Archive for January 2012

US findings on palm oil biofuel 'absurd and ridiculous'

This is written by my colleague Rupa Damodaran.

KUALA LUMPUR: Malaysia is prepared to submit comments to the US Environmental Protection Agency (EPA), criticising its recent actions which could lead to a trade war of commodities.

Palm oil expert Tan Sri Yusof Basiron said the industry players will also respond to the EPA's findings which said palm oil biofuel had failed to meet the US greenhouse gas saving standards.

Europe has been a precedent and this has been cleverly copied by the EPA, he said. "It is all absurd and ridiculous if you can scheme your calculations to show low emission for one commodity against another and there is no physical or scientific justification for a fair calculation," he commented on news reports.

EPA's analysis shows that biodiesel and renewable diesel produced from palm oil from Malaysia and Indonesia do not meet the minimum 20 per cent lifecycle greenhouse gas reduction threshold needed to qualify as renewable fuel under the Renewable Fuel Standard (RFS) programme.

It said the biodiesel and renewable diesel produced from palm oil have estimated lifecycle greenhouse gas emissions reductions of 17 per cent and 11 per cent, respectively, compared to the baseline petroleum diesel fuel they replace.

It welcomes public feedback by February 27.

Meanwhile, former senior US government official James K. Glassman of the George W. Bush Institute also commented that the EPA's recent actions are raising questions about protectionism and ideological bias. "My worry is that misguided protectionism and a preference for ideology over science may be at work here."

What he found disturbing was that the US seems to be following the lead of Europe in both these respects - not to mention the lead of California (which discriminated against out-of-state biofuel additives).

Palm oil, he commented, is a vegetable oil, like canola and soyabean, which can be used for both transportation - where it's mixed with petroleum-based diesel to create a cleaner-burning fuel - and for electricity generation.

He said the reasons were a surprise and a unpleasant one when the EPA ruled that palm oil does not qualify as "a feedstock" to produce biodiesel and renewable diesel under the RFS programme.

The RFS mandates the blending of biofuels, mainly ethanol produced from corn, into petroleum-based fuels in stages, up to 36 billion gallons by 2022. 

But the EPA has to approve the fuels as being bio-friendly enough. The standard that palm oil has to meet is a reduction of 20 per cent in greenhouse gas emissions over its "lifecycle" - which includes not just what gases palm oil fuel spews into the atmosphere when it's burned but also what gases are released in the growing of palm trees and the production of the biofuel.

Dr Lee Lane, a visiting fellow of Hudson Institute, in a recent presentation described the biofuels programme as flawed, especially with the arbitrary greenhouse gas standards, unreliable measurements and protectionist intent.

He said the EU has ruled against palm oil and the EPA seems in the process of doing so with the changes in the US RFS and reform of EPA which may affect palm oil.

Another blow to palm oil producers

KUALA LUMPUR: Palm oil biofuel has failed to meet greenhouse gas saving standards to qualify for the US renewable fuels programme, the US Environmental Protection Agency (EPA) said, dealing another blow for southeast Asian producers in search of new markets. 

The EPA said in a regulatory filing that palm oil converted into biofuels in Indonesia and Malaysia cut up to 17 per cent of climate warming emissions, falling short of a 20 per cent requirement to enter the world's largest energy market. 

For 2012, the EPA raised annual renewable fuel mandates by 9.4 per cent to 15.2 billion gallons. 

If the EPA findings are finalised later this year, palm oil producers would now miss out on supplying biomass-based diesel to US oil refiners and importers who currently use canola and soyoil fuels. The agency set a deadline of February 27 for public comment on its findings. --Reuters

Liberate biofuels from abroad

This is written by James K. Glassman and published in

He served as the US Under-secretary of State for Public Diplomacy and Public Affairs in 2008 and 2009. He is executive director of the George W. Bush Institute in Dallas, Texas.

With the demand for energy on the rise you would expect the prospect of adding palm oil, a relatively inexpensive, renewable biofuel, to the mix would be greeted with enthusiasm by government officials.

But instead of embracing palm oil as a fuel, the Environmental Protection Agency (EPA) is trying to discourage its use in the United States, and the agency’s recent actions are raising questions about protectionism and ideological bias.

Palm oil is a vegetable oil, like canola and soybean, but carrying a more concentrated punch. It can be used for both transportation – where it’s mixed with petroleum-based diesel to create a cleaner-burning fuel — and for electricity generation.

How valuable is palm oil in the current energy environment? Consider a recent editorial in the Honolulu Star Advertiser, which praised the Hawaiian Electric Co.’s plans to build a facility to convert palm oil to biodiesel and use it as a “badly needed and affordable fuel for the utility.” The editorial adds, “Of all possible biofuels, palm oil is king for its affordability, efficiency, and eco-friendliness.”

The reason that biofuels like palm oil are eco-friendly is simple. “Since they are derived from plants,” writes Elisabeth Rosenthal in the New York Times, “biofuels absorb carbon while they are grown and release it when they are burned.” Through the process of photosynthesis, plants absorb carbon dioxide, the primary greenhouse gas, from the atmosphere. So a palm tree plantation, which is typically cultivated for 25 to 30 years, acts as a carbon sink, sucking in the greenhouse gas and reducing the amount in circulation.

Palm oil has another advantage for the United States. The two top global producers, by far, are a pair of democracies with tremendous strategic importance – Indonesia, the nation with the largest Muslim population in the world, and Malaysia, which ranks 17th.

For all these reasons, it was a surprise – and a particularly unpleasant one – when the EPA ruled in December 2011 that palm oil does not qualify as “a feedstock to produce biodiesel and renewable diesel under the Renewable Fuel Standard (RFS) program.”

The RFS mandates the blending of biofuels, mainly ethanol produced from corn, into petroleum-based fuels in stages, up to 36 billion gallons by 2022. But the EPA has to approve the fuels as being bio-friendly enough.

The standard that palm oil has to meet is a reduction of 20 per cent in greenhouse gas emissions over its “lifecycle” – which includes not just what gases palm oil fuel spews into the atmosphere when it’s burned but also what gases are released in the growing of palm trees and the production of the biofuel.

The EPA calculated that the reduction of gases was 17 per cent for biodiesel made with palm oil, “compared to the baseline petroleum diesel” it replaces. That’s three points short. The EPA is now asking for public comment on its analysis.

I am not going to get into the technicalities, but a study released by Neste Oil, a biofuels company based in Finland, found that lifecycle reductions for palm oil were 52 per cent.

My worry is that misguided protectionism and a preference for ideology over science may be at work here. What’s especially disturbing is that the U.S. seems to be following the lead of Europe in both these respects – not to mention the lead of California.

On December 29, 2011 a US District Court enjoined the California Air Resources Board from enforcing the California Low Carbon Fuel Standard, the state’s version of the EPA’s RFS mandate, because California violated the Commerce Clause of the U.S. Constitution and impermissibly discriminated against out of state biofuel additives – in this case, ethanol produced out of state.

The US has had a 54-cent-a-gallon tax on imported ethanol – a trade barrier, along with subsidies for U.S.-produced ethanol – that mainly targets Brazil, which makes the biofuel from sugar cane. Congress did not renew the tax or the subsidies when it adjourned at the end of the year, but don’t bet against them being revived. There’s a long history of protecting U.S. producers. Palm oil would, of course, pose a threat to American oilseed farmers and biofuel producers.

Meanwhile, Europe has set the protectionist pace with its Renewable Energy Directive, targeted in large part at the US soybean industry. That directive, even more onerous than the RFS, has already led to threats of trade retaliation and World Trade Organization complaints.

The European Union (EU)’s calculations of lifecycle reductions for palm oil and other oilseeds are also being challenged.

“We have found a remarkable difference between the carbon reduction performance of certain biofuels calculated by the European Commission’s Joint Research Centre and a range of scientific studies,” wrote Gernot Pehnelt of the Friedrich Schiller University of Jena, Germany, and author of a research paper on palm oil emissions. “Our results indicate default values for greenhouse gas emission savings potential of palm oil biodiesel…beyond the 35 per cent threshold.”

And then there’s ideology. Palm oil, which, as the New York Times put it, was once considered a “dream fuel.” Now it is the favorite whipping boy of the political-environmental movement, from Greenpeace to Friends of the Earth to World Wildlife Fund (WWF) on down.

The complaint is that forests are being chopped down for palm tree plantations. In fact, Malaysia, especially, is trying to strike a balance: maintaining vast stretches of forest while at the same time putting land into cultivation for a crop that provides not just sustenance to low-income farmers but greenhouse-gas mitigation for the world – at a level of 17 million tons of carbon dioxide a year, “the equivalent to the annual emissions of three million passenger cars and light trucks.”

Farmers in the US deforested long ago and are benefiting from the proceeds. But, to the romanticists and radicals of the global environmental movement and their political supporters in Europe and the United States, farmers in developing nations are fair game.

It’s time to liberate markets and allow consumers to make their own decisions about the biofuels they want. Perhaps the most sensible step is for developing nations to challenge the US and Europe in the World Trade Organization. Less expensive energy and a cleaner planet hang in the balance.

CPO exports set to soar to RM85b

KUALA LUMPUR: Malaysia is expected to post record high palm oil exports this year, possibly touching RM85 billion, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said. “I think RM85 billion is a reasonable target considering palm oil prices are likely to go on trading at strong levels."

The palm oil industry charted strong growth last year, posting an expansion of RM20 billion to RM80 billion from 2010’s RM60 billion.

“In view of the high prices, we must continue to increase planters’ productivity and competitiveness. So far, the replanting of unproductive trees with high yielding hybrids among independent smallholders has achieved around 80 per cent of our initial target,” Dompok said.

Another way to help independent smallholders improve their productivity is the setting up of cooperatives which will facilitate more efficient resource-sharing. So far, the Malaysian Palm Oil Board (MPOB) has helped these smallholders establish 11 cooperatives.

Dompok said MPOB had also stationed enforcement officers at 186 underperforming mills. This is to ensure only ripe fruit bunches from planters are accepted, thereby raising the national oil extraction rate.

The minister was speaking to reporters after delivering his keynote address at the “Palm Oil Economic Review and Outlook Seminar 2012” here yesterday.

Later at the seminar, MPOB director-general Datuk Dr Choo Yuen May concurred with Dompok and said palm oil prices is likely to remain firm this year as Brent crude oil prices advance on rising geo-political tension in the Middle East. 

Uncertain weather conditions is also likely to boost soyabean oil prices. Palm and soyaoil prices tend to move in lockstep because they are perfect substitutes of each other in cooking oil, bakery fats and biodiesel.

On the homefront, the government had introduced the B5 biodiesel blend at petrol stations in Putrajaya, Malacca, Negri Sembilan, Kuala Lumpur and Selangor. The B5 blend is basically 95 per cent regular petroleum-based diesel and five per cent palm biodiesel. Choo said continued increment in palm biodiesel usage will buoy palm oil prices.

MPOB also estimated that this year’s palm oil output could rise by another two per cent to 19.33 million tonnes as more trees mature and bear more fruit bunches, particularly in Sarawak.

Palm oil exports hit RM80.4b record high

KUALA LUMPUR: Malaysia’s palm oil exports hit a record high of RM80.4 billion last year, thanks to higher average palm oil prices and sustained demand for the edible oil from Asia and Africa.

“Last year, we achieved an all-time high of more than RM80 billion. That was about RM20 billion more than 2010’s RM59.8 billion,” said Deputy Plantation Industries and Commodities Minister Datuk Hamzah Zainudin.

“We were able to do well because our planters reaped bumper harvest and our millers squeezed 18.9 million tonnes of palm oil. This lead to our refiners selling the oil at an average price of about RM3,100 per tonne. So, high palm oil prices have contributed to this record achievement,” he told reporters at the Reach & Remind Friends of the Industry Seminar organised by the Malaysian Palm Oil Council here yesterday.

Four months ago, the Indonesian government raised export taxes drastically to boost refining capacity and downstream activities. As a result, crude palm oil and crude palm kernel oil are cheaper for downstream producers there and refined products shipped out from Indonesian shores are tax-free. This lead to palm olein prices falling by US$55 (RM173) per tonne while crude palm oil price settled by US$20 (RM63) per tonne. 

Malaysian refiners are losing out on this unfair level playing field.

In response, Hamzah acknowledged that refiners and downstream players in Malaysia, which include foreign investors, are fighting for their survival. He assured that the government is still fine-tuning an amicable solution that will be palatable to both upstream and downstream players in the industry. “Bear with us for a couple of more months. We’ll make the announcement after the Cabinet approves of it,” he said.

Asked if the amicable solution could involve more tax on oil palm planters' harvest, he shook his head and replied, "not likely. The government is mindful that oil palm planters are the most heavily-taxed in this country."

Also present at the dialogue were Nextview Sdn Bhd chartist Benny Lee  and Malaysian Palm Oil Board chairman Datuk Seri Utama Shahrir Abdul Samad.

Yesterday, the third-month benchmark for crude palm oil contract on the Bursa Malaysia Derivatives Exchange slid RM16 to close at RM3,136 per tonne. 

Lee, in his palm oil price forecast presentation before 270 participants from the oil palm industry, said that palm oil prices is likely to trade as high as RM3,450 per tonne in the next 10 weeks. "The US dollar has started to weaken again and this will provide support to palm oil prices," Lee said.

Shahrir concurred with Lee that global demand for palm oil is still strong. India and China will continue to buy large quantities of palm oil to feed its burgeoning population. "Emerging economies in Eastern Europe and North Africa will also continue to place more orders for palm cooking oil," he said. "Also, since palm oil is trading at a discount to soya oil, demand for palm oil should accelerate in the months to come," he added.

When asked about this year's forecast of palm oil output, Shahrir expressed optimism that it is likely to hold up again this year, surpassing last year's 18.9 million tonnes. "More trees will mature and bear more fruits. This is especially so from Sarawak's oil palm estates," he said.

This is good news for palm oil consuming countries around the world as Malaysia supplies half of the world's need for this cooking ingredient that is packed with vitamins. 

Shahrir explained that the developing world is heavily reliant on palm as a source of nutrition because the oil crop thrives in tropical climates and yields more fats and calories than other options. It gives the developing world - where hundreds of millions of people still live on a few dollars a day - the most caloric bang for the buck.

They make millions of babies and sell them

By taking on the role of cupids, scientists match-make oil palm trees to produce high yielding hybrids. OOI TEE CHING finds out how they make millions of babies that mature into 'Dolly Parton trees' populating the agriculture landscape.

NG WOO Jian fans a bunch of plumes that looked like a giant feather duster at a crowd before him at Paloh oil palm estate in Johor. A whiff of fragrant scent wafts through the air.

John Low, the Performance Management And Delivery Unit (Pemandu) director of agriculture, palm oil and rubber projects, who was among the crowd of visitors, takes a closer sniff. "It smells like five spice powder."

"That, my friends, is the smell of male pollens from the oil palm tree," Ng said. He shakes the plumes at the crowd again. With a knowing smile, he said, "And now, I'm going to show you how we make millions of babies at our secret garden."

At Applied Agricultural Resources Sdn Bhd (AAR), seed production manager Ng and his team diligently work on thousands of mother palms to perfect Malaysia's top cash crop with the latest breeding know-how.

Just as Ng ushers the crowd to a mother palm, a research assistant propels herself up the tree by stepping on a fish-bone ladder resting on its trunk.

She then hoists and straddles herself unto one of the palm fronds with a safety harness fastened to another frond. She proceeded to slip a plastic bag over a flowering bunch, seal it tightly with a double knot and hand puffs the desired male pollens into the bag.

Ng said, "The plastic bag cover prevents weevils from reaching the nice-smelling female flowers and accidentally pollinating it with other male pollens we do not want. When we choose to breed the Dura X Pisifera (DXP) species, we don't want any anak luar nikah. So, in this instance, the bag behaves like a condom," he added.

In the last 50 years, crop scientists have been breeding the DXP hybrid because this species is able to bear very big fruit bunches. As time goes by, many oil palm planters affectionately refer the DXP hybrid as "the Dolly Parton type" because like its namesake yields voluptuous fruit bunches.

Today, Malaysia's five million hectares of oil palm landscape is populated by the Dolly Parton standard planting materials.

Meanwhile, back at Ijok, Selangor, AAR owns the world's largest oil palm tissue culture laboratory. The facility at Tuan Mee estate produces 1.5 million clonal palms per year.

In a separate interview with Business Times, Boustead Holdings Bhd deputy chairman and group managing director Tan Sri Lodin Wok Kamaruddin said: "Through such painstaking research and development effort initiated decades ago, we can now reap the benefits of high yielding clonal palms."

"This is how Malaysia is able to feed the world with more cooking oil, and at the same time, safeguard biodiversity," he said.

Boustead, the flagship investment arm of the Armed Forces Pension Fund (Lembaga Tabung Angkatan Tentera), jointly owns AAR with Kuala Lumpur Kepong Bhd.

In response to a growing world population in the next decade, Lodin noted the need to produce more food on the same piece of land.

"I'm convinced that we can meet the future of the world's cooking oil needs by developing better oil palm seeds and planting methods. These are all linked to sustainable agriculture," he said.

Since 1986, AAR and other seed producers in the country have been contributing to the replanting of unproductive trees, so as to raise the national oil palm yield. Through biotechnology advancement, they are able to increase yield and improve disease resistance.

In the 1960s, Lodin explained, the mindset was to keep superior planting materials for local oil palm planters. Fifty years on, the global scenario has changed. 

"The time has come for us to leverage on uncharted potentials outside Malaysia. If we don't liberalise now, we'll be left behind," he said.

Lodin highlighted that oil palm seed exports can be a significant income earner for the country as it fetches a 50 per cent premium in the overseas market.

In total, the Malaysian Palm Oil Board (MPOB) statistics show seed companies churn out some 80 million oil palm seeds every year, of which 50 million are supplied to local planters. The remaining 30 million are sold to Malaysian planters with oil palm estates abroad.

Established seed producers like AAR reserved a sizable portion of seeds for smallholders in Malaysia, but they face a dilemma.

Oil palm seeds only has a shelf life of two years. If not sold within that time span, they have to be destroyed. This wastage is especially evident when high palm oil prices cause local planters to delay replanting activities and therefore, their purchase of germinated seeds.

"Apart from waiver of export restriction on seeds sales, we also hope to see MPOB rope in seed producers from the private sector when sourcing for new genetic materials from West Africa and Latin America for seed breeding," Lodin said, adding that such measures would help propel Malaysia to become the world's trading hub for superior oil palm seeds.