Archive for September 2010

The good, the bad and the ugly

This is written by Niko Kloeten and published in The National Business Review.

THE GOOD -- Fonterra’s second biggest payout

How many New Zealand companies can say they’ve just had their second best year ever? New Zealand’s biggest company can. Fonterra has posted its second highest payout, giving farmers NZ$6.10 a kg of milksolids and paying a dividend of 27cents a share.

For a farmer producing 100,000/kg, the 2009/10 payout provides a gross farmgate increase of NZ$117,000 against the 2008/09 year to NZ$637,000. There is also good news for the current season, with Fonterra firming up its forecast of NZ$6.60/kg, plus a dividend of 40-50 cents before retentions.

The rest of New Zealand’s economy is spluttering but the good thing about cows is ... they are pretty consistent, even if the prices paid for their product are prone to wild fluctuations. Barring major natural disasters, New Zealand’s farmers will continue to produce roughly the same amount of milk and if the payout is even higher than last year’s, it will be a major boost for the economy.

Even the projected 50 cents increase in the current season’s payout compared to last year’s equates to an extra NZ$600 million or so flowing into farmers’ coffers. This money, then, flows through the rest of the economy, which needs any extra help it can get.

THE BAD -- Greenpeace’s stupid stunt

Dairy cows in New Zealand. By Bloomberg/Brendon O’Hagan
If this week’s protest at Fonterra’s Auckland office is anything to go by, Greenpeace needs new leadership and a new focus or it will continue to dwindle into irrelevancy.

During the 1980s and 1990s Greenpeace found support fighting against imperialistic France using its south Pacific islands as a nuclear testing ground (not to mention blowing up a boat and murdering someone in the process).

There are plenty of issues a reputable environmental group could protest about these days. But Greenpeace chooses to ignore them and focus instead on issues that align with the views of the left wingers that make up much of its membership. According to their simplistic worldview, it is capitalists against the environment and anything that doesn’t fit that neat little script is not worth bothering about.

The palm oil issue is one that certainly follows the playbook, at least according to the way Greenpeace have framed it – nasty capitalists are chopping down trees and killing orang-utans!

What they neglect to mention is that palm oil is environmentally friendly compared to other vegetable oils because of its high yield, so it requires a lower acreage of crops to get the same amount of oil.

And as late economist Murray Rothbard would probably say to Greenpeace’s complaints about deforestation, “so what?”

If Greenpeace really cared about the survival of orang-utans they would advocate for them to be farmed and treated as commodities like cows and chickens, which will never be endangered species. Instead they target New Zealand’s biggest and most important company, which imports small amounts of palm kernel as supplementary feed.

While there is nothing wrong with peaceful protest and having the right to voice your opinion is a pre-requisite of a free society, private property must also be protected and respected.

The clowns who invaded Fonterra’s building are seen as a joke by many and need to be treated more harshly for trespassing and wasting police time, even though they may be relatively harmless.

AND THE UGLY -- GDP shocker

This week’s horrendous GDP result supports what the average person on the street has known for some time but ivory tower economists have been slow to pick up on – that New Zealand’s economy is still in the toilet.

GDP rose only 0.2% in the June quarter according to Statistics New Zealand, well below the consensus market forecast of a 0.8% rise. The Reserve Bank, the organisation in charge of centrally planning New Zealand’s money supply, was even further from reality with its guess of a 0.9% increase. And although it was the first annual rise in GDP since September 2008, the 0.7% year-on-year increase was less growth than what the boffins thought we’d see in just one quarter.

Traditionally, New Zealand bounces back quickly from recessions. But this time, it appears to be different.

There were a number of ominous signs in this week’s GDP figures, particularly the running down of inventories, which hints at a severe lack of confidence in market conditions. But those who are students of economic history shouldn’t be surprised that New Zealand, and many other countries around the world, are experiencing a slow to non-existent economic recovery.

The current prescription of insanely low interest rates, money printing and “stimulus” spending sponsored by government borrowing echoes the failed policies that turned the stock market crash of 1929 into the Great Depression.

In contrast to the huge hikes in government spending, massive deficits and make-work projects implemented by US Presidents Herbert Hoover and Franklin Roosevelt during the depression, the response to the 1920-21 recession in the US was a laissez-faire one. President Warren Harding and his government let unprofitable firms fail and concentrated on balancing the budget, while the Federal Reserve kept interest rates high at about 7%. Within three years unemployment had dropped from 11% to 2% and the recession of 1920-21, which was more severe than the one of 1929, was soon largely forgotten about.

If New Zealand is to fully recover, it needs the economy-distorting low interest rates to be hiked and the government to balance the budget and remove the many growth-retarding interventions in the economy.

But, to quote Sir Roger Douglas, the national government has its head in the sand.

Charges likely over irresponsible protest

The combined reports below were published today by news agency New Zealand Press Association and newspapers NZ Herald and The National Business Review.

AUCKLAND - Police are likely to lay charges against 20 Greenpeace protesters after Fonterra Cooperative Group Ltd's employees were forced to evacuate their headquarters in New Zealand over a bomb scare, this morning.   

Greenpeace's McDiarmid receives a trespass notice
The 8.15am evacuation of more than 100 employees was caused by Greenpeace's protest against Fonterra's purchase of palm kernel animal feeds, sourced from oil palm trees, which they claim were grown at the expense of rainforests.

Inspector Lou Alofa of the police northern communications centre said Fonterra's building on Princes St was evacuated after a suspicious package was left unattended and chained to an elevator handrail inside the building.

"We have dealt with the package and can confirm it was not an improvised explosive device," Mr Alofa said. "We discovered it was actually two speakers playing a voice recording and the sound of chainsaws."

Greenpeace New Zealand executive director Bunny McDiarmid said, "We take protests seriously and all our volunteer activists are highly-trained, calm and respectful of police and emergency services. The right to peaceful protest is the foundation of a democratic society."

Another Greenpeace activist, Simon Boxer, insisted the protest had only barricaded one entrance and staff were able to pass through five other entrances to the building unhindered. "Our members peacefully handed out leaflets explaining what we were doing," he said, adding the television screens were broadcasting footage from a Greenpeace trip last week to Indonesia, looking at the deforestation of native forests.

Greenpeace claims that Fonterra, the world’s largest dairy exporter, imports one quarter of the world's palm kernel. As a result, rainforest in Indonesia is being cleared at a rate of 2 per cent per year in order for the oil palm trees to be grown. "We hope the message has gone in there and that Fonterra will take corporate responsibility for the deforestation that is happening in Indonesia at this very minute."

This protest comes four months after Greenpeace protestors chained themselves together to block the fuel depot at Fonterra’s Clandeboye factory in Canterbury which uses coal.

Police who attended the incident today are concerned. They deemed the protesters' behaviour irresponsible because it unnecessarily consumed a lot of emergency services resources. Acting Auckland City area manager Inspector Mike McIlraith said charges were likely to be laid and investigations were continuing.

By 9.30am, Fonterra's staff had returned to the 9-storey building.

Greenpeace called on Fonterra and the Government to end New Zealand's importation of palm kernel grown on areas of destroyed rainforest which it said was driving climate change and putting at risk of extinction several wildlife species, including primates called orangutan.

"As the palm industry opens up new frontiers across Indonesia, companies like Fonterra, which is expected to spend NZ$230 million this year buying up a quarter of the world's traded palm kernel, is helping to fuel this destruction," Greenpeace New Zealand communications manager Suzette Jackson said.

Palm oil prices hit six-week high

Palm oil hit a six-week high of RM2,706 per tonne yesterday on concerns of erratic weather curbing soyaoil supply and lack of skilled Indonesian workers to harvest palm fruits in Malaysia.

This is the third time this year palm oil futures pierced through the RM2,700 per tonne level.

Johor-based Kim Loong Bhd managing director Gooi Seong Heen said: "The run-up in prices is most probably fuelled by fear of erratic weather causing supply shortage in soyaoil.

"This month, we hope to harvest more fresh fruit bunches but then again it depends if we can secure enough harvesters. We appeal to the government to rectify the situation."

Sabah-based Kwantas Corp Bhd group managing director Steve Kwan Ngen Chung concurred with Gooi. "It is very important for Malaysia to maintain good diplomatic relations with Indonesia. Malaysia's palm oil industry's earnings could be hurt if our government is not careful in handling the foreign worker issue. We're entering the peak fruiting season but there's lack of skilled harvesters. Many have gone home to Indonesia for Hari Raya. So far, not all have returned to report for work," Kwan said.

Co-incidentally, palm oil futures on Malaysia's Derivatives Exchange along with other derivatives migrated to CME Group's Globex trading system yesterday.

Palm oil futures in Kuala Lumpur move in tandem with other vegetable oils traded in Chicago and Dalian because palm oil and soyaoil are near-perfect substitutes. They are used to make cooking oil, margarine and biodiesel.

In China, the most heavily-traded refined, bleached deodorised palm olein May 2011 contract on the Dalian Commodity Exchange rose 4 per cent to 7,630 yuan (RM3,520) per tonne.

Over in Chicago, CME Group's December delivery soyaoil futures traded on Chicago Board of Trade's Globex added 1.91 per cent to a high of 42.71 cents a pound. Delay in harvesting of the soyabean due to unfavourable weather condition is supporting the prices. As for palm oil, Chicago's December delivery contract, which is pegged to the Malaysian benchmark, added as much as 3 per cent to US$870.25 (RM2,698) a tonne, the highest since the exchange started trading the contract in May.

Palm oil exports may hit RM60 billion

MALAYSIA'S palm oil exports may expand by 20 per cent to touch RM60 billion this year, thanks to higher average palm oil prices and improving global demand.

Palm oil futures prices are now averaging at RM2,500 per tonne, higher than last year's RM2,250 per tonne.

The latest data from the Malaysia Palm Oil Board shows that palm oil exporters have shipped out almost 11 million tonnes for consumption in the global food industry. This is 6 per cent growth from a year ago.

In an interview with Business Times, Malaysian Palm Oil Council (MPOC) chief executive officer Tan Sri Yusof Basiron said apart from Asia, Russia and the Middle East, more palm oil shipments are going to Western nations. Below is an excerpt of the interview:

QUESTION: Do you think Malaysia's global palm oil exports could surpass last year's RM49.59 billion? If so, by how much?

ANSWER: This year, Malaysia's crude palm oil output is not likely to change much from last year. Dry weather caused by El Nino and tree stress in the early part of the year has slowed down crude palm oil output.

In the first eight months of this year, output only grew by a mere 1.7 per cent to 11.1 million tonnes. This has limited palm oil available for exports. The current limited supply trend is expected to continue for the rest of 2010 as the Indonesian government has imposed higher export duties on its palm oil shipments.

As more rapeseed, soya and corn oil are burnt as renewable energy in Europe, the US and Latin America, more palm oil is being imported to make margarine, mayonnaise, cheese spread and chocolate.

Asia's strong economic growth, including our Asean neighbours, and recovering economies in the Middle East, will spur our palm oil exports by between 10 and 20 per cent.

Q: Is Russia an emerging market for Malaysia's palm oil?

A: From January to August 2010, we shipped 104,971 tonnes to Russia, 5 per cent more than in the same period last year. Russia is a major consumer of oils and fats, but it is not able to grow enough oil crops to feed its 145 million population.

     Last year, Russia imported some 446,000 tonnes of palm oil from Malaysia and Indonesia. This is almost 60 per cent of its total oils and fats imports. Palm oil is becoming popular in Russia because it is the most suitable and economical raw material to make soap and detergent.

Q: In the last five years, Malaysia had exported more palm oil to Ukraine. But in the first eight months of this year, volume plunged 62 per cent to 158,678 tonnes. Why?

A: The drastic decline in our exports to Ukraine is caused by two factors. Ukraine's monthly vegetable oil production are at record high levels in the 2009/2010 marketing year. The Eurozone debt crises and Ukrainian currency devaluation may also have an influence on the demand for palm oil.

     Despite the dismal numbers this year, it must be highlighted that palm oil remains the bulk of Ukraine's vegetable oils imports. According to Oil World, from January to June 2010, palm oil imports from Malaysia and Indonesia accounted for 96 per cent compared with 93 per cent in the same period a year ago. Just like in Russia, people in Ukraine use palm oil to make margarine, mayonnaise and other variants of bakery fats.

Q: Palm oil exports to the Netherlands - the gateway into Europe - fell in 2007, 2008 and 2009. Will 2010 see a further decline?

A: Malaysia's palm oil exports to the Netherlands went up 15 per cent to 697,503 tonnes in January-August 2010, compared with 608,808 tonnes in the same period last year. Similarly, exports to the European Union (EU) also recorded a 16 per cent increase to 1.32 million tonnes in January-August 2010 compared with 1.14 million tonnes in the same period last year.

   Going forward, we expect EU-27 nations (including the Netherlands) to remain dependent on palm oil imports to make up for the shortage of vegetable oils in the food sector as a result of higher usage of domestic rapeseed oil and sunflower oil in its biodiesel sector.

Q: Last year, Malaysia's palm oil exports to the US fell 18 per cent to 0.86 million tonnes. What led the decline? Will this year's exports to the US able to top the one million-tonne mark?

A: Since 2005, Malaysian palm oil shipment to the US soared as a result of the US Food and Drug Administration compulsory ruling on trans fat labeling in 2006. The US baking industry turned to palm oil to rid its products of trans fat, which is common in partially-hydrogenated vegetable oils. Malaysia's palm oil exports peaked at more than a million tonnes in 2008.

       Last year, however, the local vegetable oil industry in the US, namely the American Soybean Association, came up with other trans fat-free alternatives and raised the competition for palm oil.

    Despite such challenges, we still see good prospects. Until August, more than 700,000 tonnes of palm oil reached the US shores. For the full year, it should touch a million tonnes. Malaysia has, for more than 30 years, been the major supplier of palm oil to America.

CME Globex to boost liquidity in Malaysia's Futures

This article is written by Lim Shie-Lynn and published in the Wall Street Journal today.

KUALA LUMPUR – (Dow Jones) – Effective Monday, Malaysia's stock exchange operator Bursa Malaysia Bhd will move its derivatives contracts, comprising commodity, financial and equity futures to CME Group Inc's (CME) Globex platform, reflecting the country's changing broking landscape.

With a wider pool of CME brokers able to use Bursa Malaysia's products, the move promises increased liquidity for Malaysia's ringgit-denominated crude palm oil futures, the most active of its contracts that acts as a global benchmark for the pricing of palm oil.

The move will also provide Bursa Malaysia's members access to CME's global products, although it is unclear, at this stage, how much interest it will generate.

The switch comes a year after the two exchanges announced a partnership with CME, the world's largest futures market, buying a 25% stake in Bursa Malaysia Derivatives (BMD), a unit of Bursa Malaysia. BMD currently has nine products traded on its existing platform, including futures on the FTSE Bursa Malaysia KL Composite Index, three-month Kuala Lumpur interbank offered rate futures and FCPO.

The crude palm oil futures on BMD will be the primary beneficiary of the switch as the Globex platform will give it a wider reach, similar to that enjoyed by the rival soyoil futures contract in Chicago.

BMD chief executive Chong Kim Seng said the "palm oil contract will have greater visibility and (the switch) gives BMD an opportunity to expand its product base in the future."

Chong said, in a briefing earlier this week, that Bursa Malaysia expects to double its daily trading volume to 12 million contracts by 2013, from about six million now.

An executive at the stock exchange operator said he expects the transfer to double the trading volume in crude palm oil futures in two years. Trading of the contract grew 33% to four million contracts in 2009, data from Bursa Malaysia showed. "With access to Globex, Bursa Malaysia is considering introducing new products such as ringgit -denominated soybean and soyoil contracts," the executive said.

Brokers and analysts said the changes would enhance market regulation and transparency as well as better price discovery.

"As Bursa already has liquidity in crude palm oil futures, we can probably see 10%-15% growth in trading volume in the next six months," said Michael Lee, executive director at Kuala Lumpur-based brokerage Philip Futures Sdn. Bhd. "Trading is likely to get rather interesting, albeit hectic with the Globex transfer," he added.

Hovid sells Carotech shares to repay loan

PHARMACEUTICAL company Hovid Bhd has reduced its shareholding in subsidiary Carotech Bhd to 42.84 per cent, having sold off some 150 million shares in the latter over the past month, to pay off debts.

In its filing to the stock exchange yesterday, Hovid said it had, in the last two weeks, sold off 70 million more shares, or 7.67 per cent stake in its subsidiary Carotech Bhd for RM4.9 million.

Incidentally, Lembaga Tabung Haji (LTH) has emerged as a substantial shareholder in Carotech. Separate filings to the stock exchange showed the pilgrim fund had been accumulating Carotech shares. As of yesterday, LTH holds 8.85 per cent stake.

Earlier, from 17th to 27th August 2010, Hovid sold 80 million Carotech shares of 10 sen each, comprising of 8.77 per cent stake for RM5.6 million.

Money raised from the sale of Carotech shares is being channelled to pay off Hovid's bank loan. Last year, Hovid borrowed RM20 million from Affin Investment to subscribe for new shares under a rights issue.

Hovid, yesterday, clarified that its' August and September sale of Carotech shares will help narrow losses for the year ended June 31 2010 to RM4.7 million, and not RM3.7 million reported earlier.

Although the sale of Carotech's shares were done at a loss, Hovid said it had to reduce its gearing from 0.46 to 0.43 times and mitigate the risk of margin call.

Hovid's debt problem emanated from Carotech defaulting on loans with several banks totalling US$47.76 million and RM59.11 million, respectively.

Carotech explained that high palm oil prices in the first half of 2008 and the subsequent global economic turmoil had curtailed biodiesel demand and reduced its ability to generate excess cashflow to meet its debt obligations.

Bank Negara's Corporate Debt Restructuring Committee had, since two months ago, stepped in to help Carotech restructure its debt. Carotech is now labled a Guidance Note 5 company and has until December 31 2010 to settle with its bankers.

Bursa Malaysia: Futures to migrate to CME Globex Sep 20

This article is written by Lim Shie-Lynn and published in the Wall Street Journal today.

KUALA LUMPUR (Dow Jones)--Bursa Malaysia Derivatives (BMD), a unit of Malaysia's stock exchange operator Bursa Malaysia Bhd, will migrate the trading of its derivatives products to CME Group's (CME) Globex platform Sept. 20, the stock exchange said Tuesday.

The migration of BMD's products to Globex follows CME Group's acquisition of a 25% stake last year in Bursa Malaysia's derivatives unit.

Through the partnership, CME is licensed to develop a dollar-denominated crude palm oil contract based on the settlement prices of BMD's ringgit-denominated contracts. The dollar-denominated contract commenced trading May 23 and is traded on the CME Globex.

A Bursa Malaysia executive, who preferred to remain anonymous, said on the sidelines of a company function that the stock exchange operator is considering introducing new products such as ringgit-denominated soybean and soyoil contracts. He didn't set a timeline for their launch.

Traders and analysts said the listing of a dollar-denominated cash-settled crude palm oil futures contact or CUPO on Globex and the migration of BMD's products, including the benchmark ringgit-denominated palm oil contract, onto CME's trading platform may enhance the visibility of the commodity.

The aim is to generate more trading interests in palm oil, which is found in products ranging from ice-cream to shampoo, cosmetic products and biodiesel.

A western tool for economic domination

This article was published in Borneo Post.

THE PALM OIL industry is much maligned by western lobby groups that see increasing acceptance of the crop as a formidable threat to the global market share of their own edible oils such soy, rapeseed and corn.    

Casting aspersion on palm oil since the 1980s, they have now dragged things like destruction of forests and wildlife (due to the industry) into their smear campaign. Posters blaming the palm oil industry for causing the displacement of orangutan population in Malaysia is seen on the wall of an orangutan enclosure in full view of visitors to Adelaide Zoo in Australia.

According to news reports, in one poster, the activists claim there are now between 45,000 and 60,000 left in Borneo and the primates would become extinct within 20 years at the present killing rate of 50 animals per week.

If all this is true, especially the bit on the weekly 50-animal killing rate, then there is, indeed, cause for serious concern about the threat posed to the survival of the entire pongo pygmaeus species in tropical Borneo where they are found. 

But, what have the activists based their claims? Facts or fantasy? Most likely the latter.

Prime Minister Datuk Seri Najib Tun Razak dismissed these frivolous allegations because the palm oil industry is not depriving the orangutans of their habitat. 

Malaysia has a good track record of preserving this Asian living genus of great ape.

In Sarawak, for instance, orangutan habitats are identified in three totally protected areas — Lanjak Entimau Wildlife Sanctuary, Batang Ai National Park and Ulu Sebuyau National Park. In Sabah, it’s the Sepilok sanctuary near Sandakan. Moreover, one million hectare trans-boundary biodiversity conservation area has been set up between Malaysia and Indonesia to protect orangutans and other wildlife.

This is a whole lot more than what is being done to conserve the dingo (canis lupus dingo) Down Under. And for the record, the Tasmanian Tiger (thylacinus cynocephalus), the world’s largest carnivorous marsupial, once common throughout Australia, is believed by many to have been hunted to extinction by the early European settlers of Tasmania, its last stronghold.

Although orangutan conservation initiatives are well-documented, we still hear ludicrous stories about the primates being mercilessly hunted and killed for exotic meat or agricultural development. Clearly, the activists’ are spreading lies about orangutan habitats being destroyed or the species being driven to the verge of extinction by deforestation or commercial agriculture.

 Oil palm plantations are set up on legitimate agricultural land without any need to clear virgin forests. That’s why Malaysia still has virgin forest cover of more than 50 per cent despite planting the crop for more than 100 years and being the world's second largest palm oil producer.

It must be noted that developed countries, like Europe, Australia and New Zealand, cut down forest to clear large swathes of land for planting cash crops to ensure economic survival. Just look at the millions of hectares of wheat and corn fields there. These land were once lush temperate forests. It is now flattened for cultivating subsistent and cash crops to fuel their economies (with substantial subsidies.. at the expense of their taxpayers). In the process, many wildlife species were displaced or became extinct due to destruction of their habitats. 

Why don't we hear vociferous protests from their environment and animal rights activists?

Yet, when agro-based countries like Malaysia embark on oil palm planting to diversify and sustain their economies, they are straightaway blamed for destroying forest and producing a crop that is dangerous to health.

With more wildlife conservation data gathering and scientific research carried out on palm oil nutrition in Malaysia, it is no longer that simple for mercenary activists to pull wool over people’s eyes. 

For instance, studies by Universiti Sains Malaysia have revealed palm oil’s potential as a cure for many ailments, including fatty liver and stroke. Palm oil, being a vegetable oil, is cholesterol-free. It is also the richest source of tocotrienol, the superior form of Vitamin E that is packed with heart-friendly antioxidants. The oil palm industry also provides renewable energy sources such as biogas and biomass.

Despite such scientific findings, the lobby groups in the EU, Australia and New Zealand continue to discredit palm oil. What are they really up to?

It’s an open secret that the anti-palm oil lobby is a western tool for economic domination. Their aim is to keep the third world economically backward so that the latter’s markets can be manipulated and exploited by developed nations.

Green Protectionism

This article by James M. Roberts was published in the Journal of the American Enterprise Institute, a month ago.

An article in the New York Times featured unsubstantiated accusations by Greenpeace that Indonesian pulp, paper, and palm oil conglomerate Sinar Mas is “secretly planning a massive expansion of pulp mills and cutting down essential forests, including habitats for endangered tigers.”

Alleging serious ecological harm, Greenpeace — along with the World Wildlife Fund, Friends of the Earth, and the Rainforest Action Network — is advocating trade restrictions on these products from Indonesia.

This attack on Indonesia’s forestry sector bookends a recent blitz by Greenpeace activists against Indonesia’s palm oil industry on similar grounds. Meanwhile, companies in Europe, North America, and Australia that produce competing agricultural commodities have lobbied their governments to impose trade restrictions against lower-cost products from Asia.

Welcome to the world of “green protectionism.”

Western policy makers know it is against established trade law to block imports for protectionist purposes; no trade court would allow it. So they have shifted strategy.

Policy makers who are hostile to foreign trade now echo the claims of radical environmental NGOs in an attempt to block imports on ecological grounds.

In this way they achieve traditional protectionist goals via non-traditional means.

Take the forestry industry. The first “green shoots” of trouble for free trade in that sector began sprouting in the last couple of decades, when pulp and paper exports from Asia started to significantly impact world trade flows.

Serious efforts to block imports of forestry products began in the European Union (EU) when its “Forest Law Enforcement Governance and Trade” (FLEGT) Action Plan was published in 2003. It included provisions for “voluntary partnership agreements” between developing countries and the European Union, whereby both sides committed to government procurement policies allowing the purchase only of “legally harvested” timber.

The global economic downturn of the past two years has engendered additional protectionist pressures and this summer the European Parliament actually voted to close EU markets to “illegal” timber. The new law covers “the whole timber supply chain from logging sites to European consumers [and] aims to guarantee legally sourced products access to EU markets while halting deforestation in third countries.”

European protectionism is also now being found in sectors such as palm oil, which has made big gains in the European market against competitor products. The palm oil industry has been an important source of private-sector foreign direct investment, economic development, and employment for millions worldwide, including 570,000 Malaysians and more than 3 million Indonesians.

Greenpeace and the other environmental NGOs are leveling the same charges against palm oil producers that they employ against the forestry sector. They allege that companies buying goods from Asia’s tropics are complicit in the destruction of rainforest and habitats for endangered species.

Thus these NGOs are pushing for adopting the EU’s “Renewable Energy Directive” (RED), which would restrict imports of biofuels by imposing more onerous environmental standards on them than on biofuels produced in the EU such as rapeseed oil. Such favoritism is prohibited under the World Trade Organization’s (WTO’s) nondiscrimination and national treatment rules.

But the FLEGT apparently did not hinder enough imports. In 2008, European protectionists and NGOs pushed through new EU regulations imposing additional regulatory “due diligence” burdens on European importers of pulp and paper products to ensure that EU officials would be the final arbiters of what constitutes “legal timber.”

Contrary to Greenpeace’s claims, palm oil is environmentally friendly, as it consumes less energy in production, uses less land, requires less input of fertilizers or pesticides, and generates more oil per hectare than other leading vegetable oils.

The EU should put a stop to green protectionism as it contravenes decades of beneficial work opening markets by the United States and its trading partners at the Organization for Economic Cooperation and Development and the WTO.

Green protectionism that undermines sustainable, private sector-led development and economic growth in Indonesia and elsewhere is reprehensible. The WTO should define green protectionism as an illegitimate (and actionable) intervention by governments in the marketplace.

The campaign by European-funded NGOs to restrict production in developing countries of forestry products, palm oil, and other commodities — coupled with efforts by the EU to limit access to its markets through protectionist measures such as the FLEGT and RED — would block future job creation, higher living standards, and poverty reduction in the very countries the NGOs claim to be protecting.

The EU should uphold its member states’ principles of poverty alleviation through free trade and investment to encourage economic growth. If not, the losers will be both Western consumers and the industrious people of Indonesia, Malaysia, and many other countries whose citizens are seeking improved living standards and a better future for their children.
James M. Roberts is Research Fellow for Economic Freedom and Growth in The Heritage Foundation's Center for International Trade and Economics.

Asia's expanding population hungry for palm oil

ASIA’S robust economic growth and hunger for vegetable oils will continue to drive demand for palm oil and keep prices buoyant at around RM2,600 per tonne. 

In an interview with Business Times, Malaysian Palm Oil Council chief executive officer Tan Sri Yusof Basiron said Asia is expected to consume more palm oil, particularly countries with high population such as China and India.

South Korea is an emerging market that has started to buy from Malaysia in a big way, thanks to a free trade agreement (FTA) that facilitates tax-free palm oil shipments. 

The following are excerpts from the interview:-

QUESTION: Last year, crude palm oil prices averaged at RM2,250 per tonne. In the first eight months of this year, it averaged higher at around RM2,500 per tonne. Where do you see palm oil prices heading for the rest of the year? Why?

ANSWER: This year, global vegetable oils supply had been rather tight.

Malaysia’s palm oil production until July 2010 has only seen a slight 0.7 per cent increment, due to the El Nino effect at the end of last year. Latest data from Indonesia show palm oil output may fall 10-15 per cent from last year's volume.

While the US foresees huge soyabean crop coming into the market from mid October, rape seed oil supply is badly affected by dry spell in Europe, Canada and China. According to Oil World, this year’s rape seed output is likely to fall 5 per cent to 56.9 million tonnes.

With less vegetable oils supply in the global market, stock-usage ratio (SUR) will go down. The lower the SUR, the more bullish the prospects for vegetable oil prices.

We must remember that petroleum prices also has an influence on palm oil pricing. Continued robust economic growth in India and China, and higher usage of vegetable oils in Europe and South America’s energy markets will keep palm oil prices buoyant. Assuming petroleum hovers at US$80 per barrel (RM248), we see palm oil trading in the RM2,500 to RM2,700 range.

Q: Malaysia started exporting palm oil to China in 1985. Since then, shipments have continued to grow. Is China likely to buy more than 4 million tonnes this year?

A: As the largest vegetable oil consumer in the world, China’s palm oil usage makes up 15 per cent of global consumption. Palm oil is the second most consumed there, after soyaoil.

This year, China has started to import more soyabeans instead of soyaoil. This is because the Chinese government wants more crushing activities domestically and more soyameal to feed its pig, cattle, dairy and poultry farms.

According to Oil World, China’s January-July 2010 oilseed imports went up 12 per cent to 32.15 million tonnes. On the contrary, imports of oils and fats fell 9 per cent to 5.38 million tonnes.

Although we see this situation prevailing, we’re not too worried. China has a big appetite for palm oil. According to Oil World, palm oil shipment from Malaysia, in the first seven months of this year, surged 17.2 per cent to 2.34 million tonnes. This was due partly to Indonesia raising tax on palm oil to as high as 4.5 per cent. In August, it was lowered to 3 per cent but raised to 6 per cent, this month.

As a result of Indonesia’s tax regime, Malaysia’s palm oil shipment to China expanded. Judging from this trend, we’re hopeful of achieving 5 per cent growth to 4.2 million tonnes this year.

Q: Malaysia’s FTA with Pakistan, which came into effect January 2008, has expanded palm oil shipments. Will Pakistan’s demand from Malaysia exceed 2 million tonnes this year?

A: Last year, we achieved a record high of 1.76 million tonnes in palm oil exports to Pakistan. Apart from the FTA, Malaysia’s investments in Port Qasim’s bulking and refinery facilities have helped secure steady demand.

The recent unfortunate flooding catastrophe in Pakistan have, somehow, compounded the need to balance its oils and fats requirement. 

In the first seven months of this year, Malaysia exported 1.2 million tonnes of palm oil to Pakistan, up 11 per cent from 1.08 million tonnes a year ago.  I believe we can achieve the 2 million-tonne export target, this year.

Q: After a 10-year decline, India bought more palm oil from Malaysia last year, surpassing the 1.35 million tonne level. From January-July of this year, however, the pace slowed. Is it still able to exceed 1 million tonnes for the full year?

A: India is now the world’s largest vegetable oils importer. There’s tremendous potential for higher imports considering its relatively low per capita consumption of just 14 kg. Palm oil already make up 75-80 per cent of its import basket.

Last year, India’s 1 million tonne-import from Malaysia was exceptional. Poor domestic crush margins, rapid consumption growth and a stronger Indian rupee against US dollars fueled the surge in imports. 

To date, India has bought around 700,000 tonnes of Malaysian palm oil. I’m optimistic that exports will, once again, exceed the 1 million-tonne level.

Q: South Korea is buying more palm oil from Malaysia. Any changes in vegetable oil tax regime brought on by bilateral trade agreements?

A: South Korea’s oils and fats consumption grew at 2.6 per cent in the past 10 years. Going forward, it will have to rely on imports as it is not able to grow enough oil crops for its own use.

Apart from conventional usage in the food and oleochemical industries, South Korea’s biodiesel sector has started to use palm oil as feedstock since 2007. With higher blending ratio of 2.0 per cent this year from 1.5 per cent in 2009, South Korea needs to import 100,000 tonnes more. 

In 2007, South Korea signed a FTA with the Association of Southeast Asian Nations (Asean), resulting in tax-free palm oil shipments, from 2009.

Zhong Seng Oil & Grains Co Ltd to invest in ECER

XIAMEN: Zhong Seng Oil & Grains Co Ltd, one of China's major edible vegetable oil makers, plans to invest in Malaysia's palm oil downstream production activities in the East Coast Economic Region (ECER).

It recently signed a memorandum of understanding with the ECER Development Council during the latter's maiden business visit to China. ECER Development Council will act as a facilitator to ensure successful implementation of projects undertaken by Xiamen Zhong Seng in ECER.

ECER Development Council chief executive officer Datuk Jebasingam Issace John said the collaboration is a significant step in the development of the Palm Oil Industrial Cluster, which aims to accelerate the growth of the palm oil industry in the region. 

In a statement yesterday, Jebasingam said ECER is offering special incentives and tax breaks to encourage investments in the region's palm oil cluster. 

He said companies investing in ECER, which covers Kelantan, Terengganu, Pahang and the district of Mersing in Johor, will have an opportunity to tap into the region's halal trade. 

Essentially, ECER is driven by five business clusters namely tourism, oil, gas and petrochemical, manufacturing, agriculture and education.

Palm oil surges on demand hopes

MALAYSIAN crude palm oil futures hit fresh three-week highs yesterday as traders bet on a recovery in exports this month even as news of China buying rival soyaoil prompted some pullback.

Palm oil exports from Malaysia declined 17 per cent in August and some traders expect a rebound next month as the world's top two buyers, India and China, get ready for a string of festivals in October and November. Still news of China buying up to 40,000 tonnes of US soyaoil the previous day stirred some fears that less palm oil may be snapped up as the colder season approaches.

The benchmark November crude palm oil contract on Bursa Malaysia Derivatives Exchange rose RM27 to RM2,655 per tonne, a level unseen since August 17. It settled at RM2,650 by midday.

"The bulls don't want to be left out, if there is a recovery in palm oil exports this month. But China's increased appetite for soyaoil may take some of the excitement out of palm oil," said a Singaporean vegetable oils trader.For a first indication on exports, cargo surveyor Intertek Testing Services will unveil September 1 to 10 Malaysian palm oil exports today at 2.00pm.

One dealer in Kuala Lumpur said the Malaysian palm oil market will range between RM2,600 to RM2,650, with lacklustre trading interest ahead of a long weekend holiday. Malaysian financial markets are likely to trade half a day today, ahead of the Eid al-Fitr festival that is expected to fall tomorrow, traders said. 

Oil fell for a third straight session yesterday, with the US benchmark depressed by brimming petroleum stockpiles, as the US dollar jumped and Asian equities declined on investor attempts to reduce risk exposure.

Soyaoil for October delivery on the Chicago Board of Trade fell 0.6 per cent during Asian hours after posting gains the previous day on China ordering soyaoil cargoes. The most active May soyoil contract on China's Dalian Commodity exchange rose 0.8 per cent. -- Reuters

Arawana -- the prosperity cooking oil

While I was in Nanning, the capital city of China's southern province of Guangxi, I visited a local shopping mall. I saw with my own eyes how popular the Arawana cooking oil is.

China, with a headcount surpassing 1.3 billion, is the largest vegetable oil consumer in the world. Its' growing appetite for vegetable oils  has made palm oil the second most consumed, after soyoil.

Middle class consumers in southern China like palm cooking oil (which is flavoured with peanut and walnut oil). There is also soy cooking oil blended with sunflower, corn and rapeseed (which is known as camellia oil there). The Arawana cooking oil enjoys high visibility on the shelves of the supermarkets here. It is produced and distributed by Kerry Oils & Grains (China) Ltd, a unit of the Wilmar Group. Arawana was the official Beijing 2008 Olympics cooking oil.

Here's a photo of the "Mighty" camellia+sunflower cooking oil, another popular brand in China.

When I looked closer at the pricing range of cooking oil here, I realised that people in Malaysia are so lucky. Many Malaysians still get to enjoy subsidised cooking oil.

In China, a 5kg bottled cooking oil is retailed at RMB55 (or RM25). In Malaysia, we can buy that same amount of cooking oil off the shelves at around RM18 only.

Mmm... mantou

I've just returned from Nanning, the capital city of China's southwestern province of Guangxi, covering a media preview of the 7th edition of the China-Asean Expo. The weather was very hot and dry. During our 6-day assignment there, I and other Asean journalists (totalling 13) ate a lot of mantou.

Here's a tip! You can make good mantou by using palm shortening because it has less water content than margarine.


Ingredients for starter dough
1 tablespoon instant yeast
4 tablespoon lukewarm water
2 tablespoon all-purpose flour

Ingredients for dough
17oz low protein flour
4oz sugar
2oz palm shortening

1 cup warm water
2 teaspoon baking powder


1. In a small bowl, mix in the starter dough ingredients. Leave it aside for 10 minutes.
2. Sieve flour and baking powder in a separate mixing bowl. Make a well, add sugar, and blend in the starter dough mixture.
3. Fold in the palm shortening and water. Mix until you get a soft dough. If the dough is too dry, add a bit of water. Let it rest for 20 minutes.
4. Divide the dough into 2oz each. Knead well, flatten and cut into strips. Let it rest for 10 minutes.
5. Prepare steamer. Place mantou in steamer for 10 minutes.

6. For crispy version, deepfry the steamed mantou in searing palm cooking oil for 20 seconds.

Guangxi to buy more palm oil

NANNING: China's southern province, Guangxi Zhuang Autonomous Region, plans to buy more Malaysian palm oil as its food processing industry advances and its 48.6 million population grows, said several government officials.

It now imports around 20,000-30,000 tonnes of palm oil from IOI Corp Bhd.

"We welcome Malaysia's investment. The oils and grain sector is a strategic area of focus," said Li Xing, vice-mayor of Qinzhou port city.
"Over the last decade, Singapore's Nobel Group has upgraded its grain processing plant to produce 600,000 tonnes of soyameal a year to feed the pigs, water buffaloes and poultry farms here," she told Business Times on the sidelines of a media preview of the China-Asean Expo (Caexpo) here recently.

This year's Caexpo, a series which started in 2004, will be held here from October 20 to 24. The Caexpo series is the only international expo jointly sponsored by the governments of China and Asean. Malaysia External Trade Development Corp (Matrade) is coordinating Malaysia's participation.

"Guangxi imports palm oil for cooking oil and margarine. These food ingredients are used in the cake, bread and biscuit industry," said Jiang He Sheng, vice-mayor of Quigang city.

Apart from small shipments into Guangxi province, IOI Group's main client is China's largest food and oil trader, Cofco Ltd.

Other palm oil giants with extensive refineries in Indonesia such as privately-held Musim Mas Group, Singapore's Wilmar International Ltd and Kuala Lumpur Kepong Bhd trade regularly with China. With 1.3 billion people, China is the largest vegetable oil consumer in the world. Last year, it imported 6.6 million tonnes of palm oil.

Guangxi Zhuang Autonomous Region, which nestles among Yunnan, Guizhou, Hunan and Guangdong provinces, has a coastline of 1,500km. It was reported the Guangxi government will pump in six billion yuan this year to expedite port facility upgrades to meet greater demand from Asean.

Currently, its three ports, namely Beihai, Fangchenggang and Qinzhou, have established routes with 220 ports in 80 countries. The total annual throughput of the ports rose by 16.3 per cent year-on-year to reach 94 million tonnes in 2009.

Improving ties via music, exchange programmes

This is my editor's opinion on ways to improve diplomatic and trade ties between Indonesia and Malaysia in the spirit of Asean community.

What do you think?

What is happening between Malaysia and Indonesia is certainly disturbing, and the fact that it has happened before makes it unhealthy.

The effects of it are rather straightforward: Malaysians may cancel plans to holiday and shop in Indonesia, parents may think twice about sending their children to study there and investors may not expand as fast as they want to. Indonesians may also have second thoughts about the same things.

Fortunately, these are not happening. But it does not mean Malaysians and Indonesians are not worried. Optimists would say that what is happening is akin to a brotherly spat, which happens in other countries as well.

One example is the relationship between America and its neighbour Canada. Being next door to the world's biggest economy obviously has its advantages and disadvantages. Having had the pleasure of studying in Canada, I have some insights into this interesting relationship.

Many famous Canadians sometimes are mistaken for Americans, much to the chagrin of Canadians. Singer Celine Dion and actor Jim Carrey are Canadian. As both societies are quite open, they like to make fun of each other: a classic is how Canadians say the word "about" and how they like to end their sentences with "eh".

Sports that are now made famous by the US have their roots in Canada. Basketball, for instance, is known the world over for producing millionaire American stars like Michael Jordan and Shaquille O'Neal, but the game was invented by a Canadian.

Both countries also have serious disputes like territorial claims in resource-rich Arctic area. According to a 2008 US Geological Survey, about 22 per cent of the world's undiscovered oil and gas could be in the areas above the Arctic circle.

This is still being worked out by both countries in a calm and cordial manner.

But the tension between Malaysia and Indonesia appears to be getting worse following the recent maritime territorial dispute. Businessmen worry that these unfortunate actions could spread and, even worse, turn violent.

A bank chief executive recounted how certain branches in Indonesia have been pelted with eggs, while at one branch, a more brazen group of people forced the staff out of the office to pledge allegiance to Indonesia.

Malaysian companies operating in Indonesia plan to lobby the government there to help bring the political temperature down a notch. But what they worry about is that leaders could play to the gallery and if this happens, it will be a lot harder to cool tempers on the ground.

Still, there are other things that can be done to improve the relationship over the long term. Here are some ideas;

* Make songstress Siti Nurhaliza our unofficial relationship representative. Siti is one of our best exports to Indonesia and thanks to her music, she is well known by most Indonesians. In fact, one of the best lines that I've heard from Indonesian protesters is "Ganyang Malaysia, Selamatkan Siti Nurhaliza". Indonesians love music and what better way to improve ties than having concerts with both Indonesian and Malaysian singers in both countries.

* Let's start with the children. We could have exchange programmes where top Indonesian and Malaysian schools swap students for a certain period of time. If we want to understand each other better, we should start with the young.

* Continue with the working adults. Multinational companies move their people around the world. Companies with big operations in Malaysia and Indonesia should have stints where staff could easily move and work in either country. Governments should encourage this and give incentives.

While Malaysia and Indonesia may have their differences, the reality is that both countries need each other. Indonesians and Malaysians work in both countries in search of economic opportunities. There may be problems along the way but the bigger picture is more important, and for this to happen, cool heads must prevail.

I believe Marvin Gaye said it best when he sang "we've got to find a way to bring some lovin' here today". On that note, I wish everyone - Malaysians and Indonesians - a happy and safe Hari Raya.

China's has big appetite for Asean's goods

NANNING: China's hunger for goods from Asean is expected to continue and this spells opportunity for Malaysian exporters.

China is already Malaysia's largest trading partner with trade at US$36.3 billion (RM114 billion) last year. It has also signed its first-ever free trade pact with the Asean grouping.

"The Chinese government encourages imports from Asean, of which annual import value has exceeded US$1 trillion (RM3.13 trillion) for two straight years.

"We expect such momentum to accelerate," the China-Asean Expo (Caexpo) secretariat's secretary-general Zheng Jun Jian said. He was speaking to reporters at the seventh Caexpo promotional conference here yesterday.

Under the trade pact, known as the Framework Agreement on Comprehensive Economic Cooperation, 90 per cent of goods traded between China and the six original Asean members - Malaysia, Brunei, Indonesia, the Philippines, Singapore and Thailand - are tax-free from this year.

The other four Asean members, namely Cambodia, Laos, Myanmar and Vietnam, will only enjoy this tax-free trading environment on goods from 2015.

This year's Caexpo, an event which started in 2004, will showcase exhibitors from the food and beverage industry, small- and medium-scale enterprises, and the services sector, such as construction, property investment, port management and logistics, education and tourism.

It will be held here from October 20 to 24. Zheng is expecting 30,000 buyers to visit. Last year, Caexpo attracted 2,450 exhibitors and concluded sales of US$1.65 billion (RM5.16 billion). China's Ministry of Commerce has listed Caexpo as one of its major trade fairs. The Caexpo series is the only international expo jointly sponsored by the governments of China and Asean.

Malaysia External Trade Development Corp (Matrade) is coordinating Malaysia's participation. This year, Caexpo aims to further promote the China-Asean Free Trade Area (Cafta) and bring about opportunities for growth in investment cooperation and trade services. The Cafta market covers 1.9 billion people.

As Asia's biggest economy, China is committed to growing trade and investment with Asean. Last year, it allocated US$25 billion (RM78 billion) for two separate funds. 

The first was a US$10 billion (RM31 billion) China-Asean Investment Cooperation Fund administered by The Export-Import Bank of China.

The second initiative, which spans the next five years, sees Chinese banks offering loans amounting to US$15 billion (RM47 billion) to Asean countries, with preferential terms such as lower payback rates. Businesses in Asean are also encouraged to apply for the cheap loans through the Chinese embassy in their respective countries.