Recently, we organised a half-day ESG webinar with sustainability experts from Olam International, IOI Corp and Sime Darby Plantation. We were reassured that palm oil is here to stay – it is the most efficient oil crop, and hence the best environmental option to cater for a growing global population (+14% by 2050). That said, the sector remains bogged down by issues around deforestation and biodiversity loss, labour, open burning, and carbon emission. Some of the ways local players have responded are by: (i) adopting No Deforestation, No Peat, No Exploitation (NDPE) policy, (ii) zero burning policy, (iii) protecting High Conservation Value (HCV) areas, (iv) prioritising labour and human rights, (v) GHG emission targets, and (vi) sustainable certifications (RSPO, MSPO, and ISPO). In order for the carrot and stick approach to work, there needs to be greater demand for sustainable palm oil. Only an estimated 2- 3% of China and India’s palm oil imports (China & India accounted for 53% of Malaysia’s 2020 palm oil exports) are RSPO certified. Lastly, while our target prices and recommendations are under review pending results release, we offer a preview to embedding ESG into planters’ valuations.

We recently organised a half-day Plantation and Sustainability webinar led by experts in the Sustainability scene from major plantation companies; Audrey Lee (Sustainability General Manager, Olam International Limited), Dr. Surina Ismail (Group Head of Sustainability, IOI Corporation Bhd) and Rasyid Redza (Head of Group Sustainability, Sime Darby Plantation Bhd). These are our key takeaways for the sector and outlook for our plantation coverage.

Most efficient crop vs. rival oils. Contrary to its stigma, palm oil is the most efficient crop in terms of oil yield to land use (refer to Land Use to Yield Chart). To produce 1 tonne of oil, palm only requires 0.26 ha of land, whilst its biggest competitor soy would require 7.7 times that amount at 2.0 ha of land. According to IUCN, palm oil accounts for 35% of global vegetable oil production on only 10% of global land use, proportionately less land usage than its peers. Meanwhile, it is estimated that soybean oil accounts for 26% of global vegetable oil production on 40% of global land use, based on data compiled by Our World in Data from UN Food and Agriculture Organization (FAO) 2017.

The misconception portrayed by international organisations vilifying palm oil over rival oils has been damning to the industry reputation, while brands that highlight the exclusion of palm oil in their products and attempt to substitute palm oil with other less efficient oils are either greenwashing or are sorely misinformed.

Since rival oils have lower yields vs. palm oil, replacing palm oil is not a solution at this point. However, ensuring that palm oil is produced sustainably will be the best way forward for the industry and the planet.

Source: Kenanga Research - 19 May 2021