Economy

How does Wilmar’s new policy affect the Sarawak Palm Oil Industry and what is the long term solution?

This introduction is a partial extract of the article published on 17th Feb 2014 by Hoe Lee Leng and Alvin Tai of RHB Research.

Wilmar International Ltd, which has a refinery in Bintulu, has informed the Sarawak state government that it will stop buying CPO produced from oil palm trees planted in forest areas and peat swamp land in Sarawak from 2016 onwards. Wilmar, however, has clarified that its new policy only applies to new plantation developments, not existing ones. For plantations that have been established on peat in the past, it will work with the stakeholders to ensure that best management practices for peat are adopted.

Wilmar currently buys 45% of the CPO produced by 41 mills in the state (1.4m tonnes). The rest of the CPO produced is sold to five other refineries. Sarawak has 1.6m ha of peat swamp, of which about 72.5% are planted with oil palm.

Who will be affected? As this new policy is not supposed to impact players who have already planted on peat previously, it should not affect planters who already have planted landbank in Sarawak. This includes Sarawak Oil Palm, Jaya Tiasa, Ta Ann, and THPlant, amongst others. However, this would have an impact on companies which have not completed planting in their Sarawak estates, or companies which need to replant.

Nevertheless, there are new refineries coming up in Sarawak -SOP is doubling its refinery capacity (currently at 500,000 tonnes) while TH Plant is setting up a new refinery (600,000 tonnes targeted for end-2016).

Plantation players now also have the option of exporting CPO directly if need be. In addition, as this new policy will only be implemented from 2016 onwards, plantation players in Sarawak will have some time to find alternative solutions.

What is the long term solution?

As Sarawak’s plantations will always be deemed to be at a disadvantage, being planted primarily on peat soil. The Sarawak Government and the Malaysian Palm Oil Board must engage professional lobbyists to fight the powerful smear campaign against the palm oil industry. Having invested in Jaya Tiasa, I am trying to do my part and I hope more Malaysians will join me.

United Nation’s Framework Convention on Climate Change defines a forest as an area of 0.5 to one hectare having more than 30 per cent canopy cover and having a potential height of two to five metres. To accuse the industry in Malaysia and Indonesia of contributing to global warming is sheer nonsense. In fact oil palm trees just as with other forest species, produce oxygen for us to breathe and act to counter coal and oil emissions which are the major cause of global warming.

Environmental activist groups such as World Wildlife Fund, Friends of the Earth and Greenpeace have launched many campaigns alleging that the expansion of oil palm plantations have destroyed forests, threatened endangered wildlife and robbed indigenous peoples of their land. Many of their arguments are not based on fact but are sensationalized from a small number of cases.

The anti-oil palm lobby in the west includes pro-soya bean and rape-seed groups who see oil palm as a major competitor and have recruited food lobbyists to play on fears of the health hazards of palm oil consumption. . Together with environmental activists, these well-funded groups have created trade barriers to the global oil palm trade under the pretext of environmental activism.

In a fair contest amongst competing vegetable oils, palm oil will win hands down. The oil palm tree is the world’s most efficient oil crop because one can harvest five tons of oil per hectare. This is 10 times more productive than soya bean planted in the West, including United States and five times more productive than rapeseed, Europe’s main oil crop.

It is an undeniable fact that palm oil is the cheapest and most popular form of cooking oil for consumers, including many poor families in the west. Should trade barriers to benefit rapeseed farmers who are already heavily subsidised by the European Union (EU) government be successfully implemented, this will hurt consumers all over the world.

Also should alternatives to oil palm be grown, more land would be needed to produce an equivalent volume of oil to replace palm oil, resulting in more deforestation and problems for Mother Earth.

Finally, the western environmental activists’ campaign against oil palm plantation expansion, in the name of “saving rainforests”, is a violation of international norms and Malaysia’s and Indonesia’s sovereignty.

Conclusion: I believe our palm oil industry will remain competitive and profitable for a long time.

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