Join us as we go on exclusive interviews with three major players in the palm oil industry from both Indonesia and Malaysia. They candidly open up about their overview of this year’s palm oil industry in Indonesia and Malaysia what can we expect between now and 2021. No crystal balls involved, just factual opinions, and some guidance helping us sail through these turbulent times.
Background of our three palm oil experts in the hot seats
Established in 1999 as a single umbrella entity to replace 3 large plantation sector organizations, namely, the Rubber Growers Association (RGA), the United Planting Association of Malaysia (UPAM), and th e Malaysian Oil Palm Growers Council (MOPGC).MPOA has been tasked with the important function of balancing the needs and interests of the various sectors for synergy and development of the plantation industry as a whole.
Though a crop-specific body that will focus on oil palm, MPOA also serves the interest of other plantation tree crops such asrubber, coconut, cocoa, sugar cane, etc. It includes non-crop issues relating to labor, trade, pricing, and sustainability. As an integrated single, powerful voice, MPOA represents the complex need of the plantation industry more effectively particularly now that the economy is being rapidly globalized.
Today, MPOA has a membership comprising of 120 companies including all the big players in Malaysia with a combined planted hectares of close to 2 million hectares or 40% of the planted oil palm area in Malaysia. It is the single largest association representing the industry in Malaysia.
Malaysian Palm Oil Board (MPOB), established on 1st May 2020, is a government agency responsible for the development of the oil palm industry in Malaysia. Functioning under the Ministry of Plantation Industries and Commodities, its main role is to promote and develop national objectives, policies, and priorities for the well-being of the Malaysian oil palm industry.
To drive the industry forward, MPOB focuses on research and development along the entire value spectrum of the oil palm industry. It embraces a 3-pronged strategy to maximize synergies between economic development, environmental stewardship, and value addition to ensure that future growth is carried out within a sustainable framework. MPOB engages in cutting-edge science and innovative technologies and over the years has won many awards, both local and international.
It plays a pivotal role in promoting industry excellence that resonates with its mission – to enhance the well-being of the Malaysian oil palm industry through research, development, and excellent services. MPOB’s vision is to become the premier Nobel Laureateproducing research and development institution, providing leadership and impetus for the development of a highly diversified, value-added, globally competitive and sustainable oil palm industry.
The Palm Oil Refiners Association of Malaysia (PORAM) was formed in 1975 primarily as a representative voice to the government and other stakeholders on matters related to the palm oil industry. As a trade association, PORAM is a voluntary and non-profit organization. Its members comprise of companies involved in the refining and related downstream processing of palm oil, palm kernel oil and other vegetable oils including ancillary services.
Being a trade association, PORAM is a voluntary, non-profit organization. Its members comprise of companies involved in the refining and related downstream processing of palm oil, palm kernel oil and other vegetable oils including ancillary services.
Through PORAM, palm oil refiners in Malaysia can act collectively and in unison to ensure that the government understands and recognizes the needs and problems of the industry at all times.
PORAM is represented in the relevant government bodies, among which are:
· Malaysian Palm Oil Board (MPOB)
· Malaysian Palm Oil Council (MPOC)
1. Thank you for taking the time to join us for this interview. Just to warm all of you up a little, so during this period where everyone is kept working from home, what is your daily routine like?
MPOA: Since the COVID-19 lockdown or what we called in Malaysia, Movement Control Order (MCO) effective 18th of March, the MPOA Secretariat were kept busy and played a pivotal role towards first, convincing and getting the government to allow the plantation sector to continue operating as well as ensuring all our members’ needs are taken care of by interfacing with the relevant authorities. As a result, the plantation sectors, except for one day in Malaysia and another 14 days in Sabah, have been spared the agony of closing and ceasing operation.
We would not want to imagine if this industry namely the oil palm sector were to be asked to shut down like the rest of the other
industries since we are dealing with a perishable commodity that if left unharvested and to rot will cause irreparable damage and have a significant impact and effect, especially on the 1 million smallholders in this country whose livelihood depends on it. Members in gratitude and response to the fight against the pandemic contributed more than RM5 million in the form of medical equipment and tool kits to the government hospitals and institutions.
MPOB: The Movement Control Order (MCO) announced by the government starting from 18th March 2020 required all to stay at home and adopt a new norm. The majority of MPOB staff worked from home since then to ensure MPOB’s functions and services to the industry are not interrupted during the lockdown. Personally as the Director-General of MPOB, most of the time I perform my duties from home and occasionally went to MPOB for things that require me to physically be there.
Some activities were performed via video conferencing. During the early days of MCO, I was busy assisting the industry members to ensure their supporting industries or service providers could operate to ensure all the sectors under the oil palm industry which are allowed to operate could function without any hassle or delay. We also assist many supporting industry players to obtain operating approvals from the National Security Council via MITI to ensure oil palm industry operations are not affected.
Many enquiries from companies and associations were responded to clarify issues related to the MCO conditions and updates. During this period, MPOB issued many letters to inform all industry players through their respective associations on the allowance to operate as well as providing suitable SOPs to ensure they operate according to the SOPs issued by National Security Council, oil palm-related SOPs prepared by MPOB as well as by some plantation companies. A new letter with updated SOPs was issued everytime the government extended the MCO and when it changed from MCO to CMCO and then to RMCO. MPOB has also issued letters to related industry players (growers, mills, and refineries) for them to carry when they perform their duties which require them to move from one place to another during the MCO.
The letter was also shared on MPOB’s social media as well as on the website. MPOB constantly updates the stakeholders with the latest information on the implementation of the MCO related to the oil palm sector through social media platforms, hotlines and websites. The oil palm industry is among the essential economic sectors which have been granted by the government to continue operations along the production chains during the MCO. These include the harvesting of Fresh Fruit Bunches (FFB) by plantations and smallholders; the processing of FFB by palm oil mills and the processing of crude palm oil in refineries for the production of cooking oil for local markets.
However, all parties involved in the operations have to take precautionary measures to stop the spread of COVID-19. These include minimizing labor and their mobility to avoid physical contact (social distancing) and workers should return home immediately after work. They are also reminded to take care of their hygiene by washing sanitizing their hands.
PORAM: The early part of the lockdown was quite unsettling when I had to work from home to attend to so many matters without the assistance of my secretary. It was quite an experience having to discipline myself to observe the daily office routine. It was business as usual except in a different environment.
2. What are some of the challenges that you feel the palm oil industry is facing during this period of uncertainty? What are some of the measures taken to address these challenges?
MPOA: The plantation sector in Malaysia is already facing a myriad of issues namely labor shortages, the ever-increasing cost of production as well as reputational and sustainability issues. During this period of uncertainty, these issues continue to beset the industry but what is of more concern is the drastic drop in demand as a result of the closure of most things globally. This led to an increase in stockpile resulting in bearish prices just like most commodities. This commodity being a price taker is subjected to price volatility and this is our biggest challenge and that shall continue.
Another big challenge was ensuring that the workforce which consists of 85% of foreign workers are kept intact and does not leave. We are rather fortunate that the existing workers stayed on but the industry has not got any new or additional workers to complement the already reduced work strength since the onset of the lockdown. Another fear is that these workers that remained will be wanting to go back to their families once the lockdown is over.
MPOB: The implementation of the MCO brings uncertainty to the economic sectors, including the oil palm industry. During that time, our primary concerns were how severe the lockdown would affect the operations, particularly the harvesting and processing of FFB, and losses to the producers and smallholders. The Ministry of Plantation Industries and Commodities has swiftly highlighted the issue to the government and justified the importance of the oil palm sector to continue its operations to ensure the supply of cooking oil for domestic consumption and fulfill the overseas contracts after the MCO. The Security Council has allowed the oil palm industry to resume operations on the second day of the MCO.
The COVID-19 pandemic harms the global trade due to the restriction of movement, and hence, has also affected the supply and uses of palm oil in the importing countries. During the MCO, the crude palm oil (CPO) prices have been affected at the early stage, starting early April 2020 the CPO price was declining due to the uncertainties of the COVID-19 and the MCO in many parts of the world which affected global palm oil demand. However, since mid-May 2020, due to several positive sentiments, the price was seen to be improving and stabilizing until today. The global pandemic has also highlighted an issue which probably Malaysians were not aware of, and that is food security or self-sufficiency in food production. Among the measures undertaken to address these challenges are: the government, under the National Short-Term Economic Recovery Plan (PENJANA) has announced a 100% exemption on export duty on crude palm oil, crude palm kernel oil, and processed palm kernel oil from July 1, 2020, to December 31, 2020, to boost the palm oil sector.
The move will encourage industry players to sell more palm oil and help them earn more income while solving their problems, including the additional costs incurred during these difficult times. We could promote more exports, especially to the top vegetable oil markets, including India, China, and Pakistan. This tax exemption also augurs well with India’s decision to import 1.14 million tonnes of vegetable oil in June from the April- May monthly average of 865,000 million tonnes. Unofficial reports show that export in June has increased by around 20% as compared to May 2020. To ensure the Malaysian oil palm industry remains competitive in the global market, MPOB as the government agency entrusted to serve the country’s oil palm industry has undertaken several strategies and plans to conquer the detrimental effect of the pandemic, which amongst others include:
Differentiate Malaysian palm oil with other edible oils through the preservation of the valuable phytonutrients contained within palm oil. In particular, the beta carotenes and vitamin E tocotrienols, and their applications in isolated form in food products.
Commercialization on high value-added products such as palm-based designer fats and nutraceutical supplements that are being developed for various food applications and functionalities.
Focus on research to produce more downstream products than basic oleochemicals.
Provide a one-stop centre such as pilot plant facilities and international quality analyses and quality labs to help small and medium-sized enterprises (SMEs) and industries which are interested in investing in downstream palm products.
Provide technical advisory services to ensure the technologies transferred to SMEs or industries are successfully commercialised.
PORAM: Some of the challenges faced include the uncertainty of supply due to the shortage of labour experienced by our counterparts in the upstream sector. Besides, some plantations were forced to cease operations to help contain the virus during the earlier phase of the Movement Control Order (MCO). We also understand that many undocumented harvesters have either slipped out of the country or gone into hiding even after the relaxation of MCO. This had earlier disrupted the supply chain when some refineries were facing a shortage of crude palm oil(CPO) for refining to meet their export orders. However, over the past two months, the situation has improved.
The refining industry is concerned about the announcement suspension of export duty for CPO and CPKO on 5th June 2020 this may result in the free outflow of CPO, thus resulting in short supply to refineries locally. Perhaps one of the measures the government can address during this period to boost exports is to give some kind of tax incentive to refiners who at the same time have to resort to explicit cost-cutting exercise.
3. Airlines and tourism-oriented industries are cutting manpower with massive slashes on revenue, do you reckon the palm oil industry would be forced to take such drastic measures and how detrimental would it be on the bottom lines?
MPOA: The commodities sectors, unlike the other sectors namely the tourism-related industries, were not badly hit during the MCO. Being essentially a food producer, this sector was spared and allowed to operate. While demand may have shrunk, we believe it is temporary as people need food to live, and as such demand will always be there albeit at a fluctuated level. This sector has not retrenched nor cut salaries of employees so far and that is proof of the resilience of this sector. Profits may have dipped but they can survive. In fact, with the gradual easing of lockdown in most countries, we are seeing demand picking up and prices easing up gradually.
MPOB: The oil palm industry operations were not severely affected by the global pandemic as experienced by the services sector. The whole production sector was not interrupted since the implementation of the MCO. In fact, the oil palm industry is actually facing a serious labour shortage as recently reported by Malaysian Palm Oil Association (MPOA).
PORAM: Unlike the plantation industry which is largely dependent on labour, the refining industry is fortunate in that a large part of the process is automated. We do have some pockets of manpower shortage particularly in the downstream packaging of finished products but the situation is not so adverse. The reverse is true.
4. What are the long-term effects that you foresee with the current pandemic on the industry?
MPOA: I believe this pandemic shall stay for a long period until a vaccine is found and that we have to adjust and live with the new norm. The fact that even during the pandemic, which has led to the closure of a lot of sectors, the oil palm industry stays above water and can withstand the economic onslaught. Prices of palm oil dipped not only because of lack of demand but were also dragged by other reasons such as a crash in crude oil prices, which is always coupled with palm oil due to the biodiesel factor.
MPOB: The current pandemic does not cause a severe long term effect on the oil palm industry as its operations are back to normal. However, like any other sector of the economy, the disruption in the production and operation along the whole supply chain will have repercussions on the economy. The Malaysian oil palm industry is export-oriented with exports of palm oil alone covering 93.0% of the total CPO production in 2019. Thus, the Malaysian palm oil industry is very dependent on exports. The pandemic has affected the export of Malaysian palm oil to major destinations. Although exports of palm oil were affected at the early stage of the pandemic, however, lately the export seems to be picking up. We hope that with more countries slowly lifting their MCOs, the demand for palm oil will increase both locally and globally. Malaysia also anticipates lower than expected palm oil production this year. The pandemic also affects the implementation of biodiesel B20 as well as biodiesel market.
The implementation was affected due to the MCO where it has to be delayed because of the movement restrictions especially for the launches in Sarawak and Sabah. Furthermore, the MCO has resulted in lesser usage of biodiesel due to fewer diesel transports on the road. This happens not only in Malaysia but around the globe.We anticipate the demand for biodiesel will be affected in 6-18 months until the pandemic is fully controlled globally. The delay in the launches of B20 and the reduction of biodiesel usage due to the MCO may affect the final annual palm oil stock.
PORAM: I do not foresee a negative change in the long run as palm oil has always been and will continue to be used in food applications. With the current world population at 7.8 billion and reaching 8.5 billion in 2030, there will be many more mouths to feed and needless to say, a significant increase in demand. I am optimistic about the long-term survival of the industry on condition that supply will similarly cope with demand in that the forces of nature particularly the weather will not play a disruptive role. Neither do I want to see the resurgence of another pandemic afflicting the whole world again.
5. With so much negativity floating and sinking in all industries, perhaps you could shed a bit of light from your perspective on what are the positive things the palm oil industry can look forward to in the next six months?
MPOA: As I mentioned earlier, palm oil being essentially a food producer shall always command demand and will stay afloat for a long period. A point to note is that the palm oil price is still higher than last year despite this pandemic. That speaks volumes of its resilience. We are more concerned if the government stopped us from operating due to non-adherence of SOPs and guidelines rather than due to demand. The gradual opening of most sectors of the economy over the next six months shall continue to spur demand and prices. The question is the speed of the resumption to normalcy. We are comforted that prices of late have been on the increase after the gradual opening of the economy in most countries and that augurs well for the oil palm
sector for the near future.
MPOB: We are looking at a rebound in the price of CPO in the second half of 2020 supported by the anticipated recovery in export demand from major importing countries such as China and the EU due to the gradual easing of lockdowns coupled with the expectation for improvement in exports to India. We also anticipate that in the fourth quarter of 2020, inventory levels would improve due to the increase in export volume which we hope could further support the improvement in prices. Malaysia has begun to see a rebound in CPO prices since May this year. On June 24, the price of CPO stood at RM2, 515 per tonne. On this note, we are anticipating that the average CPO price for 2020 would be around RM2, 500 per tonne. The performance of world oils and fats market is expected to be mixed, with total production and exports are forecast to be lower than that of the previous year. However, total disappearance is expected to increase which will lead to lower stocks and better prices.
PORAM: Contrary to a doomsday scenario and as what I have observed in the earlier question, I foresee a strong resumption in demand for oils and fats especially processed palm oil products in the developing countries post the pandemic period. Stocks have to be replenished in the next six months as the world slowly moves into the new normal with increasing consumer demand. What more with palm oil is the most cost-effective and affordable vegetable oil in the world? I am full of optimism that the good days are coming back again and we should take full opportunity to take advantage of it by going all out to promote and boost exports.
6. Equipment suppliers to the palm oil industry and those in the supply chain would be affected during this period, how do you think they can maintain their business in such a challenging climate? What other extraordinary efforts should be made?
MPOA: We do experience some hiccups due to lack of supplies of equipment during the lockdown period but the situation is not critical as the supply chain within the country remains unscathed, and this industry due to its long existence has developed its manufacturing capabilities to manage its needs. As long as the industry is allowed to operate so will be the equipment suppliers. We are rather fortunate that we do not have to rely on imports to operate.
MPOB: During the period of the MCO, supply of equipment for all sectors were affected due to logistic issues and other factors. The situation has now improved as economic sectors are now allowed to resume operations as the pandemic subsides. With the labour shortage since prior to COVID-19, we hope some of the plantation companies or even smallholders may consider moving towards mechanization in the fields and operations. The use of machines will also help to keep good social distancing in their plantations, mills and refineries. Manually, more labour will be required. MPOB hopes the demand for mechanization and plantation equipment would help boost the economy of the machineries or equipment suppliers. The procurement of equipment in the oil palm industry, like any other industry is the company’s decision which is part of the investment to enhance production and expand its operations. The government is not interfering as it is a business decision.
PORAM: It looked doom and gloom in the earlier part of the lockdown but as we have seen, the situation has since changed although unlike the pre-pandemic period, the situation is slowly but surely going back to normalcy. With demand returning and exports increasing, I am confident that suppliers to the industry and those in the supply chain will equally benefit in a win-win situation.
7. What is your advice to palm oil producers who are feeling the slump now? What additional measures they should be taking during this period?
MPOA: The oil palm sector is not facing a slump but more a glitch and as long as there is demand and prices are reasonable, they will remain relevant. This industry, which contributes about 5% to the country’s GDP is a mature one and has survived plenty of challenges over the years and I believe they will be able to withstand these uncertainties. A bit of tightening of the belt and adapting to the new norms is what is required of the industry player. Another important factor is the presence of government support in terms of regulatory assistance such as easing of the labor recruitment process as well as financial handouts namely to the smallholders in keeping all afloat. 3 million people livelihood depends directly or indirectly on this sector. That is how important palm oil is to the nation.
MPOB: All sectors in the oil palm industry must focus on enhancing productivity and quality of palm oil products to sustain income regardless of the palm oil prices. This can be attained through efficient management and good practices in the plantations, milling and processing, and intensifying activities in the downstream value added sector. MPOB through our research and development (R&D) efforts has developed many new technologies and innovations encompassing all the sectors in the oil palm industry for adoption which in turn will elevate productivity, efficiency and returns. In fact, on 7th July 2020, MPOB organised its annual Seminar Transfer of Technology Seminar (ToT 2020) at MPOB’s headquarters through web or Webinar in order to comply with COVID-19 SOP. TOT 2020 is MPOB’s platform to introduce few more new technologies from upstream to downstream to drive the oil palm industry forward. As of 2019, MPOB has launched 667 technologies, 184 services and has patented 367 innovations. In terms of technology commercialisation, MPOB has recorded achievement rates of 30.4%, while patented technology stood at 32.4%. At the TOT 2020, MPOB launched eight (8) new technologies and seven (7) services for commercialisation.
PORAM: I strongly believe there is a rainbow in the sky post- COVID-19 period and a light at the end of the tunnel. Our advice is to stay focused on the business, to look ahead, and never look back. Be innovative and invest in R&D to develop more downstream applications in value addition. To be more pro-active in merchandising the product by bringing it directly to the market place instead of trading it through a third party. Last but not least to be cost-effective and more importantly, to be mindful of risk management.