, it doesn't benefit the Indian consumers because they are paying a high price for the oil, which they could have at a much lower price if the import duty is not at such a high level, he said.

"This is a trade distorting mechanism which unfortunately the World Trade Organization has yet to be successful in overcoming," he said.

This revenue, he said, is used by the Indian government to subsidise their own farmers to produce more oils, so with more supply there could be a second round of price leveraging downwards.

"Because they produce more, using the import duty revenue to subsidise their farmers who then produce more oil, this will dampen the import (of palm oil) and its price," he said.

"And therefore we sometimes pitch against our neighbour Indonesia as to who is going to offer a lower price. If we refuse to give lower price, they will go to Indonesia to buy the raw material and vice versa," he said.

"In this way, we are competing to kill one another by lowering our price."

The best way forward then is to find the initiatives to overcome such undervalued pricing of palm oil and making sure that its true value and true price can prevail again, just like the soya and rapeseed.

One way out is to divert the supply to bio-fuel, he said.

"If the food industry does not pay its true value then divert it to bio-fuel," he said, adding that the bio-fuel sector does provide a good profit margin as a whole.

He said bio-diesel programmes, would have the opposite upward price leveraging effect, "by reducing stock, the price will move up."

This effort, he said would be a balancing act to counter whatever negative price-leveraging efforts made by some importing countries.

At least the industry will collect more revenue and some of this can be used to sustain bio-diesel programmes, said Dr Yusof. Naturally, the bio-fuel projects would also draw more palm oil away from the traditional market.

This, he said would result in price recovery.

"So, in future, whoever is able to offer competitive price, will have access to palm oil the most," said Dr Yusof.

"With all this excitement of additional demand, out of bio-fuel initiatives, the future of palm oil looks more assuring," he said.

Dr Yusof is still the co-chairman of MPOB's efforts in bio-fuel programme.

This, he said allow him to continuously give advice on various opportunities and requirements needed to make sure that the country's bio-fuel industry grows into a sizeable and commercially viable industry.

Malaysia, he said would also continue to hold talks with Indonesia to have similarly strong bio-fuel programmes, which would ultimately lead towards a more balanced price bargaining power between buyers and sellers.

-- BERNAMA