Market Updates – Issue 4, 2015
By GOFB on Friday, December 11th, 2015 in Issue 4 - 2015 No Comments
By GOFB on Friday, December 11th, 2015 in Issue 4 - 2015 No Comments
Summary
Higher CPO price expected due to El Nino
Dry weather brought about by the El Nino phenomenon has affected many oil palm plantations in Malaysia, with conditions set to become more extreme into the middle of next year.
Industry players say that prolonged dry weather could negatively impact the global production of palm oil, thus triggering speculation of a higher CPO price in the coming months. The occurrence of El Nino from 2009-2010 had seen the price swinging between RM2,500 and RM3,000 per tonne.
“History has shown that CPO price reacts positively every time El Nino occurs, as it brings less rainfall and [causes] drought, which tends to lower the crop production,” says Sabah-based IJM Plantations Bhd CEO and managing director Joseph Tek Choon Yee.
Weather is just one of the many factors determining price. Also in the mix are competition from other edible oils, crude mineral oil price, use of palm oil in biodiesel, inventory levels, currency volatility and policies.
“But a strong and significant El Nino this time round will be a major catalyst in driving up the CPO price trend on a gradual basis but with greater certainty,” Tek told StarBiz.
Malaysia posted its largest drop in CPO production during the strong El Nino from 1982-1983 and again from 1997-1998.
Tek pointed out that there had been prolonged “bone-dry” episodes or below-average rainfall since early this year in some parts of Malaysia and Indonesia.
“These episodes have triggered dry soil conditions, which have led to moisture stress in palms. Significant unopened numbers of spear (palm leaves) of up to half a dozen were observed, confirming the trauma experienced by the trees.”
Oil World has reported that Sabah, Pahang, Perak and Negri Sembilan experienced below-normal rainfall and suggests that there will be lower palm oil yields in the affected areas between October this year and March next year.
Tek, who is also president of the Malaysian Estate Owners Association, elaborated on the potential effects of El Nino on the palm oil output and plantation operations.
“There will potentially be clear symptoms relating to crop production arising from the interplay of plant physiology and climatic El Nino effects following any significant moisture stress beyond two months.
“The immediate impact will see a delay in ripening of bunches and dangers of fire hazards from the dry spell in operations.
“On the milling side, some palm oil mills may end up with the concern of long-term availability of water for processing. Thus, the estate-mill supply chain may be disrupted.”
On the potential total reduction in crop production, Tek said this would depend on the severity of the moisture stress, with studies quoting up to 30% lower than normal production.
In addition, El Nino exacerbated the occurrence of haze from Indonesia, as the dry conditions have led to hot spots burning more readily. The haze may also hinder photosynthesis, resulting in smaller fresh fruit bunches.
Kuala Lumpur Kepong Bhd (KLK) group plantation director Roy Lim Kiam Chye said: “Normally during dry weather, we would generally see the full impact on productivity nine to 12 months after the event.”
KLK’s oil palms have experienced some poor growth arising from the dry weather which took place during the second quarter of the financial year 2014, although this was not related to El Nino.
Should El Nino hit Malaysia or other oilseeds producing countries, he said the implication would be lower production “but not immediate”.
However, buyers would still take that into consideration and it might prove to be the catalyst to push the CPO price higher, added Lim.
Palm oil industry expert MR Chandran said that El Nino, if it materialises, could give a 15-20% boost to the CPO price. The third-month CPO futures for December traded at the RM2,200-2,240 per tonne range from its low of RM1,867 per tonne in August.
“El Nino could create a bullish price environment for palm oil and even reduce the risk to earnings among plantation companies,” said Chandran adding that it was also one of the key indicators for the plantation sector’s growth.
Any rainfall deficit of 100mm per year could translate into a reduction of between 10% and 20% in fresh fruit bunches. In Malaysia, the average rainfall varies between 1,600mm and 2,400mm per year.
For this year, Chandran said the factors to watch for palm oil were the potential supply shortage, the inventory level, the price discount between CPO and soybean, and climate changes including El Nino. Source: The Star Online, Sept 28, 2015
Indonesia, Malaysia to set up palm oil council
Indonesia and Malaysia plan to set up an inter-governmental organisation of palm oil producers to ensure further industry cooperation between the world’s top producers and to prop up prices.
The organisation, to be called the Council of Palm Oil Producer Countries, will coordinate production, manage stocks and stabilise prices, Indonesia’s Coordinating Minister for Maritime Affairs Rizal Ramli said at a joint news conference with Malaysian officials in early October.
“If we are on our own, there will be unnecessary competition. But if we’re together, we’ll control 85% of the palm oil market,” Rizal said, adding he will invite Thailand – another palm oil producer – to join the council.
The Hon. Datuk Amar Douglas Uggah Embas, the Malaysian Minister of Plantation Industries and Commodities, said the council would promote sustainable practices in the palm oil industry.
Ramli had led an Indonesian delegation to Malaysia at the end of August to discuss the plan, and an agreement for further cooperation had been reached.
In mid-October, Indonesian President Joko Widodo held a meeting with Malaysian Prime Minister Dato Sri Najib Abdul Razak.
The Malaysian PM then told reporters: “The cooperation will bring many benefits to smallholders and the industry as a whole. The council is set to create a global standard for a sustainable palm oil industry, cooperate on the volume of the stockpile and create a formal structure.”
Sources: Reuters, Oct 3, 2015; The Star Online, Oct 12, 2015
Malaysia to restrict CPO imports to manage inventory
Malaysia has issued notice to traders that crude palm oil (CPO) imports will be restricted, to bring down the current inventory of 2.49 million tonnes to two million tonnes.
Plantation Industries and Commodities Minister, the Hon. Datuk Amar Douglas Uggah Embas, said the country aims to “bring down stocks at a comfortable level of about two million tonnes… give or take 5% tolerance”.
“I brought this up at the bilateral meeting [with Indonesia in October] and explained the rationale … The Indonesian government understands that we are trying to manage our stocks and [has] accepted it,” he told the media.
The minister also clarified that this does not amount to an outright ban, as traders can appeal to his Ministry for exemption if they have committed to long-term contracts.
“We want to minimise Malaysia’s CPO import volume. If we don’t do anything now, palm oil inventory could exceed three million tonnes by November,” he said.
He also said the government plans to raise the biodiesel mandate from B7 to B10 to spur local palm oil consumption. However, he declined to reveal the date for introduction of B10 biodiesel, which comprises a blend of 10% palm methyl ester and 90% petroleum diesel.
On the impact of the Trans-Pacific Partnership Agreement, he said “our palm oil, rubber, timber and value-added derivatives should not face trade barriers in member-countries”.
“We hope to see better market access and therefore rising exports to this trading bloc,” he added.
Source: New Straits Times, Oct 7, 2015
Replanting incentives for oil palm companies in Malaysia
The Malaysian Palm Oil Board announced on Sept 26 an allocation of RM100 million for a replanting programme geared to oil palm plantation companies. Effective from Oct 1 to Dec 31, 2015, it will be based on a first come, first served basis.
An incentive of RM1,500 per ha will be disbursed for the first 33,000 ha, followed by RM1,000 per ha for another 50,000 ha. Thus, the total replanting area targeted will be 83,000 ha of unproductive old oil palm plantations.
Smallholders are not included as they are covered under a separate replanting programme, for which RM9,000 per ha had been allocated in 2014.
The plantation replanting programme is expected to reduce crude palm oil production by 250,000 tonnes in 2016 which, in turn, will have a medium-term, positive effect on the price.
Source: GAIN Report, Oct 6, 2015
Malaysia seeks removal of palm oil from US ‘forced labour’ list
Malaysia is appealing to the US Labour Department to remove its palm oil from the list of goods produced by child or forced labour.
Plantation Industries and Commodities Minister, the Hon. Datuk Amar Douglas Uggah Embas, noted that the department’s criteria in assessing child or forced labour includes the withholding of passports of foreign workers and payment of low wages.
“The government has undertaken an independent study, covering 68 plantations throughout the country, and it [has shown] that incidents of this nature are negligible. Thus, it is unfair of the department to list the Malaysian palm oil industry alongside others,” he said in his keynote address at the Global Oils and Fats Forum USA 2015.
The two-day event was jointly organised by the Malaysian Palm Oil Council (MPOC) and Malaysian Palm Oil Board (MPOB).
He said Malaysia had implemented a minimum wage structure since January and that the government would continue to ensure the welfare of foreign workers in the plantation sector, with employers subjected to domestic laws and regulations.
“This is one of the criteria in the Malaysian Sustainable Palm Oil certification process,” he said, referring to the scheme aimed at ensuring sustainable production of palm oil.
In relation to the conclusion of the Trans-Pacific Partnership Agreement negotiations, the Minister was optimistic that palm oil trade with the US would be further enhanced.
He expressed hope that US consumers would increase their consumption of palm oil products as these are nutritious, healthy, competitively priced and responsibly produced.
“The benefits are proven through studies by both independent research institutions abroad and the MPOB. The research and development findings by MPOB together with its research partners have gained recognition by the international research fraternity,” he said.
“Today, in light of the adverse effects of trans fatty acids from hydrogenated oils, palm oil is much sought after as the global solution for trans-free food formulations. We are fulfilling the challenge and the inclusion of palm oil as an important ingredient in trans-free formulations is already much evident.”
He said the Malaysian palm oil fraternity is ready to pass on such knowledge and expertise to friends in the US and other end-users in the region.
The Minister also led a two-day palm oil promotion mission to the US from Oct 14 to strengthen exports, while promoting business links between the private sector in Malaysia and the US. The delegation comprised representatives of his ministry, MPOB, MPOC and the private sector.
Source: Bernama, Oct 15, 2015
European countries say ‘No’ to GMO crops
A total of 19 EU countries have ‘opted out’ of growing crops with genetically modified organisms (GMOs) within all or part of their respective territories, following the Oct 3 deadline to notify the European Commission (EC) of their decision.
These governments have taken the ‘opt-out’ clause of a rule passed by the EC in March that allows its 28-member bloc to abstain from growing GMO crops, even if these are already authorised to be grown within the union.
According to Reuters, the member-states specifically targeted the cultivation of Monsanto’s MON 810 maize, the only GMO crop grown in Europe (and just in Spain and Portugal) and which is currently under review at the European level.
EC spokesman Enrico Brivio confirmed to Reuters that the countries opting out are Austria, Belgium for the Wallonia region, Britain for Scotland, Wales and Northern Ireland, Bulgaria, Croatia, Cyprus, Denmark, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland and Slovenia.
Belgium and the UK are applying the opt-out rule for only part of their territories, while Germany requested a partial opt-out in order to pursue more GMO research. Companies have been notified of the member-states’ requests and have one month to react to the decisions.
Although GMO crops are widely grown in many parts of the world, the topic is fraught with contention in Europe. Many EU countries have strict laws against GMOs out of public health and environmental concerns, and all 28 nations require GMO labelling.
It now looks like many European countries want to deal with this contentious issue within their own borders.
“As the number of requests from member-states shows, national governments are now using this legislation to have a greater say on cultivation on their respective territories,” the EU’s executive arm in Brussels said in a statement.
Many environmental groups have applauded the national GMO crop bans.
“A clear majority of the EU’s governments are rejecting the EC’s drive for GMO crop approvals,” Greenpeace EU food policy director Franziska Achterberg said in a statement. “They don’t trust EU safety assessments and are rightly taking action to protect their agriculture and food … The only way to restore trust in the EU system now is for the EC to hit the pause button on GMO crop approvals and to urgently reform safety testing and the approval system.”
Monsanto had commented in early October that it would respect the decisions of Latvia and Greece after the two nations decided to stamp out GMOs.
The multinational agribusiness giant told Reuters that since the growth of GMO-crops in Europe is so small, the opt-outs will not affect their business. However, the company said that the two countries were ignoring science and refusing GMOs out of “arbitrary political grounds”, adding that the decision “contradicts and undermines the scientific consensus on the safety of MON810”.
Source: ecowatch.com, Oct 5, 2015
Oil palm expansion scheme for smallholders in the Philippines
The Philippine government is to invest P1 billion in oil palm planting that promises to convert poverty to prosperity for smallholders.
Dr Pablito P Pamplona of the Philippine Palm Oil Development Council Inc said this at a Malaysian Palm Oil Council Forum in Davao on Oct 16. Some 170 stakeholders attended the forum themed ‘Health, Progress and Sustainability through Malaysian Palm Oil’.
Pamplona said there will be a lot of benefits if the government makes the seedlings available to smallholders under the ‘Plant now, Take Care’ programme, and invests P1 billion in the expansion programme.
“The distribution [of seedlings to] small landholders is expected to convert idle, underutilised agricultural lands, grass and brushlands to agro-reforestation and high productivity within a total of 7,143 ha; liberate 3,571 farmers from poverty, assuming that each is provided planting materials good for two ha or 240 plants; and create 5,000 farm jobs and 80 milling jobs,” he said.
“It will also produce crude palm oil for import substitution – at a yield of four tonnes of palm oil per ha annually at P30,000 for 20 years, amounting to P18,286,080,000.”
Pamplona also pointed out that the programme will generate some P750 million in foreign and local investments by way of the construction and operation of two milling plants; increased business activities in rural communities; and higher tax revenue for Local Government Units.
He said the cost to the government of planting the million seedlings at P200 will translate to P200 million. Another P20 million for seedlings distribution and training of farmers may be included, bringing the total to P220 million.
As initial government action, the Department of Agriculture will add a budget allocation of some P50 million this year, compared to the previous year’s allocation of only P1 million. The money will be utilised to provide assistance to farmers, and for fertilisers, seedlings and research and development activities.
The Philippines currently has 75,000 ha planted with oil palm, of which 69,000 ha are in Mindanao; the rest are in Palawan and Bohol.
It imports 350,000-400,000 tonnes of palm oil valued at P35 billion annually, from Malaysia, Indonesia and Singapore, among others.
Source: The Sun.Star Davao, Oct 17, 2015
Sime Darby launches hotspot monitor
Sime Darby Plantation has launched a hotspot monitoring dashboard in the interests of transparency and to provide insights that could lead to long-term solutions for the recurring haze situation.
“The dashboard is based on the company’s real-time monitoring system, which is managed in Kuala Lumpur and Jakarta,” Managing Director Datuk Franki Anthony Dass said in a statement.
Alerts are immediately communicated to estates, which will then verify if there is indeed a fire and if there is one, it will put it out immediately.
“The system complements the response measures on the ground, such as observation towers and regular patrols,” he said.
This year, the company detected 17 hotspots, of which 14 had fires. Six of them were outside its concession area.
The dashboard is available on the company’s website at www.simedarby.com
The company has also been engaging communities in partnership with local authorities and academic institutions to better understand the traditional land-clearing methods that involve slashing and burning, and to raise awareness of sustainable farming practices.
PT Bhumireksa Nusa Sejati, the company’s subsidiary, and the University of Riau have been training communities in sustainable farming practices and educating them on the benefits of zero burning. As a result, the number of hotspots in the community has fallen to just three from 40 previously.
The company said it pioneered the zero burning replanting technique in 1985 and this is now recognised as an industry standard. This led to the company winning an award from the United Nations in 1992 for its environmental achievements.
Source: The Star Online, Oct 7, 2015
By GOFB on Wednesday, December 9th, 2015 in Issue 4 - 2015 No Comments
I am just turning 75 years of age. Half of my lifetime ago, I was investigating a method of forecasting the trade in bulk liquid chemicals and vegetable oils.
For this, one needs a starting point and we looked at the flows that we could see around the world, based on our own business as well as what we knew of others. The deep-sea fleet then was around 100 ships of 25,000 tons deadweight (dwt) or above. Now it is 1,575 ships and the world has changed!
At that time, looking at the trade patterns, we found that around 80% of the total tonnage carried by chemical tankers on these long hauls either started or finished their voyages in the US. Much of the remaining 20% was tropical oils from Asia to Europe or phosphoric acid from South Africa to Brazil.
Having ascertained that fact, we obtained and analysed all the US trade in detail to give a starting point. Unfortunately I do not have those old analyses; they would be most interesting today.
My employer (Stolt-Nielsen) was the leading chemical tanker operator with about 25% of the world’s deep-sea fleet at the time, and was financially tied up with British Petroleum (BP). Accordingly, one of the senior Stolt-Nielsen staff visited London to get some advice from BP. He returned in awe of the research capabilities of BP which had a team of over 100 people researching all aspects of their business from exploration to the distribution of one litre cans of oil.
On his return from London, he informed me that we should have no problems in compiling a forecast as BP had told him that anything up to a 100% incorrect forecast was acceptable! This was probably due to the upsets in crude oil pricing caused by OPEC during the 1970s but we grabbed that statement with both hands!
Having researched the history of US imports and exports, we applied various factors in order to come up with a forecast of the flows, and thus the fleet results, over the next five years. The freight market in our sector had been appalling for some years, but we forecast that a return to profit would come in the second-half of 1978. We were spot on!
Industry developments
In 2014 the volumes either starting or finishing their voyages in the US were around 20% of the world volume traded, a considerable contrast from the 80% we found in 1978.
The chemical tanker industry developed very fast from that point onwards. Chemical plants were built in other areas of the world that started to compete with the US. The Canadian West Coast developed major plants based on their natural resources and gave strong competition to the plants on the US East Coast, and especially the US Gulf. Major producers consequently moved into that area to take advantage of the newly available feedstocks.
Next came the Middle East. Massive investments in “world scale” petrochemical plants were announced, based on the cheap feedstocks available from Arabian oil, especially Saudi Arabian oil. The announcements were greeted with a certain amount of scepticism as the construction schedules seemed overly ambitious.
In fact, almost every plant came on-stream ahead of schedule. The units were prefabricated, mainly in Korea, and shipped to the Arabian Gulf to be bolted together like a child’s construction kit. On one plant, only two minor adjustments were needed to complete a massive petrochemical plant ahead of time.
The result has been that, over the last 35 to 40 years, the flow of cargo for chemical tankers has changed dramatically, as have the volumes involved.
Regrettably I do not have the data for the years prior to 2008 for all trade lanes; however, I do have the data for the US-to-Far East trade lane from 1997. The volumes over the years up to 2014 are somewhat erratic as Figure 1 demonstrates.
The Asian Financial Crisis that began in 1997 did have an effect on the volumes from the US to the Far East; however, this effect was countered by a poor soybean harvest in South America which resulted in imports coming from the US instead of South America.
A reduction was seen in 2001, 2006 and 2008 in volumes to the Far East. Following the peak in 2010, there has been a steady slide which appears to be continuing in 2015. The slowdown in the Chinese economy has contributed to some of this, but so has competition from other sources such as the Middle East.
I give this trade lane as an example because this is the one where historic data is available. It is very likely that other trade lanes have similar trends; however, this is restricting the picture to US exports and, of course, one would expect some compensation to show up if access to other trade lanes was available.
Total picture
The full volumes for the last few years are detailed in Table 1.
Historically, the import and export volumes showed similar trends until 2013, when export volumes dropped while import volumes increased. The export decrease was across the board from every area, while imports increased from most areas but especially from the Far East. The year 2014 has reverted to a similar trend, and 2015 seems to be following this as well.
Diversity of products
Product flows have completely changed now. The inclusion of vegetable oils as IMO class chemical cargoes eliminated most of the older, cheaper tonnage involved, and the volumes produced and carried have increased.
Chemicals are moving in increased volumes and in different directions. New plants are still being built; other, older plants are shutting down; and still other plants are being moved to new locations where cheaper feedstocks are available.
The major changes take place for political or economic reasons and the main production companies have experts in analysing the political situations and forecasting changes. They also have teams of economists who predict economic change. Others evaluate the supply and demand of their own narrow field of the business; yet more experts plan changes in their, again narrow, field of the business. The diversity of products can be seen from Table 2.
While the table demonstrates the diversity of products involved, it only tells a small part of the story. The ‘Misc. chemicals’ category for both imports and exports include up to 100 different products, each requiring a different type of tank, different handling, etc.
Several products or product types (shown in bold print in Table 2) are both imported to and exported from the US. There are many reasons for this, such as trading arbitrage, geographical reasons (the US is a large country) or differences in product make-up within a particular group.
It is apparent that there are more product groupings among exports. The number of different products within the ‘Misc. chemicals’ total is unknown, but the production of more of the chemicals is still taking place in the US, especially for those that are more complex and consumed in smaller volumes; hence the fewer number of product groupings in the imports.
Planning ahead
Ship owners do not have the luxury of being able to appoint people to evaluate small areas of the business. They must be aware of the potential changes in the trade for a multitude of different products, trade lanes, clients and geographical areas.
Often this is done by one or two people who have to be ‘experts in everything’. They must evaluate the trade patterns of the future as well as gauge political climates and economic developments, and come up with plans for their companies to spend many millions of dollars on building ships that will last at least 25 years and yet have little fixed business except, in a few cases, for one or two years ahead.
Not many, if any, industries will spend this amount of money on such a thin basis. Most of the major operators who are trading with contracts and on several different trade lanes will have a small research department that will collect data, such as I have shown; analyse it in more detail; and advise the company on what they perceive as the future trade patterns.
These companies are normally divided into Trade Lane Departments that take care of individual trade lanes that are covered by their regular business. These departments are mostly so busy planning the next two months and fixing cargoes, plus negotiating contracts, that they do not have time to study their own field in depth, let alone see the bigger picture.
The Research Department can evaluate future flows, based on plants under construction, GDP changes, political changes, etc. They can advise the Trade Lane Departments of what they find but the results are often too theoretical for the departments to act on in a concrete manner.
The other responsibility of the Research Department is often to advise the ship owner on what the future holds and what type of ship will be required in the future. A ship of, say, 20,000-40,000 dwt will take up to three years to build. They can cost anything from US$30 million up to well over US$60 million.
Trade flow forecasts are rarely accurate more than three years ahead, which means that owners can commit to an investment of up to US$60 million and then when the ship is ready, find that the picture has changed and they have an expensive asset that will last for 25 to 30 years and without the base business planned when construction started.
No wonder many ships are now being ordered by trust funds or other financial institutions which are committing other people’s money to these ventures.
Charles Barton
Maritime Consultant
By GOFB on Wednesday, December 9th, 2015 in Issue 4 - 2015 No Comments
A draft report by the Sustainable Palm Oil Manifesto (SPOM) High Carbon Stock Study (HCSS) group has received a small amount of press attention since it was released in mid-August.
The draft report is a culmination of months of work by a dedicated group of researchers from a diverse range of backgrounds. Notably, it is being led by Jonathon Porritt, former leader of Friends of the Earth in the UK.
The study has been presented as something of a foil to an attempt by a coordinated effort by large Indonesian companies, Greenpeace and The Forest Trust to unilaterally define what ‘High Carbon Stock’ (HCS) is, and what it should mean for oil palm plantations and palm oil purchasers around the world.
Indeed, the release of the study prompted Greenpeace director John Sauven to state that the HCSS “is trying to undermine the High Carbon Stock Approach … The SPOM group have proposed their own, weaker definitions that would open the door to extensive deforestation by stealth. This underhand tactic cannot be allowed to succeed.”
The HSC Approach is of course NGO-driven. Greenpeace appears to be saying ‘it’s our way or the highway’.
One of the major flaws of Greenpeace’s criticism is that the HCSS actually attempts to balance socio-economic concerns with environmental concerns, which has been noticeably absent from the model developed by Greenpeace.
The HCSS states that it “aims specifically to address how to reliably estimate [greenhouse gas] emissions caused by oil palm development, and how to combine these with socio-economic consideration and other factors when making land-use decisions”.
But an interesting point that is brought up by this last statement is that ultimately land-use decisions – on a large scale – are dependent on the government.
More recently, the interaction between governments, environmentalists and the private sector has become more apparent. Two Indonesian officials have remarked on their government’s doubts about the recent ‘no deforestation’ pledge by Indonesian companies on the grounds that this impacts local communities.
Marcus Colchester of the Forest People’s Programme recently made very interesting points about the incentives and the actors around HCS. Colchester states that a new system being proposed would dissuade companies from cutting by using higher conservation values.
This method would also provide the companies with an incentive to hand these areas to local communities – who are quite likely to use this land for agriculture. Similarly, if the policies are implemented at government level, the land is also likely to be given to communities.
This means that, if environmentalists want to conserve these areas, they will need to offer locals a strong incentive to protect the land instead of developing it. This, of course, presents a range of new problems.
The opportunity cost for a smallholder or community of smallholders on forest land that can potentially be planted with oil palm is massive. Estimates of the net present value of smallholder oil palm plantations in Sumatra are in excess of US$7,000 per ha, according to one estimate.
So the question for governments – and the private sector – is whether they can afford this cost. For the private sector, can this cost be absorbed and have its operations remain profitable? For governments, is there a dividend apart from the environmental one? If governments decide to impose costs on the private sector, companies can simply withdraw their capital – meaning foregone revenue and investment. These costs, then, can only be imposed if there’s another source of revenue for the government – will this be aid money from nations such as Norway?
What HCS underlines is that for many Western environmentalists, there is a fanciful notion that not developing land for agriculture somehow has no costs attached to it, or is a ‘pain-free’ route. This notion has turned out to be wrong, time and again.
When governments and NGOs originally pushed the idea for REDD – reduced emissions from deforestation and forest degradation – the system underpinning it was one in which wealthy countries would financially compensate poor countries for foregone opportunities by not converting forests.
But under HCS, this system – and any compensation – doesn’t exist, meaning that poor countries, and the communities within them, are being asked to hold themselves back, while getting nothing in return. It’s no surprise, then, that some officials in developing countries have objected to it so strongly.
Certainly, there are no costs for the Western environmentalists. But for governments and people in developing countries, it’s a completely different story.
By GOFB on Wednesday, December 9th, 2015 in Issue 4 - 2015 No Comments
As the story goes, Sam Goldwyn of the famed movie studio Metro Goldwyn Mayor (MGM) was listening to a team of his managers lamenting the disastrous state of the movie industry in the depression of the 1930s.
When they were done talking, he responded with the line: “Gentlemen, there’s nothing wrong with this industry that a few good movies can’t fix.” He was right then and I’d say he would still be right today and not just about movies but in other areas too, including branding.
The only thing is, with branding, the line would go something like: ‘There’s nothing wrong with our brand that some good creativity can’t fix.’ In fact, if there’s one thing that’s a constant in the world of branding, it’s the need for creativity.
You could say that branding is mainly about communicating information about your product or service to your target audience in such a way that they don’t dismiss it or get bored. That can be a tough thing with audiences in modern times, when attention-spans are so short. So, creativity is not an option, it’s a necessity.
Finding ways to be creative is a never-ending problem for most organisations, and in the world of the edible oils business creativity seems to have received a small fraction of the attention it is due.
There is the widely held point of view that most consumers don’t find the world of oils that interesting, and that might be one of the reason that the edible oil producers tend to not focus on creativity. Let’s face it: many customers aren’t that brand loyal, and a large number buy on price. In comparison to products like the latest PC, mobile phone, iPad or motor car, edible oils just ain’t that sexy.
But hold on a moment. What about big brands such as McDonalds or Burger King, where the product, for the most part, is just burgers and fries? Come to that, what about two of the biggest ever drinks brands: Coca Cola and Pepsi? Their products are just types of fizzy sugary water. I mean, how exciting are these products? Not very. But they are all beautiful examples of how marketers create interest, and they create that interest with creativity.
There are many reasons to think that the edible oils industry can follow suit – the first being the never-ending appetite (if you’ll pardon the pun) of the general public for cookery shows on television. Next, take a look at the number of cookery books on display in bookshops. Those are just the food-based opportunities. With the latest nutraceutical products that are coming along, branding opportunities will come along too.
Learnable skill
The next question is: OK, I’m into the idea of being creative, so how do I do it? Fortunately, because it’s such a big question, a lot of super minds have been working on it for many years, and in my seminars I’ve found that creativity is indeed a learnable skill. Here are a few steps that I have found to work. I’ve divided them into:
By GOFB on Wednesday, December 9th, 2015 in Issue 4 - 2015, Publication No Comments
The morning was cool. The tide was low. White wisps of mist rose from the oily surface of Gum Gum Creek and swirled around the exposed mangrove roots. The Land Rover was parked right on the jetty.
Read more »By GOFB on Wednesday, December 9th, 2015 in Issue 4 - 2015 No Comments
Today, public opinion expects economic and political decision-makers to take practical measures to fight deforestation and climate change. One such measure is to introduce more sustainable and more responsible production practices in those commodity supply chains responsible for deforestation.
In response to this challenge, the French Alliance for Sustainable Palm Oil organised a workshop. It gathered producers, industry figures and distributors from the timber, paper, rubber, palm oil and soybean sectors at the Convergences World Forum 2015, in order to develop innovative and joint solutions to the problem of deforestation.
Sustainable palm oil industry
Despite facing much criticism, sustainable palm oil may be the answer to one of the great challenges of our time: the challenge of feeding nine billion human beings by 2050.
Palm oil is extracted from the fruit of the oil palm. It has been widely used as a cooking oil in Africa and Asia for centuries. Its natural properties have made it a firm favourite among manufacturers, helping to extend the shelf-life of food and conferring uniquely soft, crunchy or creamy textures on certain products.
In order to achieve the same properties, other types of oil must be partially hydrogenated – a process that results in the formation of trans fats, with their recognised negative impacts on health. However, this is not the case with palm oil.
In addition, the oil palm offers the best yield per hectare of any oil – equivalent to oil from 6 ha of rapeseed, 8 ha of sunflower seed and 10 ha of soybean. In order to meet future demand, current crop coverage would need to be expanded on a colossal scale, thereby exacerbating environmental problems and accentuating deforestation in the process.
The oil palm is a tropical plant, with 87% of global production located in Indonesia and Malaysia. Demand for palm oil took off in the 1980s. At the time, there was limited concern for production conditions. However, a new responsible production process has now emerged.
The French Alliance for Sustainable Palm Oil was founded in 2013 as part of this initiative. The Alliance’s ambition is to transform the supply chain within our industry and to promote the production of sustainable palm oil – grown without deforestation or exploitation, in a manner that respects both the environment and local populations.
We do so by working with local stakeholders and NGOs which help us to develop our procurement policies, assess the entire supply chain from plantation to factory in order to ensure that it is environmentally and ethically sound, and keep a watchful eye on our progress.
By working hand-in-hand with plantation owners on the ground, we are also able to foster more responsible crop-growing practices. It is important to remember that around 50% of palm oil producers are small-scale farmers, and that the wealth generated by oil palm plantations provides millions of producers with access to education and health services, helping to lift countries such as Papua New Guinea and Liberia out of poverty.
Genuine, recognised progress has now been made. More than 80% of stakeholders in the sector (brands, manufacturers, suppliers and producers) have entered into historic traceability commitments for 2020 and have announced procurement policies that focus on protecting forests, conserving biodiversity and respecting the rights of local populations and workers.
Currently, more than half of all global palm oil consumption occurs in Asia, primarily in China, Indonesia and India. Consumption remains extremely low in France. However, simply rejecting palm oil in our country will make no real impact on the problem of deforestation.
Instead, it is those members of the French Alliance for Sustainable Palm Oil – companies that place rigorous demands on their suppliers and work directly with local NGOs – that have the real power to transform the industry worldwide.
When palm oil producers abandon deforestation practices at the request of the (in this case, French) brands and manufacturers that they supply, this change affects their entire business and all of their plantations. This, in turn, has a direct impact on the products sold in Asia.
If we, the French members of the Alliance, decide not to purchase palm oil in the future, what leverage will we have to encourage plantation owners to change their practices? Working with our European counterparts, we believe we are well placed to lead this change, and to bring other manufacturers along with us.
By GOFB on Wednesday, December 9th, 2015 in Issue 4 - 2015 No Comments
In the small town of Sebako in Sarawak, Malaysia, some 20 people wait patiently for planting updates from officials of the Sarawak Land Consolidation and Rehabilitation Authority (Salcra). Led by their headman Salimin Asiew, they are owners of land to which they exert native customary rights (NCR).
NCR are acquired by landowners in accordance with the customary law of communities prior to Jan 1, 1958, as set out in Section 5(2) of the Sarawak Land Code. Land ownership is life itself to rural natives of Sarawak. It is an inheritance, from both a cultural and economic viewpoint.
Prior to government-funded perimeter and individual lot surveys, proof of land ownership was very tenuous, Salimin noted.
Many elders, when asked to identify their land, would make a sweeping motion from left to right with their arm, spanning fruit trees, bamboo clumps, a river or valley, and marked burial sites. But through Salcra’s oil palm development schemes, NCR landowners have had their boundaries properly surveyed and were given land titles.
“Allegations of rampant land grabbing that you read about on the Internet are not entirely true. There are land disputes. We have native courts to settle them,” Salimin said.
Asked about free, prior and informed consent for oil palm development, he replied: “From the start, Salcra officers explained their management policy. There is mutual trust and respect in our dialogue sessions. Many more among our community have gained confidence and applied to Salcra to plant oil palm for them.
“Our children, although many are working in Kuala Lumpur, see oil palm planting here as a good investment. In time, our children will inherit the land. We want to pass on this business that they can build on with better agronomic expertise.
“With more government funding for proper land terracing, better seedlings and higher quality fertilisers, more NCR land can be developed via economies of scale. We would like to see more of our neighbours and relatives reap the benefits of commercial-scale planting.”
Federal funding sought
Under the 11th Malaysia Plan from 2016-2020, the Sarawak government aims to upgrade the value of NCR land as a means of improving the people’s income.
State Land Development Minister Tan Sri Dr James Masing noted that NCR land development is handled by four organisations – the Sarawak Land Development Board, Land Custody and Development Authority (LCDA), Federal Land Consolidation and Rehabilitation Authority and Salcra.
As at September 2015, about 235,000 ha of NCR land had been planted with oil palm.
“In 20 years, Sarawak has targeted another 500,000 ha for oil palm development on NCR land. We hope the federal government will agree to allocate RM571 million for the next five years as per our application to help us raise our people’s standard of living,” said Masing.
With a funding boost from the federal government, he said LCDA and Salcra can help more NCR landowners develop idle plots to raise the value of their real estate.
He also said the issuance of land titles has helped settle disputes and enabled NCR landowners to mortgage their land for start-up capital to leverage on more value-added activities. This is line with the state government’s vision of a native middle-class.
“Planting oil palm on idle land has always been for the benefit of business owners and landowners. It is regretful that many NGOs make false allegations about land grabbing and [that they] sow distrust among our communities in order to gain political mileage and stop the growth of the industry.”
In Sri Aman, Briku Busang, the community leader for the Pakit longhouse, expressed a similar view. He noted that before his people embraced oil palm planting, life was tough because his community had only planted padi and had just about enough to eat.
“In the 1970s, my people were still shifting cultivators. We have no capital to invest in heavy machinery and no technical knowledge on planting oil palm commercially.
“In 1980, Salcra suggested this new method to make NCR land more productive without ownership sacrifice. We started with Phase 1 and today, we have engaged Salcra to manage around 3,000 ha.”
Briku noted it has been 25 years since his people started planting oil palm.
“We’re due to replant a second cycle of oil palm. We would like for the federal government to allocate specific funding for replanting of oil palm and rubber on NCR land,” he said.
“What we’re getting from the federal government for the construction of internal village roads and bridges is not enough. As taxpayers, we too want equal opportunities for development that will help bridge the rural and urban gap.”
Source: New Straits Times, Oct 15, 2015
This is an edited version of the article.
By GOFB on Wednesday, December 9th, 2015 in Issue 4 - 2015 No Comments
India’s food safety regulator will halve the maximum allowed amount of trans fats in partially hydrogenated vegetable oils and fats by next year, in a move that experts are calling an important step to safeguard public health.
But nutrition scientists have cautioned that the government will also need to tweak oilseed crop policies to draw the food processing industry and consumers away from unhealthy but inexpensive trans fats to healthier edible oils.
The Food Safety and Standards Authority of India (FSSAI) has set 5% as the maximum limit for the amount of trans fats in hydrogenated vegetable oils, margarine and fat spreads. This will be applicable from August 2016. The current limit is 10%.
“This is an important move – trans fats are responsible in a big way for metabolic disorders,” said Anoop Misra, an endocrinologist and director of the Fortis Centre for Diabetes Obesity and Cholesterol, New Delhi.
Trans fats are created when vegetable oils are partially hydrogenated, and are therefore also found in a variety of popular processed foods, including baked products.
But medical studies have linked trans fats to heart disease among other health problems. In June, the US Food and Drug Administration decided that trans fats are no longer ‘generally recognised as safe’ and ordered that these be phased out by 2018.
Public health experts say the FSSAI move is in line with the World Health Organisation’s recommendations to replace trans fats, in order to reduce cardiovascular disease. But they also caution that crop and farming policies may need to be changed to drive this shift.
“The government needs to re-orient crop policies to encourage farmers to produce healthier oilseeds such as soybean or mustard or rice bran,” says Suparna Ghosh-Jerath, a nutrition scientist at the Public Health Foundation of India, who has analysed policy options to reduce the use of trans fats.
“These are already cultivated in India, but not enough; [so] the industry relies on inexpensive imported palm oil.”
India’s vast market for loose processed foods – such as snacks sold in shops and by street vendors – would require government intervention at the oil production level.
“Consumer awareness alone will not help,” Ghosh-Jerath said. “When purchasing loose processed food, consumers will look at the quality and the cost. They would prefer to buy an inexpensive crisper and flakier samosa than a soggy-looking samosa cooked in healthier oil.”
Sunita Narain, director-general of the non-government Centre for Science and Environment (CSE), New Delhi, noted that the 5% limit is a step in the right direction, but that “we should aim to reduce it further to near-zero level”.
Five years ago, a study by the CSE had found that the level of trans fats in several partially hydrogenated vegetable oil brands was five to 12 times more than the 2% maximum standard adopted by Denmark.
GS Mudur
The Telegraph, India, Sept 2, 2015
This is an edited version of the article.
By GOFB on Wednesday, December 9th, 2015 in Issue 4 - 2015 No Comments
Marc Tarabella, a Belgian Member of the European Parliament, has a long and undignified record of demonising palm oil.
In 2013, he had made statements that effectively accused palm oil production of being environmentally destructive, harmful to human health and violating workers’ rights – despite producing no evidence and, clearly, not being in possession of the facts. In June this year he went on the attack again, accusing the industry of exporting so-called ‘illegal’ products – including palm oil – to Europe.
Tarabella bases this accusation almost entirely a report by FERN, a European Green NGO. The report was discredited earlier this year in detail. A rebuttal by FERN did not even attempt to address the substantive points of the critique; it simply re-stated the original propositions, with no attempt to engage in a debate. Making wild accusations and then ducking a debate is classic FERN playbook. It’s a shame that MEP Tarabella is siding with the wild accusations, and not the facts.
Tarabella made a statement and asked a question to the European Commission (EC) and appeared to be collaborating with FERN: “Can the [EC] confirm or deny the accusation that some products imported into the EU do indeed result from illegal deforestation?”
One thing that FERN attempts to do in its report is to link the high number of land claims in Malaysian courts to ‘illegality’ of the products being exported. Clearly, the fact that there is an open, transparent and effective legal system is something to be praised – rather than subjected to attacks. The role of the courts is to adjudicate.
Does Tarabella really think that Belgium has no land disputes currently under legal review? So, perhaps using his logic, should the EU ban all Belgian products as well?
As The Oil Palm has pointed out, FERN’s report failed to mention that some plaintiff claims around land use in Malaysia were also related to the main airport. Once again, no evidence was produced to justify the attack on Malaysia’s oil palm farmers.
By GOFB on Tuesday, December 8th, 2015 in Issue 4 - 2015 No Comments
The United Nations Framework Convention on Climate Change (UNFCCC) has become the focus of both environmental policy makers and international campaign groups, as the Conference of the Parties prepares for its 21st Session in Paris from Nov 30 to Dec 11.
The upcoming event is one of the more significant meetings in that it is set to finalise an international treaty that is to replace the Kyoto Protocol – an agreement that is nearly 20 years old.
A decision on the future of the Kyoto Protocol was due to be taken in 2009 at the UNFCCC meeting in Copenhagen. However, that meeting was an abject failure. The world’s major emitters of greenhouse gases (GHG) failed to agree on a common approach.
A key element of this failure was the inability of the developed world – most notably the EU – to accept the position taken by the world’s emerging and developing economies.
The developing countries were ably led by a strong negotiating bloc comprising Brazil, South Africa, India and China – referred to as the BASIC grouping. These countries are also members of the G77, a coalition of 134 developing and emerging economies that often forms joint positions at UN meetings. Malaysia is a member of the G77.
The meeting was marked by a significant NGO presence. Their focus at the time was the supposedly high levels of GHG emissions caused by conversion of forest land to other uses, and the forest sector and land use more broadly.
Consequently many industries that relied upon conversion of forest land – palm oil included – found themselves in the firing line in the lead-up to the conference, based on the claim that they contribute significantly to carbon emissions.
The key contention was that deforestation was causing 20% of global GHG emissions. This was a figure that was supported by Greenpeace, WWF and some Western governments.
However, that figure was comprehensively debunked with a better understanding of both the rates of deforestation, as well as emissions from deforestation. The understood figure is now roughly half that – approximately 10%.
Using this higher figure through 2008 and 2009, Greenpeace and many other campaigners went after major purchasers of palm oil. Unilever was the highest profile target. The campaigners’ report, ‘How Unilever Suppliers are Burning Up Borneo’, was an extraordinary exercise in black campaigning against the Indonesian palm oil industry.
The measure that Greenpeace and others proposed in the UN in 2009 to mitigate forest-based emissions was REDD – reduced emissions from deforestation and forest degradation. Many NGOs, some developing countries and the government of Norway were proponents of this concept, which involved paying countries not to deforest.
Yet there were significant problems with REDD that became apparent very quickly:
• The first was that measuring emissions from land use was plagued with inaccuracies and not particularly well understood.
• The second was that paying people not to deforest would ultimately mean that you were telling them whether they could grow food on their own land or not – meaning there were significant economic and social implications.
• The third was that the original idea – ‘that forests should be more worth standing than as timber products’ – failed to appreciate why most people have cleared land, which is for agriculture. This meant that a parallel contention, that compensation would be inexpensive, was completely wrong. Compensation would have to cover entire commodity classes – such as palm oil.
Taken to its logical conclusion, it would effectively mean subsidies for farmers to not grow crops – which would inevitably impact production, output and prices. This was ultimately not a way to reduce poverty.
Unsurprisingly, REDD has changed significantly. Activities are still being implemented under so-called UN-REDD programmes, but these are a world away from the idea of setting up a global payments system to end deforestation, or the generation of carbon credits for avoided deforestation.
