1. Premium Group is an established player and pioneer in the specialty fats industry in 35 years. Could you share the background of this company?
The Premium Group was set up in 1978 and is indeed regarded as a pioneer in the specialty fats business in Malaysia. The business I represent - Goodhope, which is an upstream plantation company - acquired Premium in 2011 to move down the value chain into specialty fats. In the first few years after the acquisition, we invested to double production capacity at Premium and build a state of the art Innovation Center next to our production facility, where our team would work with our customers to create tailor-made fats to be used in their specific chocolate, ice cream or bakery applications.
For example, if you were one of our chocolate customers, you could work with our Innovation Team to develop the specific fat that is right for your specific chocolate and see, smell, feel, taste and experience this chocolate as it rolled off the lab-scale chocolate line in the Innovation Center. By doing this, we have moved our business model away from a productfocused model to a solution based model. The new management team that we put in place over the last two years have worked incredibly hard to make this happen. More recently, we entered into a partnership with J-Oil Mills, in Japan, by which they invested into our business. J-Oils are one of the top oils and fats manufacturers in Japan with an excellent product range and customer base and we look forward to realizing product and market synergies along with them.
2. Premium Group operates an integrated crushing plant and refinery, processing lauric and non-lauric specialty fats. How does Premium Group compete with the other players in the refinery industry?
There are a few segments in the downstream business. The basic segment is the bulk liquid oil segment, in which crude oil is refined and fractionated and sold in bulk to customers as a basic cooking oil. We don’t play in this space. We crush palm kernel into kernel oil and then further process this into highly customized fats. These fats are primarily used in three key categories: confectionery, ice cream, and bakery products.
Competitive strategy teaches you that you compete in one of three ways: cost, product differentiation, and focus. We don’t have the scale economies that larger players have, so we don’t have a cost advantage. This is also not a game we want to play, because it can be a race to the bottom. So we play on product differentiation (via product quality) and focus (via world-class customer service).
3. Recently, Goodhope Asia Holdings Limited had recently entered a joint venture with J-Oil Mills. What was the main reason behind this endeavour and what are the advantages of this partnership?
As mentioned earlier, J-Oil Mills is one of the top oils and fats manufacturers in Japan. They’ve been in the business for decades and have built up a world-class product portfolio and customer book. Their focus is on high-quality cooking oil (with many excellent technical characteristics like flavor and cloud point) and margarine. The margarine, in particular, is used in Japanese style bakery products, which is softer, more fragrant and I believe, tastier, than “regular” bakery products. Their existing client base is largely concentrated in Japan.
Premium, on the other hand, has a highly specialized business outside of Japan with a product range that serves clients in the confectionery, ice cream, and bakery space. The synergies are obvious: both companies get access to a broader and deeper product and market portfolio along with an ability to fulfil customers from a Malaysian production site, which has clear advantages concerning the sourcing of palmbased raw material and cost of production. We also get a great opportunity to leverage each other’s knowledge and experience to co-create new products and applications for the benefit of our customers.
4. As we all know, the European Union (EU) countries are making the products that consist of palm oil difficult to be branded. How does Premium Group work on sustaining the market and profit of the products?
The EU has raised the bar for our industry to be able to sell in the EU market. It is done in two ways: one point is health; the other is the environment. Starting with health, to be able to sell into the EU, you have to be able to demonstrate 3-MPCD levels below 2.5 ppm. 3-MPCD is a contaminant as a result of the refining process and is considered to be carcinogenic. We have been exploring technologies to achieve this and will be ready for this directive.
We also have a fairly well-diversified market portfolio, as a mode of risk mitigation versus regulatory change in any one market or region. On the environment side, the EU has voted to exclude palm-based biodiesel from their biodiesel mandates, because of concerns of land-use change in Indonesia, as a result of deforestation. This is going to have an impact on palm oil exports to Europe – of the 7MM MT exported to the EU last year, 60% was used in biodiesel, which will disappear.
However, on the other hand, Indonesia has increased its biodiesel mandate from B20 to B30, which should see an extra 3-4MM MT consumed domestically as fuel, which should offset the decrease in EU demand. From our point of view, we service the food industry, so it doesn’t impact us in a big way.