The Future of Palm Oil

On September 21, 2010, the Government of Malaysia launched The Economic Transformation Programme (ETP), a comprehensive programme to assist Malaysia in achieving its goal of achieving high-income status by 2020. A number of industrial and economic sectors were identified under the ETP as National Key Economic Areas (NKEA), through which Malaysia will achieve prosperity and economic growth. The palm oil industry is one of those NKEAs.

In recognition of the palm oil industry’s significant contribution to the Malaysian economy, the ETP outlines eight entry point projects (EPP) to improve industry practices and increase incomes from palm oil cultivation. The impact of these projects will be an increase of the palm oil industry’s contribution to Malaysia’s GNI of more than 237 percent to RM 178 billion (USD 56.5 billion) by 2020.

1. Accelerating the replanting of oil palm

Malaysia currently holds a backlog of 365,414 hectares of oil palm trees older than 25 years old, reflecting oil palms that have exceeded their prime production age and will need to be replaced with higher yielding oil palms.

The Malaysian Palm Oil Board will assist smallholders in replanting 100% of this backlog within 3 years, through a combination of a binding replanting policy with smallholders, providing financial assistance to small farmers due to loss of income during unproductive years, and providing farmers with quality planting materials.

This replanting will contribute to an increase in palm oil’s contribution to Malaysia’s GNI of RM 6.4 billion (USD 2 billion) by 2020.

2. Improving fresh fruit bunch yield

Significant potential remains to improve average yields of fresh fruit bunches (FFB), with a 25 percent increase being targeted in average national yields of FFBs by 2020.

This is to be accomplished through a combination of providing better services to smallholders from MPOB’s guidance and counseling officers (TUNAS) and assisting independent smallholders to participate in cooperatives to improve cooperation and collaboration with nearby producers.

This project is expected to create an additional 1,600 jobs and improve the income of more than 161,000 independent small farmers by 47 per cent.

3. Improving worker productivity

Oil palm plantations by their nature are unable to rely heavily on mechanization, relying primarily on a combination of high-skilled and low-skilled labor. This is both a strength of the industry as a poverty alleviation mechanism, but also reflects a weakness when there is a shortage of labor, as the industry is currently experiencing.

In response to these pressures, palm oil laborers will be provided with a combination of training and tools to assist in their work, including the use of a motorized harvesting pole, CantasTM, to improve harvesting productivity, a diamond sharpening tool, and the use of buffalo-assisted collection of FFBs.

The result will be an additional 28,000 jobs and will generate an estimated RM 1.7 billion (USD 539.9 million) in GNI.

4. Increasing the oil extraction rate

The national oil extraction rate (OER) has not made significant improvement in a number of years, providing an opportunity for Malaysia to increase the national average through a combination of monitoring and quality control.

With an objective of increasing the OER from the current rate of 20.5 percent (2009) to 23 percent by 2020, all participants in the supply chain, from plantation to consumer, will benefit from higher rates of extraction and therefore greater efficiency of production.

This project is expected to generate an addition RM 13.7 billion (USD 4.35 billion) in GNI and create 10,000 jobs through the opening of 84 new mills to meet the increased supply of FFB.

5. Developing biogas at palm oil mills

Palm oil mill effluent (POME), which is waste generated from the processing of fresh fruit bunches and palm fruits to extract palm oil, is the most significant contributor of greenhouse gas emissions from the processing of palm oil. As a result, Malaysia will capture POME and use GHG emissions from the waste to power mills, local communities, and even feed excess energy into the national grid.

Under this EPP, Malaysia will construct biogas capture facilities at 500 mills over the next ten years, thereby significantly reducing the already low levels of GHG emissions and establishing a carbon negative means of energy generation.

With only incremental Government funding, this EPP will generate an estimated RM 2.9 billion ($ 921 million) in GNI by 2020 and create 2,000 new jobs.

6. Developing oleo derivatives

Recognizing the value of increasing downstream segments of the palm oil supply chain in Malaysia to increase the value of products produced from Malaysian palm oil, the Government will support the development of downstream processing of palm oil to harness a larger share of the oleo-derivatives market.

This will include supporting local oleo derivatives companies expand domestic production, assist domestic companies in establishing joint ventures to establish local plants and incentivizing investment from international conglomerates in Malaysia.

Through these efforts and others, Malaysia will generate an additional RM 5.8 billion (USD 1.8 billion) in GNI and create 5,900 jobs.

7.Commercialising second generation biofuels

With the industry producing more than 80 million tonnes in biomass, and with production expected to exceed 100 million tonnes by 2020, the industry holds tremendous potential to contribute to global demand for second generation biofuels.

Under this EPP, Malaysia will assist companies in fast tracking commercialisation of new technologies, such as the production of bio-oil through the pyrolysis process. Already two companies are close to commercialisation of this technology.

By 2020, this EPP is expected to generate an additional RM 3.3 billion (USD 1 billion) in GNI and create 1,000 jobs.

8. Expediting growth in food- and health-based downstream segments

In addition to next generation technologies and harnessing waste and biomass from the palm oil sector, there also remains tremendous potential in establishing more food and health based downstream segments. Doing so will increase the value of Malaysian palm oil to domestic industry and increase the value of palm oil related exports. And with new research finding incredible health benefits of palm oil, Malaysia is poised to be an incredible source of nutrients and health products for the world.

The Government of Malaysia will be providing tax incentives for Malaysian companies to aquire foreign food producers and undertake research and development and new product development.

This EPP is expected to create 74,900 local high skilled jobs and generate RM 4.9 billion (USD 1.6 billion) in additional GNI.

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