17/10 2005 (The Star) - INDIA holds the potential to be a new prioritydestination for Malaysian plantation companies to expand their oil palmland bank after Indonesia as well as to establish ventures in the palmoil-related downstream activities and set up of biofuel plants.

Oilpalmworld Sdn Bhd director M.R. Chandran told StarBiz in Kuala Lumpurthat local plantation players must seriously look at the importance ofsetting up their base "where the biggest consumer market is" for palm oil.

After China, India is the world's second largest importer of vegetableoils, consuming about 11kg per capita compared with the world's averagevegetable oil consumption of 20kg per capita.

Of India's total vegetable oil imports of 5.8 million tonnes last year,palm oil accounted for about 2.8 million tonnes, soybean 1.5 million to1.6 million tonnes, and coconut oil and others for the remainder.

"The industry is driving towards further internationalisation, which meansMalaysian companies will have to invest in lucrative developing countrieswhich are major consuming markets, like India," said Chandran, who was theformer Malaysian Palm Oil Association chief executive.

M.R. Chandran

"This basically will reduce the procurement and delivery costs. However,it will also depend on the company's objective and individual conditions,"he added.

Chandran said many Malaysian companies had often overlooked India'spotential due to bureaucratic problems despite its liberalised policies intrade and investment.

He suggested that the Malaysian Palm Oil Promotion Council establish aspecial task force in India to look at new investment opportunities andassist local oil palm-based companies.

"Local plantation companies can also dilute their risk elements by settingup a consortium to venture into India's growing downstream activities likeoleochemical, food and pharmaceuticals," he said, adding that anotheroption would be cross investments with India's major downstream industryplayers.

Chandran said local plantation players could adopt the successful businessmodel of the Construction Industry Development Board, which leadsconsortiums to jointly bid for big infrastructure and construction jobs inIndia.

Plantation giants like Felda Group, which owns a palm oil refinery inIndia, and Permodalan Nasional Bhd-linked companies, were able to ventureon their own due to their financial strength.

India, which has a population of about one billion, relies on imports ofvegetable oils to supplement its local vegetable oil production of about6.7 million tonnes.

In the oil palm plantation business, Chandran said, Indian giants likeTata, Godrej Group, Birla Group and Goenka had cited strong interests toventure into upstream activities with Malaysian companies and would beadopting a two-pronged strategy.

"First, these Indian groups are willing to joint venture with Malaysiancompanies to cultivate oil palm in India on a big scale, but this issubject to India's government putting in place its Plantation Act," hesaid.

Currently, foreign or local private companies are not allowed to own morethan 5,000ha of land for plantation purposes. "To reach the economies ofscale, private players need more than 5,000ha of land for oil palmcultivation," he added.

He said Indian downstream players were also prepared to jointly investwith Malaysian players, which are expanding their plantation operations inMalaysia, Indonesia or Thailand, to enable them to secure long-term andsustainable raw materials.

India plans to increase its palm oil production to 300,000 tonnes annuallyby years 2015 to 2020, from the current annual production of about 70,000tonnes.

Chandran said most of India's oil palms were cultivated in central Keralawhere the government-owned Oil Palms India Ltd had a 10,000ha plantationand the private sector about 2,000ha.

Active Indian companies venturing into the oil palm plantation businessinclude the Godrej group - the country's largest palm oil producer at20,000 tonnes per year. Chandran said the group, which has an existingplantation in Goa, would invest RM350mil for expansion in the state ofGujerat.

He said the 3F group, which has 3,000ha of oil palm estates, would alsoinvest about RM415mil to cultivate oil palm trees on a 2,000ha to 3,000haland in Andra Pradesh.

Chandran said biodiesel or biofuel business also had strong potential inIndia. He said there was always a need for power and energy due to thecountry's growing economy. In addition, big cities like New Delhi, Mumbaiand Chennai, with over 10 million population each, are polluted withincreasing sales in motor vehicles, which consumed high diesel and petrolfuel.

"There are terrific opportunities for Malaysian companies to set upbiodiesel plants in India. There, consumers are heavily taxed and had topay three times higher than Malaysian consumers for petrol and diesel,"Chandran noted. In addition, the by-products from the palm biodiesel plantwith vitamin E could be sold to the flourishing pharmaceutical business inIndia.

Chandran cautioned Malaysia companies on the strong influence of bigmultinational companies like Cargill and Bunge, which have been activelybuying India's poorly managed oilseeds refineries.

"These US-based companies are now consolidating their positions and goingtowards integrated operations in India with the potential of controllingboth the upstream and downstream activities.

"The danger I kept telling Malaysian investors was that Cargill and Bunge,which are biggest soybean producers in Argentina and Brazil, might pushfor more soybean usage in India for its downstream activities and evenbiofuel projects," he said.