Wednesday May 25, 2005, 8:11 pm KUALA LUMPUR (Dow Jones)--Asia may be aleader in the production and consumption of palm oil, but the region isstill lagging in the supply and usage of specialty products derived fromthe commodity like fat-based animal feed.

For decades, Malaysia has been the biggest producer of crude palm oil,with annual output reaching 14 million metric tons in 2004. NeighboringIndonesia is a close second, producing an estimated 10-12 million tonslast year.

However, both countries have been slow in venturing further downstream tocome up with new palm oil derivative products and innovative applications,said Gareth Cheong, marketing director of Wawasan Tebrau Sdn. Bhd., aMalaysian specialty oils and fats maker.

On the other hand, U.S. and European players that have taken the lead invalue addition, Cheong said.

Palm fatty acid distillate, or PFAD, is an example of a byproduct that hasbeen underutilized in the region, he said.

According to Malaysian Palm Oil Board data, Malaysia exported slightlyover 500,000 tons of PFAD in 2004, or close to 95% of its total PFADproduction.

"For the longest time, we have been aware that Americans and Europeanshave been buying huge quantities of PFAD from Malaysia," Cheong said."They use it for a number of applications, one of which is to convert itinto calcium soap of long chain fatty acid."

Sensing the huge market potential for calcium soap, a type of rumen bypassfat used as feed for dairy animals, in Asia, Wawasan Tebrau started itsown production plant in mid-2004.

The company, based in the southern state of Johor, became the firstcalcium soap producer in Malaysia and now exports to various marketsaround the world.

Asia holds particularly promising potential as it is a largelyunder-tapped market, Cheong said.

"This product has got a 25-year history, but penetration in Asia is stilllow because in the past, there was only a handful of producers in the U.S.and Europe and it didn't make much economic sense for them to bring it allthe way here," Cheong said.

Still An Undiscovered Product

Calcium soap is a fat made specially for high milk-yielding ruminants suchas cows, goats and sheep to help meet the animals' requirements for a highenergy diet.

Fats are known to be the cheapest and best source of energy, but acomplication arises when feeding ruminant animals because their rumen, or"first stomach," are oil-intolerant.

That's where calcium soap comes in.

A palm oil-based fat is combined with calcium and turned into a soap thatis hard enough to bypass the rumen until it reaches the animal's "fourthstomach" where natural acids can break down the soap and convert it intoenergy.

The increase in energy level ultimately leads to enhanced milk productionby the animals.

Yet, for all the benefits the calcium soap holds for the dairy industry,it remains a largely undiscovered product in the Asian region, Cheongsaid.

"What we didn't anticipate was the marketing aspect of the calcium soap,"he said.

Many farmers in the region, including in major markets like China, stillneed to be educated about the role of rumen bypass fats in boosting milkyields.

Instead of being heavily involved in marketing to end-users, WawasanTebrau has decided to focus on its core strength, which is the productionprocess itself.

"We decided to maximize plant (utilization) by doing contractmanufacturing for others," Cheong said. "Feed compounders buy from us aproduct that carries their own brand name, which their clients willrecognize."

Although still new to the market, Malaysian-made calcium soaps have beengradually attracting interest from buyers worldwide. Located at the sourcecountry of palm oil, Malaysian producers have the advantage of offeringthe freshest calcium soaps at a lower cost, Cheong said.

Industry Lacks Experts To Grab Opportunities

Besides producing calcium soaps, Wawasan Tebrau is involved in the tradingof specialty oils and fats and has a cooking oil packaging plant. It alsoprovides consultancy and advisory services.

The latter has been an especially fast-growing segment for the company,which was formed in the late 1990s.

Having spent over 20 years at now-defunct specialty oils and fats makerSoctek Sdn. Bhd., Wawasan Tebrau's managing director Low Moh-Sing and hispartner Cheong have turned their experience into a business by sellingadvice to an industry increasingly devoid of expertise.

In recent years, the government has repeatedly lamented the slow pace ofthe country's expansion into further downstream, value-added activities.

A dearth of expertise has been partly the reason.

"Today, the industry is depleted of expertise when it comes to valueaddition. There are very few people left who really understand thedynamics of specialty fats," Cheong said, adding that Wawasan Tebrau'sconsultancy service involves working with other companies on areas such asproduct innovation and building of plants.