Oil palm planters enduring severe financial burden

Malaysia's social safety laws of Windfall Profit Levy and Minimum Wages are meant to make cooking oil affordable to the poor and pave the way towards a high income nation. Unfortunately, oil palm planters are suffering from these policy backfirings, writes OOI TEE CHING.

THE Minimum Wages Order 2012, which took effect from January last year, requires employers with six employees and above to pay a minimum wage of RM900 a month in Peninsular Malaysia or RM800 a month in Sabah, Sarawak and the Federal Territory of Labuan. 

As the government seeks to propel Malaysia into a high-income nation by introducing minimum wages, the blanket implementation of this figure to “basic rate” instead of “take-home pay” across all sectors had given foreign workers more money to send back to their home countries.

In an interview with Business Times, Malayan Agricultural Producers Association (Mapa) executive director Mohamad Audong said the blanket implementation of the minimum wage policy, rising bank borrowing costs and falling palm oil and rubber prices have resulted in planters being hit from all sides.

“While there is a 20 per cent increment in the basic wages, this has resulted in almost 40 per cent more money outflow from Malaysia last year. In theory, this law is supposed to help the oil palm industry become more productive. In reality, however, planters are badly hurt,” he said.

Mohamad pointed out that in 2012, foreign workers in the agriculture sector remitted around RM8 billion to their home countries. After the Minimum Wages Order 2012 was implemented last year, foreign workers sent back around RM11 billion. This year, Mapa estimates this figure to surpass RM15 billion. 

He explained that planters are facing higher production costs. This is mainly due to more expensive foreign worker recruitment fees, higher fuel and utilities, such as diesel, electricity and water.

There are also various new fees and tax hikes to be imposed by the federal and state governments. On top of that, oil palm planters also have to pay cess of RM13 per tonne to government agency Malaysian Palm Oil Board.

The bleak outlook, Mohamad said, is compounded by Bank Negara Malaysia’s raising of interest rates. This means costlier bank loans to rubber and oil palm planters. 

Since oil palm planters are price takers, their earnings are at the mercy of pricing in the world’s commodities markets. On Monday, the third month benchmark palm oil futures contract on Bursa Malaysia derivatives market added RM15 to close at RM2,099 per tonne.

“Don’t forget many of our planters borrow money from the banks and issue bonds, of which bankers and insurance companies are subscribers.”

Depending on the year of planting, Mapa calculated that palm oil production cost of these heavily-geared planters ranges between RM1,300 and RM3,000 per tonne.

“The minimum wage policy works best if commodity prices are on the uptrend, not when prices are falling,” Mohamad said.

As the government seeks to review the minimum wage ruling at the end of this year, planters appeal for a more judicious implementation of the Minimum Wages Order 2012. 

“We’re not opposing the minimum wage law. It is the way the salary is being packaged. It would be more practical if the government amends the RM800 and RM900 per month minimum figure to that of take-home pay instead of basic rate. This would streamline the Minimum Wages Order 2012 to the main thrust of existing labour laws as that interpreted by the Industrial Court for many decades,” he said.

Mapa represents close to 200 plantation companies in Peninsular Malaysia, with estates spanning across a million hectares. These oil palm planters employ some 125,000 workers in the fields, of which 80 per cent are foreigners.

In their 2015 Budget wishlist, oil palm planters are appealing for the government to streamline the minimum wage rate with existing labour laws. They also want the government to abolish the windfall profit levy and rationalise cooking oil subsidy. 

Meanwhile, Malaysian Estate Owners Association (MEOA) president Datuk Boon Weng Siew concurred that oil palm planters endure severe financial burden with the spectre of taxes and new ones to be introduced. “For every RM1 we earn, we have to pay almost 45 sen to the federal and state governments in taxes,” he said.

“Planters are not required by law to provide accommodation, schools, clinics and places of worship, but many do so as part of their corporate social responsibilities.

“When you factor into these amenities and benefits to workers, such as housing, water, electricity, medical care, transportation... it amounts to about RM450 per month per worker,” Boon added.

“Now, there is a new tax called Property Assessment Tax imposed by local authorities at between RM5 and RM100 per hectare. “This burden is increasingly painful on our members,” he said.

Apart from the minimum wage ruling of unintended higher money outflow, oil palm planters’ subsidising of cooking oil is also seeing huge wastage in the form of rampant smuggling to neighbouring countries.

Under the Cooking Oil Subsidy Scheme, palm cooking oil is capped at RM2.50 per kg.

Boon put things into perspective when he highlighted cooking oil sold in Malaysia is priced at 65 per cent discount of global market pricing.

“In other words, the same 1kg of cooking oil sold in Malaysia for RM2.50, if shipped out of the country, would fetch US$2.50 (or RM8.03). Exporters could price it three times higher in neighbouring countries,” he said, adding that the billion-ringgit subsidy that goes into cooking oil sold, here, is being funded by a windfall profit levy imposed on oil palm planters.

It has been reported that this levy is unfair because it is imposed on assumed profit and not on actual profit.

The levy is activated when palm oil exceeds RM2,500 a tonne. Planters in Sabah and Sarawak pay windfall tax when the prices cross RM3,000 per tonne.

MEOA, which represents 153 small- and medium-sized estates of more than 40ha, is appealing to the government to review the cooking oil subsidy, which benefits restaurant operators, traders, smugglers and people across the border more than the hardcore poor.

The price of palm cooking oil should be allowed to float in the open market, he suggests, and vouchers can be issued to hardcore poor households to mitigate the impact on them.  

Good to buy plantation counters now

KUALA LUMPUR (Bloomberg): PALM oil’s slump to a 5-year low offers investors an opportunity to buy plantation counters, according to Dorab Mistry, director at Godrej International Ltd, who says producers are still making money.

“I am often asked these days if oil palm plantation and palm oil processing company equities should be bought. My answer is a resounding yes,” Mistry said two days ago, without identifying the stocks.

“You invest in plantations when palm oil prices are low. I prefer processing companies which manufacture speciality fats, oleochemicals, biodiesel and own consumer brands. Upstream companies will benefit when the price cycle turns.”

Mistry, who has traded palm oil for more than three decades, joins Standard Chartered Plc in recommending investors buy plantation stocks to profit from a anticipated rebound in prices.

Palm oil fell to a 5-year low, two weeks ago, as output from Indonesia and Malaysia, the biggest producers, topped demand amid a glut in global cooking oil supplies, including soyabean oil.

Global palm consumption increased 81 per cent in the decade to last year as rising incomes lifted demand, the United States government data show.

“Long-term demand for palm oil is very supportive of the sector and that supports the case for recovery in crude palm oil (CPO) prices,” said Alex Fergusson, a fund manager at Singapore-based Woodside Holdings Investment Management Pte, referring to a period of five to 10 years.

Growth in per capita gross domestic product and populations in emerging markets are the drivers for demand, said Fergusson.

Prices will drop in the next few weeks towards the cost at which growers in Asia produce the world’s most-used cooking oil, said Mistry at an oils and fats conference organised by the Malaysian Palm Oil Board and Malaysian Palm Oil Council, in Shanghai, recently.

The world is awash with vegetable oils. Futures will drop to about RM1,900 a tonne, he said. That is 9.6 per cent below Monday’s close of RM2,099 per tonne on the Bursa Malaysia Derivatives and would be the lowest price since March 2009.

“It is almost impossible to forecast a bottom at this stage of the production cycle,” Mistry said. “However, producers are still very much in the money and I do not foresee prices going below cost of production.”

Palm oil prices are expected to strengthen next month onwards on lower production, and there is a better outlook for 2015 as biodiesel demand may increase, RHB Investment Bank Bhd said in its September 10 report to investors.

The bank said it remains “overweight” on plantation stocks in Indonesia and Singapore. CPO prices dropped 21 per cent this year to RM2,101 a tonne on Monday. Prices fell to a five-year low of RM1,914 on September 2, then rebounded after Malaysia scrapped an export levy for this month and next month.

Full-year output in Malaysia, the world's second-largest grower, will probably be in the region between 19.7 million tonnes and 19.9 million tonnes, Mistry said.

In the first eight months of this year, supply was 12.76 million tonnes, 991,000 tonnes more than a year ago, while exports dropped 6.6 per cent to 10.99 million tonnes, he said.

Stockpiles will continue to rise and peak in December. Reserves in Malaysia jumped 22 per cent to 2.05 million tonnes last month from July, the biggest percentage gain since October 2009, Malaysian Palm Oil Board data show. 

Incentivise good corp governance

KUALA LUMPUR: Malaysia Institute of Chartered Secretaries and Administrators (Maicsa) is proposing that tax breaks be accorded to companies for expenses incurred for good corporate governance compliance.

Maicsa president Chua Siew Chuan told Business Times that the government can incentivise good governance among corporate Malaysia by according tax breaks in the form of tax deductible expenses under the 2015 Budget.”

“Expenses incurred in ensuring transparent and ethical ways of doing business will result in sustained participation from investors and stakeholders,” she said on the sidelines of the Maicsa 2014 conference last week.

Corporate governance is about how company directors make decisions and put them into action. Measures to enhance ethical business practices include the setting up of a whistle blowing department within the company, strengthening of internal audit and appointment of chief governance officer.

Since 2012, the Malaysian Code on Corporate Governance had placed greater emphasis of good governance on public-listed companies.

Good corporate governance is integral in balancing the interests of the many stakeholders in a company, namely shareholders, management, customers, suppliers, financiers, government and the community.

“We’re no longer confined to the traditional passive job of preparing the minutes of meetings. We’re a lot more proactive since Bank Negara began to recognise company secretaries as gatekeepers of good governance,” Chua said.

“Nowadays, company secretaries are expected to guide their board of directors in ‘walking the talk’ on integrity and transparency in their daily business decision-makings,” she said, adding that corporate directors have increasingly turned to company secretaries for advice on procedural and regulatory requirements. Company secretaries also help the chairman in determining the annual board plan.

In view of the expanded role being undertaken by company secretaries, she said it is timely for the government to consider introducing a dedicated set of laws for this profession.

“Many countries already have a Company Secretaries Act, including India, Bangladesh and Pakistan. It would be timely for Malaysia to have a dedicated set of laws to give due recognition and properly regulate this profession,” said Chua.

Established in 1959, Maicsa is part of The Institute of Chartered Secretaries and Administrators (ICSA) headquartered in the United Kingdom, which has 36,000 members in more than 70 countries.

Malaysia help fight Ebola, donates medical gloves

PUTRAJAYA: (Bernama) Malaysia is sending 20.9 million pairs of medical gloves to five African nations, which have been badly hit by the deadly Ebola virus.

The Prime Minister's Office, in a statement yesterday, said Malaysia would be shipping off 11 container-loads from Port Klang, each holding 1.9 million pairs of medical rubber gloves, to help fight the disease that had claimed so many lives.

Liberia, Sierra Leone and Guinea will each receive three containers while Nigeria and the Democratic Republic of Congo will receive one each, it said.

Najib (L) in the handing over ceremony to representatives of Ebola-hit countries in Putrajaya on Sept 15, 2014. Among those present to receive the contributions are (from right) Guinea High Commissioner Dr Alpha Diallo, Republic of Congo Ambassador Francios Balumuene and Negeria's High Commissioner Bello Shehu Ringim. BERNAMA
Prime Minister Datuk Seri Najib Abdul Razak handed over the medical supplies to Nigeria's High Commissioner Bello Sheuhu Ringim, Republic of Congo Ambassador Francios Balumuene and Guinea High Commissioner Dr Aloha Diallo. Also present at the ceremony were Deputy Foreign Minister Datuk Hamzah Zainuddin and Advisor in the Prime Minister's Department Tan Sri Dr Jamaluddin Jarjis.

Balumuene thanked Malaysia for the humanitarian gesture in donating medical gloves."This gestures goes a long way in helping the affected countries," he said.

"Malaysia is making this vital contribution to help fight against this contagious haemorrhagic fever called Ebola. We hope this contribution will help prevent the spread of this deadly disease," said Najib, adding he is saddened that 4,453 people had suffered from the Ebola virus, including 2,263 deaths.

A total of 13 glove-making companies have contributed to this cause, including the world's biggest Top Glove Corp Bhd. These companies sourced natural rubber latex from four plantation giants; namely IOI Corp Bhd, Sime Darby Bhd, Felda Global Ventures Holdings Bhd and Kuala Lumpur Kepong Bhd.

Top Glove Corp chairman Tan Sri Lim Wee Chai said the RM1.8 million worth of much needed medical gloves will reach the respective health ministries of the affected countries, in six weeks.

Meanwhile, the Foreign Ministry (Wisma Putra) laud Corporate Malaysia's humanitarian initiative in such times of dire need. "It reflects caring relations and co-operation between Malaysia with all five West African countries," it said.

West Africa has been hit by the Ebola outbreak in the past six months. It started out from the south-eastern part of the Republic of Guinea and became a widespread epidemic in Guinea, Liberia and Sierra Leone, Nigeria and more recently, Republic of Congo.

Lady in red

I recently covered a conference organised by the Malaysian Institute of Chartered Secretaries and Administrators (MAICSA), of which Tan Sri Rafidah Aziz was a guest speaker. While she has long retired from government decision-making posts, she continues to command respect from the business community.

Retiring from politics in 2013, Rafidah diligently tracks the pulse of international trade and investments as patron of the Malaysia-Europe Forum. She currently serves as the chairman of three companies; namely AirAsia X Bhd, Megasteel Sdn Bhd and Pinewood Studios.

As she took to the stage, she received a rousing round of applause when the moderator of her session, Philip Koh, introduced her to a roomful of near 1,000 company secretaries.

As soon as she started off her speech, Rafidah's hand gestures became more animated, sweeping from left to right ... sometimes up and down, like a music conductor guiding an orchestra. The crowd before her listened in rapt attention.

Philip, who was sitting up straight at the beginning of her speech began to gradually relax with his head tilted. One hand was hooked to the back of the seat and the other, loosening his necktie.

Half way through her animated presentation, Rafidah's voice started to become hoarse and she cleared her throat.

Suddenly, the very relaxed-looking Philip leapt to his feet. Like a superhero, he swoop up a champagne glass filled with mineral water and quickly walked towards the lectern.

Rafidah, without skipping a beat in the delivery of her speech, slipped in a double entendre. "Don't, Philip .... or I'll get wet."

Philip stopped dead in his tracks and looked at his feet. He tried hard to stifle his laughter but failed miserably.

Rafidah smiled and turned her attention back to the audience. "No, you see ... if he put the glass of water on this sloping lectern, it will slide off and I'll get wet, isn't it?" The audience broke into a raucous laughter.

She continue to tickle the crowd when she added, "It is so nice to be served by a gentleman ... now, who says chivalry is dead? Thank you, Philip." She beckoned to him and gave a slight curtsey.

Philip laughed and reciprocated her show of respect.

From there, Rafidah move on to a topic close to her heart -- the palm oil industry. She asked the audience if they had palm oil companies as clients. A show of hands emerged from the crowd. She recalled, in her early years as Malaysia's Minister of International Trade and Industry, she visited a palm oil refinery.

She noticed logos of alarm clock, a sexy woman and an airplane on the labels of cooking oil bottles. Curious, she asked the refiner, "Why an airplane? Where are these batch of cooking oil headed for?"

The refiner replied that the airplane logo signifies technological advancement and people in the Middle East took a liking to that brand of cooking oil.

"Now, that was in the early 1990s." She wagged her finger in the air and said, "the branding strategy that worked then may not necessarily work now. I hope that refinery is no longer using the airplane logo on their cooking oil bottles," she said, adding one must move with times in order to survive.

Soon after, she ended her speech. As she got off the stage and greeted her enthusiastic fans, I managed to "ambush" her near the entrance of the grand ballroom.

After I introduced myself and the media agency I work for, I willed myself to be thick-skinned and blurted out, "Tan Sri Rafidah, I've been warned that you'll scold me.

She turned and looked squarely into my eyes, "not unless you ask me relevant questions. Did you do your homework?"

I didn't want to say no, so I just smiled sheepishly.

"Ok, what is it you want to ask me?" she tilted her head and arched one of her eyebrows.

I fired away my questions and she answered all of them in a forthright manner.

A soon as I fold up my writing pad, the crowd of fans surrounding us jostled with their handphones to have selfies taken with Rafidah.

In the midst of frenzy requests from her fans to pose for photographs, I commented out loud to Rafidah that her baju kurung, lipstick, ruby jewelry, handbag and shoes were all in matching red --- the corporate colour of AirAsia.

She smiled broadly and replied "Of course ... I've always walked the talk, right?"

Tasty fried mooncakes

Pastry chef Irene Gan makes spiral-shaped Teochew mooncakes which she deep-fries using palm cooking oil, writes Ooi Tee Ching

KLANG, Selangor: THE Mid-Autumn Festival is an important Chinese festival. It falls on the 15th day of the eighth lunar month and this year the Chinese community celebrated it a couple of days back. Mooncakes and Chinese tea are usually served at this time of family gatherings.

Traditionally, the crust of this delicacy is filled with a sweet paste of lotus seed yam, red bean, pandan and mung bean. Salted egg yolks are often placed in the centre to represent the moon.

I Bakery House founder Irene Gan says Teochew mooncakes are easily distinguishable from the more common Cantonese variety as these have a flaky, crispy crust.

The 34-year-old started her home-based business seven years ago. She has since obtained a diploma in Patisserie from Taiwan and mastered the art of making breads, cakes and desserts. As her business expanded, she moved her bake-from-home business to a mini factory in Klang.

“As a mother and health-conscious consumer, I make sure that my pastries and cake are tasty as well as nutritious. I don’t use preservatives. As for flavourings and colourants, I use natural sources such as pandan and fruit extracts,” says Gan, who adds that her daughter Chloe Khoo is her biggest fan.

When making pastries and confectionery, she says solid fats help give them structure and texture. This is achieved either by using butter or vegetable shortening. Many food companies incorporate palm fats in their natural form to make bakery fats, shortenings and margarine. Palm shortenings, which can withstand high heat of even 200°C, have superb baking characteristics.

Asked about her venture into the mooncake business, she says: “This year, I made four types, including this unique Thousand Layers variant. I usually start making them about a month before the Mid-Autumn Festival. My team works longer hours as the orders stream in closer to the festival date. Mooncakes are so irresistible that I even have clients placing orders after the actual festival date.”

To a question on the Teochew variant, Gan says: “I’ve always enjoyed eating the spiral mooncakes myself, as the crispy pastry wrap is tastier when deepfried.”

The making of the thousand-layer mooncake is a labour of love. The pastry has two layers — an oil-based skin and water-based skin. Gan patiently kneads, folds and rolls out the oil and water-based pastries in thin and round slices and sets them aside.

As for the filling, yam is cut into small pieces, steamed and stirfried in wheat starch and some sugar to taste until cooked. Gan uses palm oil as it is able to withstand stir-fry temperatures better than other vegetable oils such as olive, soya bean, corn, canola and sunflower.

She then places a thin pastry slice on one palm before wrapping salted egg yolk and the yam filling into a spiral design. The process of sealing the dough is tedious.

She then fries the mooncakes. The secret to getting the mooncakes to bloom like a snail shell, according to Gan, is by frying them in oil of low to medium heat for about 20 minutes.

“Palm oil performs better at high temperatures compared with other oils. The end result is very rewarding. The pastry is crispy, crunchy and light,” says Gan as she turns the mooncakes to ensure they cook evenly.

Nutritious cooking oil

PETALING JAYA: MANY households in the country use palm cooking oil without realising that its nutritional value is just as good as other vegetable oils.

Palm Oil Refiners Association of Malaysia chief executive officer Mohammad Jaaffar Ahmad (pictured) says palm cooking oil has been a kitchen staple since the 1980s, when farmers planted more oil palm, harvested the fruits and processed the oil for export.

Over the decades, the refining technology has improved to yield palm oil that retain much of its phyto-nutrients such as vitamins A, D and E. “Although palm oil has a shelf life of two years, it is best for consumers to use the oil within a year,” he says.

Is palm oil less nutritious than other more expensive cooking oils?

One tablespoon of palm cooking oil contains 120 calories and 13.6g of fat. With a balanced combination of polyunsaturated, monounsaturated and saturated fats, palm oil is made up of 44 per cent oleic, 10 per cent linoleic, 40 per cent palmitic and five per cent stearic acids.

While palm oil is the cheapest cooking oil in the world, it is nutritionally comparable to olive oil in its cholesterol-lowering effects.

Palm oil is packed with carotenes such as beta-carotene and lycopene — the same nutrients that give tomatoes, carrots and papayas their reddish-orange colour. Palm oil has the richest natural source of the supervitamin E called tocotrienols. Olive oil does not contain any carotenes or tocotrienols, yet it is marketed as being heart-healthy.

Does palm cooking oil contain cholesterol?

Like all vegetable oils, palm oil does not contain cholesterol. In fact, the US Food and Drug Administration has allowed palm-based products sold under the Smart Balance brand (containing up to 50 per cent palm oil and 50 per cent local oils) to carry the US patented label “To help increase HDL (good cholesterol) and improve the cholesterol ratio (HDL/LDL)”.

What kind of oil should I use to deep-fry?

When frying, it is important to choose an oil with a very high smoking point. Fats and oils with a higher smoke point can endure higher heat during the cooking process. The smoke point is the temperature at which the cooking oil will begin to break down, producing a bluish smoke.

High heat changes the structure of the fat molecules, making them toxic and unusable by the body. At this point, the oil becomes harmful to consume.

Palm oil is the most commonly used oil for deep-frying because of its high smoke point.

Govt allows 2-month duty-free CPO exports

KUALA LUMPUR: THE government has approved duty-free quota for crude palm oil (CPO) exports for September and October 2014, in the hope that it will help shore up prices of the commodity.

“At current five-year low prices, the government has decided to allow export of duty-free CPO for two months, namely; September and October,” said Plantation Industries and Commodities Minister Datuk Amar Douglas Uggah Embas, here, yesterday.

“This is a pragmatic move on the part of the government to boost CPO exports by 600,000 tonnes and help reduce stock level to 1.6 million tonnes by year-end,” he told reporters in a briefing.

MPOB figures showed Malaysia’s palm oil stock level for July stood at 1.68 million tonnes.

“Although some want to export duty-free CPO until the end of the year, the government is only agreeable for two months. We need to to assess the impact of this stop-gap measure.”

At the current palm oil prices of below RM2,250 a tonne, the minister said this short-term measure is unlikely to have a negative impact on downstream players such as refiners and specialty fats, oleochemicals and biodiesel manufacturers.

He confirmed that refined palm oil will remain tax-free.

After the expiry of approval of duty-free CPO end-October, Uggah stressed that, from November, the palm oil export duty structure goes back to what it was ranging between 4.5 and 8.5 per cent, depending on the CPO prices. 

If palm oil price hovers between RM2,250 to RM2,400 a tonne, the tax is 4.5 per cent. And if palm oil price were to rise beyond RM2,400 a tonne, the tax is five per cent.

To stem falling prices, the minister is proposing to the Cabinet to implement the B7 mandate (blending of seven per cent palm biodiesel with petroleum diesel) nationwide in three months.

“We hope to do this by December. We want to increase local consumption of CPO via the B7 programme,” Uggah said. “Hopefully, these cummulative measures will help support prices. I pray that prices will recover and perhaps average at around RM2,200 until the end of the year.” 

Yesterday, the third month benchmark palm oil futures jumped RM52 to close at RM2,030 a tonne.

Hamburg-based Oil World executive director Thomas Mielke, who was speaking at the Palm Oil Industry Forum held here, yesterday, believed that palm oil prices are close to bottoming out and are set to recover in the months ahead.

“At current low prices, consumption of edible oils for energy is increasingly rapid in many parts of the world. This would provide impetus to CPO price recovery,” he said.  

Averting price war

PETALING JAYA: MALAYSIA must get on the dance floor and tango with Indonesia to avoid a price war, said Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad.

Last month, the Indonesian Palm Oil Association reportedly urged its government to slash refined palm oil export duty from 12.5 per cent to zero. This would further widen the export tax gap between its crude and refined oils.

Poram has urged the Malaysian government to be vigilant. “The government must take a more dynamic approach. We cannot afford to repeat the mistake of staying on the sidelines when Indonesia makes a move,” said Jaaffar when asked about the prospects of Indonesia changing its palm oil tax structure.

“The last time Malaysia hesitated in 2012, we fell into a lose-lose situation, of which downstream players bled losses and planters in both countries suffered from a price war.”

Two years ago, Indonesia, in its efforts to boost exports, slashed its refined palm olein tax to seven per cent and retained its crude palm oil (CPO) duty at 15 per cent.

As a result, stakeholders throughout the palm oil value chain in Malaysia took a beating. At that time, decades-old partnerships between millers and refiners in Malaysia broke down as refiners bled losses for every tonne of CPO refined. Jaaffar said to stem losses, refiners unwound long-term contracts, which then slowed down purchases and resulted in a rapid build-up of CPO inventories.

This, in turn, caused CPO and crude palm kernel oil prices to tumble, affecting planters in Indonesia and Malaysia. With cheap CPO and low duty export for packed products, Indonesian exporters sold their products at reduced prices, thus grabbing the market share from refiners in Malaysia.

When Indonesia moved and Malaysia took a 'wait-and-see' approach in 2012, the local palm oil industry lost an estimated RM9 billion in export revenue. 

“We cannot afford to remain static again. Ideally, it’s best for Malaysia’s tax gap between crude and refined palm oil to mirror that of Indonesia. If and when Indonesia widens its tax gap, Malaysia must also follow suit.

“We need to move in lockstep with Indonesia, like the way dancers hold hands and do the tango. That way, Malaysia’s refiners can continue to compete on a level playing field and hopefully, oil palm planters in both countries can avoid the dreaded price war.

“The yesteryear thinking of ‘We’re better than the other’ is over. In the spirit of the Asean Economic Community, it’s time for Malaysia and Indonesia to adopt a mutually beneficial approach of ‘We’re better together.’

He said if Indonesia widens the tax gap between crude and refined oil by a certain percentage, Malaysia’s CPO tax must be immediately amended to match the gap. This will allow oleochemical and specialty fats producers here to also benefit from the competitive prices. 

Palm oil prices have been on a downtrend for six months. Last Friday, the third-month benchmark CPO futures on Bursa Malaysia Derivatives Exchange traded RM49 lower to close at RM1,930 a tonne, below the psychological comfort level of RM2,000.

On the current downtrend, Jaaffar said it is wrong to assume that refiners and planters are engaged in a zero-sum game. “It is a misconception that in times of falling CPO prices, refiners are happy at the expense of planters. As refiners, we are margin players. It doesn’t matter if palm oil prices are high or low.

“In fact, everybody will win if the price of CPO is high. That is the role of the refiners in supporting the price of CPO by being able to buy and process every drop of CPO in the country,” he added.

FGV buys Sarawak estates, upgrades biodiesel business

KUALA LUMPUR: Felda Global Ventures Holdings Bhd (FGV) is buying London-listed Asian Plantations Limited (APL) for RM628 million.

In a statement, FGV said it intends to make a voluntary conditional cash offer for all of APL ordinary shares (excluding treasury shares) at £2.20 per share. The Singapore-incorporated APL is listed on the London Stock Exchange's Alternative Investment Market. 

APL owns 24,622ha of oil palm plantations in Miri and Bintulu, Sarawak. Its 29.4% major shareholder, Keresa Plantations Sdn Bhd, is owned by Tan Sri Leonard Linggi Jugah. One of APL’s directors is Tan Sri Amar Leo Moggie, who is more well-known as chairman of Tenaga Nasional Bhd.

“FGV continues to seek opportunities to strengthen our leading position in the oil palm plantation business, through organic and inorganic growth. 

"We are attracted to APL’s high-quality estates and are confident it will bolster FGV’s lead in sustainable palm oil production,” said FGV group president and chief executive officer Mohd Emir Mavani Abdullah.

He said the acquisition complements FGV’s long-term expansion strategy to be in the world’s top 10 agribusiness players and a leader in the sectors of palm oil, rubber and sugar by 2020.

These estates are serviced by a 60 tonne-per hour palm oil mill. Incidentally the estates are near Bintulu's deepwater port, where four of the big palm oil refineries in Sarawak are located. “FGV intends to double the productivity of the mill once it completes the purchase,” Emir said.

In October 2013, FGV bought Pontian United Plantations, which has oil palm estates in Sabah and Johor, for RM1.2 billion.

With all these acquisitions, FGV becomes the world’s third-largest plantation owner of more than 450,000ha in Malaysia and Indonesia.

The group is now the largest crude palm oil producer in the world with about 18 per cent of Malaysia’s production and 7 per cent of the world’s production.

Moving up the value chain, FGV via its unit Felda Global Ventures Downstream Sdn Bhd is upgrading its biodiesel plant at Pahang with the latest technology in renewable fuel.

The joint-venture parties consist of FGV Downstream (60 per cent), M2 Capital Sdn Bhd (20 per cent), a subsidiary of Australia stock exchange-listed Mission New Energy Ltd and Benefuel International Holdings S.A.R.L (20 per cent).

The joint-venture will acquire a biodiesel plant in Kuantan Port from Mission Biofuels Sdn Bhd and carry out retrofitting on the plant so that it can operate on the Benefuel ENSEL technology with capacity of 250,000 tonnes per annum.

“Through this synergistic collaboration with our partners, there are ready market players throughout their networks in North America and Europe," Emir said. “With the new plant, our biodiesel capabilities will increase threefold, resulting in FGV becoming one of the largest exporters of biodiesel in Southeast Asia.” 

He estimated cost for the proposed joint venture, including the plant acquisition, licensing costs, purchase of catalyst, refurbishment and retrofit to amount to US$47.5 million.

PLCs embrace 'People, Planet and Profits' presentation

This is written by my colleague Muhammad Ahmad Hamdan.

KUALA LUMPUR: The government has taken a step further in realising the adoption of integrated reporting (IR) among local public-listed companies (PLCs) to better inform investors of Corporate Malaysia balancing the needs of People, Planet and Profits.

Prime Minister Datuk Seri Najib Razak said the Securities Commission (SC) is working closely with communication practitioners and the industry on the matter, which will help to publicise good business initiatives within Corporate Malaysia.

“I’m pleased to share with you that Sime Darby Bhd will be adopting IR by 2016, making it the first company in Malaysia to do so,” Najib said during his speech at the Business Leaders Dialogue Session, here, yesterday. The event was organised by the Economic Planning Unit of the Prime Minister’s Department and the SC.

IR is a new approach towards corporate reporting and provides a more comprehensive overview of organisations, helping all stakeholders — from management to investors — to make better-informed decisions. It involves publicising the company’s initiatives and commitment to the environmental, social and governance agenda, given the rising trend of socially-responsible investing.

In December 2013, the International Integrated Reporting Council launched the framework on IR to prepare PLCs for the adoption of this method of corporate reporting. More than 40 corporate leaders representing the country’s top PLCs and government-linked investment companies contributed their views to this initiative in better communicating a common practice of balancing the needs of People, Planet and Profits. 

Also present were Ministers in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar and Datuk Seri Idris Jala, Second Education Minister Datuk Seri Idris Jusoh and SC chairman Datuk Ranjit Ajit Singh.

Corporate leaders lauded the government’s call for the adoption of IR by PLCs, saying that more companies have taken serious efforts in better communicating their business practices.

Felda Global Ventures Holdings Bhd (FGV) and Telekom Malaysia Bhd (TM) said IR is an important element in corporate reporting. “FGV has taken steps to implement it. We are doing our internal harmonisation of the reporting mechanism and we should be ready by 2016,” said group president and chief executive officer Mohd Emir Mavani Abdullah. “We fully support this as it provides the shareholders with a much clearer perspective of the company and makes the company more transparent and accountable,” he added.

TM group chief executive officer and managing director Tan Sri Zamzamzairani Mohd Isa said: “For the next annual report to be published in 2015, it is encouraged that all PLCs come up with an integrated reporting and we have started doing it already”.

Ranjit said while IR will not be made a mandatory, the regulatory body will continue its efforts in encouraging all PLCs to adopt it. “As of now, there is no plan to make IR mandatory for all PLCs,” he told Business Times on the sidelines of the dialogue.

IOI Corp upbeat on Betapol

KUALA LUMPUR: IOI Corp Bhd is upbeat on the prospects of its palm oil-derived nutritional additive Betapol, which is increasingly being used to fortify infant milk powder globally, especially in China.

“Breast is best. But don’t be sad, if you can’t. Uncle Lee can help,” said its chairman Tan Sri Lee Shin Cheng in reassuring mothers of newborns, who are unable to breastfeed.

He was responding to a media query on IOI Corp’s supply of the nutritional additive to global baby milk powder manufacturers.

When breast-feeding is not always possible, infant milk powder fortified with Betapol provides the next best option, Lee told Business Times in a telephone interview.

Betapol is the first and foremost vegetable fat blend created specifically to mimic the human milk fat structure, said IOI Corp, adding that it offers the same nutritional benefits and positive health effects as breast milk.

Its studies have shown that infant formulas containing Betapol reveal better calcium absorption, rise in the babies’ bone density and softening of stools.

Infant formula is generally used from birth through 12 months, but more targeted nutritional products may be used till up to 24 months. The global market for infant formula has been growing, particularly in China, despite its one-child policy.

Lee said China’s Ministry of Health has approved Betapol as an additive in infant milk powder since 2008.

Milk powder is a sensitive matter in China after a 2008 scandal involving milk tainted with melamine that led to the deaths of at least six infants and made many thousands ill. The incident hit the reputation of local dairy firms but boosted the market share of imported brands, such as Danone SA, Nestle SA, Mead Johnson Nutrition Co and Abbott Laboratories.

In recent years, domestic milk powder makers in China, in their bid to boost the quality of their products, started incorporating Betapol into their formulation. They include Inner Mongolia Yili Industrial Group Co Ltd, China Mengniu Dairy Co Ltd, Feihe International Inc and Heilongjiang Wondersun Dairy Co Ltd.

The global human milk fat replacer market is a duopoly, of which Betapol competes with InFat. The latter is marketed by Advanced Lipids, a joint venture between Enzymotec Ltd of Israel and AarhusKarlshamn (AAK), the downstream arm of United Plantations Bhd. 

InFat is a palmitate fat that mimics the composition and properties of human milk fat. Peer reviewed research and clinical studies have also shown InFat, like Betapol, is beneficial to infant intestinal health and bone strength.

When asked if IOI Loders Croklaan has an upper hand over rival AAK in capturing China’s market, Lee said his team is committed to better serving the clients.

He said IOI Corp’s arsenal of 17 patents provide worldwide intellectual property protection for the process currently used in the company’s dedicated Betapol facilities in Malaysia and the Netherlands. 

It involves the enzymatic acidolysis of a palm stearin component with oleic acid to produce an OPO-type fat. By protecting its product ideas, IOI Corp is seen to increase its dairy customers’ chances of success with their premium offerings.

Separately, while conducting a media tour of IOI Corp’s refinery complex in Pasir Gudang, IOI Loders Croklaan Asia chief operating officer Michael van Sallandt assured milk companies security of supply.

“Our Betapol plant here in Johor is able to churn out 10,000 tonnes a year. We’re also setting up a blending facility in Xiamen, China, so as to be closer to our clients. So far, there are 25 infant milk powder brands using Betapol,” he added.

FGV beefing up CPO trading

This is written by my colleague Zaidi Isham Ismail.

KUALA LUMPUR: Felda Global Ventures Holdings Bhd (FGV) wants to ramp up its crude palm oil (CPO) trading activities to consolidate its position as the world’s largest CPO producer, as well as to boost earnings.

FGV transport, logistics, marketing and others (TLMO) cluster head Datuk Khairil Anuar Aziz said the company will set up a marketing and trading company by year-end.

“It is a numbers game out there and we want to beef up our trading activities to drive revenue. We realise that other plantation companies are doing it and we don’t want to miss the opportunity.

“In fact, we are much better as we are backed by our own assets such as CPO from our own plantations, crushing mills and refineries,” Khairil told Business Times in an interview recently.

FGV, which produces about 3.2 million tonnes, or six per cent, of the world’s global CPO a year, reorganised its operations last month into six clusters with the aim of becoming a top 10 global agribusiness player.

The six clusters are upstream, downstream, sugar, rubber, research and development, and TLMO. The reorganisation is also part of FGV’s blueprint to rake in RM100 billion worth of revenue by 2020.

Khairil said 2.3 million tonnes of FGV's output are for internal consumption, such as for its unit Delima Oil Products to make cooking oil and for its oleochemicals partner Procter & Gamble in Kuantan.

“We can only trade about one million tonnes, which is not enough to boost income. Thus, we will go into trading in a bigger way. We will buy CPO from Indonesia and other producers and market it overseas.”

He said FGV will put more effort in expanding its trade offices in Indonesia, United Arab Emirates, China and Turkey.

Tocotrienols for brain health

This is written by my colleague at Penang Bureau.

A recent study has found that Vitamin E from palm oil can help protect brain cells, writes Marina Emmanuel.

MALAYSIA’s top spot as the first country to commercialise tocotrienols has been strengthened by the findings of a two-year human clinical study carried out at Universiti Sains Malaysia (USM), which now lend promise for the preservation of brain health.

Derived from palm oil, this Vitamin E supplement, consumed long-term, has been found to protect brain cells and the nervous system as well as help minimise brain cell injuries, especially during a stroke.

The clinical study was published in the American Heart Association journal, Stroke. It is being touted as the first study to provide solid evidence of tocotrienol’s neuroprotective benefits in humans.

The clinical trial, led by USM Professor Dr Yuen Kah Hay and detailed in Stroke, shows that Vitamin E tocotrienols, derived from palm oil may support white matter health by weakening the progression of white matter lesions (WML) or oxygen-starved brain cells.

About 50 per cent of our brain is made of white matter, which provides connections to various other brain centres and is key to learning and memory.

WMLs are abnormal regions in the brain that can be detected by magnetic resonance imaging. Brain WMLs have been reportedly linked to the development of other neurodegenerative diseases, such as Alzheimer’s and Parkinson’s.

“Injury to white matter has been reported to be the major cause of functional disability in cerebrovascular disease,” said Yuen, adding that previous animal studies have reported that palm oil Vitamin E tocotrienols are capable of preventing damage to white matter during a stroke, and improving blood circulation to the damaged part of the brain after a stroke.


The trial was a randomised, double-blind, placebo-controlled study conducted by USM which followed two groups of volunteers — one with WMLs and the other with no WMLs — for two years.

One group received 200mg of mixed tocotrienols (Tocovid Suprabio) twice daily for two years, while the others were given a placebo. All volunteers were instructed to maintain their regular diets and physical activity levels.

MRIs were performed at entry into the study (baseline), and then repeated after one year and again after two years.

After two years of supplementation, the mean WML volume of the placebo group increased whereas those who received mixed palm tocotrienols remained unchanged, the study concluded.

“Tocotrienols,” noted Yuen, “have been in the market for a long time and are sold here and in the US and Europe. It is through the efforts of Malaysian companies that the world today knows of the availability of tocotrienols.”

He said that though doctors in Hong Kong have been prescribing tocotrienols to patients, there is still a need to convince local health professionals of its neuroprotective benefits.

“They remain sceptical unless we show them evidence, which is the result of tests on humans. With more studies coming out that tocotrienols are indeed neuro-protective, the effect is likely to be seen in better demand for palm Vitamin E tocotrienols while further improving the image of Malaysian palm oil,” said Yuen.

“As proven by studies carried out abroad, palm oil is healthy and just as good as olive oil, if one looks in terms of their cholesterol profile. What is needed now is to to convince consumers.

“Doctors and pharmacists can do a good job in advising their patients on palm oil since they are looked on as opinion leaders in the health field.”

Jakarta to tighten grip on plantations

JAKARTA, Indonesia (Reuters): LAWMAKERS are looking to restrict foreign ownership of plantations to no more than 30 per cent, as the country tries to maximise land usage, protect indigenous people and tighten environmental controls in the sector.

A new draft bill drawn up by members of the Parliament aims to open up the sector to smaller, local players. But it would also discourage foreign investment just after the nation has set an ambitious goal of raising its palm oil output by a third to 40 million tonnes by 2020.

Foreign ownership of Indonesian plantations is currently set at a maximum of 95 per cent. As well as simplifying Indonesia’s complex rules on land use, the new proposed law may also make it easier to prosecute businesses responsible for Southeast Asia’s annual “haze” season.

“It’s a bombshell and has snuck in under the radar, and as far as I know, without consultation with the industry,” a source said.

“There will clearly be a decline in new foreign investment. I would think there will be a decline in the capital value of plantations.”

Foreign plantation firms currently operating in Southeast Asia’s largest economy include Golden Agri-Resources and Wilmar International, Sime Darby Bhd and Cargill.

Limiting foreign ownership in palm firms to 30 per cent would hinder the flow of overseas capital needed to develop and modernise the industry, said Fadhil Hasan, executive director at the Indonesian Palm Oil Association.

The government has introduced a series of nationalistic rules for commodity exports, including palm, cocoa and mining, in an effort to boost domestic processing industries and boost the value of its exports.

The Parliament is looking to finish discussions on the draft bill with the government soon and expects it to be approved before the new administration is in place, said Gamal Nasir, director general of plantations at the agriculture ministry.

If the draft bill becomes law, it would be retroactive for companies that already own plantations, said Herman Khaeron, a lawmaker and vice-chairman of the parliamentary committee for agriculture, forestry, fisheries and maritime.

But this interpretation was rejected by agriculture ministry and industry officials.

Firms would be given five years to comply with the new bill and those that refused to comply may face fines, temporary suspensions or the revoking of licences. 

B5 biodiesel mandate delayed, again

PUTRAJAYA: Malaysia, the largest palm oil producer after Indonesia, delayed the nationwide implementation of its biodiesel mandate to the end of the year, said Datuk Seri Douglas Uggah Embas, Plantation Industries and Commodities Minister.

The B5 programme will be completed by December instead of an original target of July, doubling average monthly consumption, Uggah said in an e-mailed response to Bloomberg questions. 

The delay was because construction of 15 blending facilities in the states of Sabah and Sarawak and the federal territory of Labuan in East Malaysia were taking longer than expected, he said.

Palm, the world’s most consumed cooking oil, has declined 16 per cent in 2014 and slumped to the lowest level in a year in Kuala Lumpur today as the US government predicts record global inventories of soybeans, used to make an alternative oil. 

Prices have also been pressured by the failure of Indonesia and Malaysia to boost use in biofuels, according to Dorab Mistry, director at Godrej International Ltd, on June 26.

"We are monitoring the progress of the construction of the blending facilities and exploring ways to accelerate completion,” Uggah said. 

Full implementation of the B5 programme is expected to consume 500,000 tonnes of methyl ester annually. The country is set to produce 19.5 million tonnes of palm this year, he added.

Futures declined as much as 0.7 per cent to RM2,239 (US$700) a tonne today on the Bursa Malaysia Derivatives, the lowest level since August 12. News of the delay added to the bearish outlook for palm oil, said Chandran Sinnasamy, Kuala Lumpur-based head of trading at LT International Futures Sdn Bhd.

B5, which involves blending five per cent of palm methyl ester with 95 per cent of diesel petroleum, was completed in March in Peninsular Malaysia, Uggah said. Monthly usage will average 41,667 tonnes upon full implementation compared with 20,833 tonnes now, Uggah said. 

This will increase to 58,333 tonnes with the start of the B7 programme in the first quarter of 2015, he said, adding the Malaysian Palm Oil Board (MPOB) is in discussions with engine manufacturers and automobile associations to get warranties for B7.

Indonesia in September 2013 also boosted the amount of biodiesel blended with fuel to 10 per cent from 7.5 per cent and power plants had to blend 20 per cent from January 2014.

The country’s use of palm biodiesel in the first five months was roughly the same as in the same period a year earlier and full-year consumption will not increase, Mistry said at a conference in Mumbai in June. Domestic consumption of biodiesel is not as good as expected, Fadhil Hasan, executive director of the Palm Oil Association, told reporters on July 21.

Indonesia and Malaysia, collectively produce 86 per cent of world supply. --Bloomberg