The Oil Palm

New Report Deals Further Blow to EU’s Unscientific ILUC Proposal

Blog post by Malaysian Palm Oil Council CEO Yusof Basiron:

The European Union’s proposal to introduce Indirect Land-Use Change (ILUC) into renewable energy policy has been criticized by scientists, politicians and business as unscientific and unworkable. It has also been suggested that ILUC would amount to a discriminatory trade barrier against better-value imports, such as palm oil from Malaysia.

A new academic report, released by the research consultancy Copenhagen Economics, provides further evidence that the EU’s proposal should not be adopted. The report is published only a few weeks after EU Member States rejected a political compromise on the new ILUC proposal. The Copenhagen Economics analysis, deals yet another blow to this defunct and unworkable proposal. It is now time for the European Commission to listen to the established scientific evidence and the views of experts, and discontinue its pursuit of a discriminatory policy that is alienating Europe and pushing it further towards isolationism. In the words of researchers at Copenhagen Economics, ‘ILUC modeling is not a reliable basis for important policy decisions’ and ‘the European Union’s attempt to regulate biofuels by imposing ILUC calculations is not supported by solid scientific evidence or careful use of the range of available methodologies’.

The use of ILUC to support uncompetitive European biofuels producers constitutes a shameful form of discrimination against non-EU biofuel feedstock, and palm oil in particular. It harms Malaysia’s interests and those of its 300,000 small oil palm farmers, who are denied the opportunity to lift themselves out of poverty and provide a better future for their families. As the most efficient oilseed, oil palm also has lowest land footprint of any competing oil, while advanced palm-based biofuels are testament to the industry commitment to further enhancing efficiency, through biomass use for energy generation.

After conducting a detailed analysis on the robustness of ILUC, experts at Copenhagen Economics conclude that ILUC modeling involves ‘arbitrary decisions about a massive number of parameters’ and because of its subjective nature and inherent uncertainty, ILUC uses a series of ‘extremely imprecise methodologies’, rendering it unsuitable for regulatory use in policy making.

Specifically, the authors find that the European Commission attributes palm-based biofuels a very low ranking in comparison to other oil crop-based biofuels. The Malaysian palm oil producers see this low ranking as clear evidence of the trade protectionism that lies behind the ILUC proposal. In reality, this EU policy is a concerted effort to block palm oil out of the European market in favor of uncompetitive domestic oilseeds. Once again, we can see the EU’s intent to hand pick the biofuels that it regards as ‘sustainable’, while continuing to discriminate against palm based biofuels.

Researchers at Copenhagen Economics also highlight analytical problems with the European Commission’s proposal, particularly its failure to recognize national land conservation efforts and the use of historic patterns to determine future outcomes. For instance, the EU’s ILUC proposal does not recognize that land conservation efforts in Malaysia, despite these being ‘some of the most advanced in the developing world’, nor the fact that ‘the Malaysian government has pledged to maintain forest at a minimum of 50 per cent of the Malaysian land mass’. These omissions negate Malaysia’s important efforts towards responsible oil palm cultivation, and the palm oil industry’s contribution to Malaysia’s conservation commitments.

The United Nations agency responsible for monitoring global forest resources recorded Malaysia’s total forest area at over 20 million hectares in its latest Global Forest Resource Assessment. This equates to 62% of Malaysia’s total land area. Unfortunately, this is ignored in the EU’s anti-palm oil rhetoric as is Malaysia’s designation of more than 5 million hectares of forests as formally protected areas. The reality is that while Malaysia maintains vast forest resources, most European countries only possess very little, if any remaining forest: data shows that the United Kingdom, Germany and Spain have no recorded primary forests.

In the first half of 2014, the Greek Government will take control of the Presidency of the European Union. If it is to be successful with regards to biofuels policy, the Greek Presidency must start by reviewing what the science on ILUC is saying and acknowledge the fact that the credibility of the EU’s biofuels policy is being severely undermined by the pursuit of a regulatory framework that cannot be accurately modeled or calculated.

The Oil Palm

Wildlife Policies

The Government of Malaysia has also been a long-time supporter of wildlife conservation, consistently passing legislation that ensures the protection of critical wildlife. As early as 1976, the Third Malaysia Plan established 15 conservation areas covering over 5,600 km². Conservation efforts have consistently increased since, with stronger regulations governing industries and a consistent focus on sustainable development.

The Government, and specifically the Department of Wildlife and National Parks, supports a number of programs to maintain and improve conservation areas and the protection of critical species, such as rehabilitating preserves and enforcing conservation laws. These efforts are funded, in part, by the palm oil industry.

The Wildlife Conservation Act of 2010 has increased penalties against poaching and illegal killings and established a robust legal framework within which Malaysia can protect biodiversity and support individual conservation efforts.

Malaysia is also an active participant in international conservation organizations and forums, including the Convention on Biological Diversity where it promotes sustainable development and biological conservation.

The Oil Palm

Where is it grown?

Oil palm is cultivated in 43 countries throughout the World


The Oil Palm

The Orang-utan

The Sabah and Sarawak State governments have identified a number of forest areas known to contain higher populations of orang-utans as wildlife sanctuaries, national parks or forest preserves. Ulu Segama – Malua Forest Reserve in Sabah, spanning over 0.236 million hectare, has been shown to be inhabited by about 6,000 – 7,000 orang-utans, the most populated orang-utan area in Sabah. The Lanjak-Entimau Wildlife Sanctuary in Sarawak has been shown to be inhabited by about 1,400 orang-utans. All these areas are permanently protected from development.

Major Locations of Orang-utan in Sarawak

No. Location Total area (hectare) Estimated Orang-utan Populations
1 Lanjak Entimau Wildlife Sanctuary 168,758 1,400
2 Batang Ai National Park 24,040 300
3 Ulu Sebuyau National Park 27,275 300
4 Semenggoh Nature Reserve 653 35
TOTAL 220,726 2,035

Source: Sarawak Forestry Council (2007)

Major Locations of the Orang-utan in Sabah

No. Forest Reserve(s) Land Status Approximate Orangutan Number
1 Sabah Foundation Forest Concession Area Commercial Forest Reserve (CFR) 2600 – 3000
2 Danum Valley Conservation Area Protection Forest Reserve (PFR) 425
3 Forest of Upper Kinabatangan (South) CFR 1700 – 2100
4 Tabin Wildlife Reserve Widlife Reserve 1200
5 Lower Kinabatangan Floodplain Virgin Jungle Reserve, Wildlife Sanctuary and Privately Owned Land 700 – 825
6 Kulamba Wildlife Reserve Trusan Kinabatangan Wetlands – RAMSAR site Wildlife Reserve, Mangrove Forest Reserve 480
7 Ulu Kalumpang, Mt. Wullersdorf and Tawau Hills PFR, National Park 144 – 605
8 Trus Madi CFR, PFR 282
9 Sepilok Virgin Jungle Reserve 200
10 Crocker Range Park Sabah Parks 181
11 Bonggaya CFR 111
12 Lingkabau CFR 100
13 Silabukan PFR 58
14 Kinabalu Park Sabah Parks 50
15 Ulu Tunggud CFR 29
Total 8260-9646

Source: Sabah Wildlife Department (2012)

A conference was held in 2009 on the island of Borneo to address the risks and challenges facing the future of orangutans. At the conference, experts noted that the primary threat to orangutans was not the legitimate agriculture expansion illustrated by the palm oil industry, but poachers, hunting by local peoples, poor enforcement of existing laws and mining.

In fact, far from being the leading threat to the future of orangutans, the industry is a leading supporter of their preservation. A number of initiatives have been announced in between industry, the Government and NGOs to support the establishment of large wildlife preserves and conservation zones. This demonstrates but one such initiative among many that are supported by the industry, through efforts such as the Malaysian Palm Oil Council Wildlife Fund, which funds conservation projects and rehabilitation centers.

The Oil Palm

Economic Contribution

The Malaysian palm oil industry is significant contributor to Malaysia’s overall economy, providing both employment and income from exports. In 2011, the sector was the fourth largest contributor to Malaysia’s economy, accounting for RM 53 billion (USD 16.8 billion) of Malaysia’s Gross National Income (GNI).

The Malaysian palm oil industry directly employs more than 600,000 people, including both high-skilled and low-skilled labor. Research and innovation are adding new jobs to the Malaysian economy every year, while significant investment in the development of new downstream sectors and harnessing palm oil biomass. Under Malaysia’s 1Malaysia Biomass Alternative Strategy (1MBAS), the country will create more than 66,000 new jobs and increase the industry’s contribution to Malaysia’s GNI by RM 30 billion (USD 9.5 billion).
This reflects the extent to which every Malaysian benefits from the palm oil industry’s growth and profitability. Through employment and development, downstream industries and tax receipts, the Malaysian palm oil industry has benefitted everyone in Malaysia. Meanwhile, palm oil exports, which benefit Malaysia financially, provide a vital vegetable oil to the rich and poor alike throughout the world.
The Oil Palm

History of the Industry

The palm oil industry in Malaysia has evolved dramatically since the first commercial planting took place in Tennamaran Estate in Selangor in 1917, laying the foundations for the industry in Malaysia. The cultivation of oil palm increased at a fast pace in early 1960s under the government’s agricultural diversification programme, which was introduced to reduce the country’s economic dependence on rubber and tin.

In the 1960s, the government introduced land settlement schemes for planting oil palm as a means to eradicate poverty for the landless farmers and smallholders. Development of the industry has been central to increased prosperity and societal advancement throughout the country, from the rural communities that rely on employment from the plantations, to the downstream industries that extend to city centers and export zones.

Today, the industry directly employs more than 570,000 people, and contributed US$21.09 billion to Malaysia’s exports. More than 39 percent of oil palm plantations are owned by small land holders, and has contributed to one of the largest poverty alleviation projects in the world through the Federal Land and Development Authority (FELDA).

The Oil Palm

History and Origin

The oil palm (Elaeis guineensis) originated from West Africa, where evidence of its use as a staple food crop dates as far back as 5,000 years. There is even evidence in Egyptian tombs of people being buried with casks of palm oil, reflecting the high societal value attributed to the product. Needless to say, with origins in West Africa and evidence of consumption in Egypt, palm oil can be considered one of the earliest traded commodities.

While palm oil was ubiquitous in West Africa, the use of palm oil in the international market expanded significantly as a result of the British Industrial Revolution and the expansion of overseas trade. From candle-making to industrial lubricants, palm oil was a driving force behind the expansion of industrial production, while nutrient rich red palm oil became a vital asset on long sea-faring voyages. And it was a result of this increased demand that Europeans began investing in palm oil production, first in West Africa and then expanding to Southeast Asia.

A combination of European settlers and entrepreneurs, seeing the opportunity for commercial palm oil production to produce soaps, lubricants and edible oils lead to a dramatic expansion of oil palm plantations throughout Sub-Saharan Africa and Southeast Asia. The first commercial scale plantation in Malaysia was founded in 1917 and established in Tennamaran Estate in Selangor.

The Oil Palm


The palm oil industry is a critical source of energy, both for transportation as well as electricity generation. And it is not simply relying on palm oil to produce energy, but rather, on a number of by-products.

Palm Oil Mill Effluent (POME) of which more than 60 million tonnes is produced every year, is both a waste and a significant energy source. Through the implementation by methane capture, whereby POME is retained in enclosed facilities wherein methane emissions from the POME are captured and burned, entire mill operations and neighboring communities can be provided with consistent and reliable energy. And this can be achieved by removing emissions, making the technology carbon-negative. As part of Malaysia’s National Key Economic Areas, 500 methane capture facilities will be constructed before 2020, contributing to the national energy grid as well as providing energy to the processing of palm oil.

And biomass, which has been used for years by palm oil mill operators to fuel their boilers, offer a tremendous opportunity to improving the sustainability of energy generation and reducing emissions through the replacement of coal in power plants. Through pelletization of empty fruit bunches (EFB), palm fronds, palm trunks and saw dust, palm biomass will be able to generate more energy and produce fewer emissions. And with more than 100 million tonnes of biomass expected to be produced by the Malaysian palm oil industry in 2020 alone, harnessing the value of biomass will allow producers and their communities to benefit even more.

To learn more, visit these sites.

The Oil Palm

The Sustainable Oil

Land Use Policy

Malaysia observes strict regulations governing expansion of oil palms, with agriculture expansion limited to land zoned for agriculture. 23.95 percent of Malaysia’s land bank is zoned for agriculture development. In contrast, more than 55 percent of Malaysia’s land is identified for permanent conservation. This balance ensures that Malaysia’s economic development does not come at the expense of the environment and the nation’s biodiversity. The oil palm’s high yields ensures that even with only 6 million hectares of land under cultivation, Malaysian small farmers are able to prosper.

Less Land

Only 0.26 hectares of land is required to produce one tonne of oil from palm oil while soybean, sunflower and rapeseed require 2.2, 2 and 1.5 hectares, respectively, to produce one tonne. Palm oil producers also expect to increase their yield per hectare. In Malaysia, as part of the country’s National Key Economic Areas (NKEA) to achieve high-income status by 2020, the government is looking to support increased efficiencies, such as increasing yields by 90 percent.

World Area of Oil Crop (mil ha)

Palm Oil occupies only 14.7 mil ha, while accounting for almost 1/3 of globally traded vegetable oils.

Carbon Facts

The EU and the US have both attributed inaccurate and discriminatory GHG savings values (19 percent and 17 percent, respectively) to palm oil, thereby denying access to both countries’ biofuels markets.

Independent research carried out by the Malaysian Palm Oil Board (MPOB) and unaffiliated experts demonstrate that the values should be much higher. MPOB attributed 60.4 and 74.7 percent GHG savings to palm produced with and without methane capture. Drs Pehnelt and Vietze found more accurate values to be between 38 and 41 percent for palm oil produced without methane capture, and 85 percent when produced with methane capture.

These assessments do not reflect the most recent findings on deforestation and emissions. According to research by Winrock International, a US consultancy, emissions from deforestation are between 50 and 25 percent of previous estimates. These findings would significantly lower the emissions associated with land conversion, thereby further improving the GHG savings impact of palm oil.


Processing palm oil yields high volumes of byproducts, particularly biomass. While historically these were used to support fertilizing of oil palms, other applications are also being discovered, particularly in the form of second generation biofuels.

Empty fruit bunches (EFB) are being processed to produce bio-oil, a substance similar to crude oil. Bio-oil has the potential to be refined much like crude oil, yielding basic materials necessary for bio-diesel, bio-gasoline, and bio-jet fuel. The process of refining also has the potential for generating electricity through co-generation.

Palm oil mill effluent (POME) is already yielding enormous benefits for the industry and local communities. By capturing the effluent and trapping methane emissions, the industry is further limiting its GHG emissions (already low by the vegetable oil sector’s standards), and is using the emissions it captures to power their mills.

Excess power, which is abundant, is then fed into local community electricity grids, providing critical power to rural communities, and offering an alternative to coal powered generation.

As of today, only 12 mills in Malaysia have embarked on the development of biogas plants. Biogas plants will be developed at the 500 mills over the next 10 years, with 250 mills targeting to supply electricity to the national grid by 2020.

The Oil Palm

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.