3/3/07 (The Star) - THE El Nino phenomenon experienced last year will have minimal impact on Malaysia's overall palm oil production growth this year.

Instead, the abnormally heavy rainfall experienced in major oil palm producing states last year, which was 8% higher than the national rainfall average, could boost yields of the commodity, targeted to hit 16.3 million to 16.4 million tonnes this year (2006: 15.9 million tonnes).

Despite the higher production, Malaysia will lose its top spot as the world's largest crude palm oil (CPO) producer this year to Indonesia, where production is expected to surge to at least 17.01 million tonnes.

Of the global total planted hectarage for oil palm of 700,000ha to 800,000ha, Indonesia has about 400,000ha-500,000ha of mature oil palm plantations. Malaysia and Indonesia control about 85% of the world's palm oil production.

Of late, however, there is a growing fear among plantation players of the emergence of the La Nina weather phenomenon, which is usually marked by heavy rainfall. 

Weather forecasters see La Nina occurring from March to June, reaching peak intensity by December and lasting up to February next year. The world encountered a lengthy La Nina from 1998 to 2001.

A prolonged drought lasting three to four months could seriously affect the yield and oil extraction rate (OER) of palm oil, the effects of which can only be felt in the next 12 to 15 months. This literally means that the impact of El Nino on palm oil production would be seen by mid-2008.

Any potential disruption in CPO supply could translate into higher prices, given the surging demand for the commodity, both for food and energy use. Generally, market analysts have forecast CPO price to average about RM12,000 per tonne this year and RM12,500 in 2008.

The weather changes aside, another concern among local industry players is that interest in palm-based biodiesel appears to be fizzling out.

Of the 86 biodiesel licences issued by the Malaysian Industrial Development Authority, only 10 to 15 players have started constructing their respective plants.

Many blame the Government's lack of speed in expediting the enactment of the long-awaited National Biodiesel Act this year. 

Malaysia is positioning to be a leader in palm-based biodiesel but we are sending all the wrong signals. 

Without any clear-cut legal framework and regulations, it would be difficult to attract foreign investors to biodiesel projects and for local players to market the alternative fuel.

Although demand for biodiesel is on the rise globally, local players will find it difficult to market to Europe, the major consumer of biodiesel. This is given the potential trade barriers and strong opposition from non-governmental organisations on the issue of sustainability and tropical forest destruction.

On the plus side, the Kuala Lumpur-based Roundtable on Sustainable Palm Oil, a global body of edible oil traders, is coming out with an internationally recognised certification for sustainable development of palm oil by December to protect the interest of all players in the edible oils sector.

Local biodiesel players are strongly advised to look at emerging Asian economies like India, China, Japan and South Korea, which have shown strong interest in biodiesel.