How does Wilmar’s new policy affect the Sarawak Palm Oil Industry and what is the long term solution?
This introduction is a partial extract of the article published on 17th Feb 2014 by Hoe Lee Leng and Alvin Tai of RHB Research.
Wilmar International Ltd, which has a refinery in Bintulu, has informed the Sarawak state government that it will stop buying CPO produced from oil palm trees planted in forest areas and peat swamp land in Sarawak from 2016 onwards. Wilmar, however, has clarified that its new policy only applies to new plantation developments, not existing ones. For plantations that have been established on peat in the past, it will work with the stakeholders to ensure that best management practices for peat are adopted.
Wilmar currently buys 45% of the CPO produced by 41 mills in the state (1.4m tonnes). The rest of the CPO produced is sold to five other refineries. Sarawak has 1.6m ha of peat swamp, of which about 72.5% are planted with oil palm.
Who will be affected? As this new policy is not supposed to impact players who have already planted on peat previously, it should not affect planters who already have planted landbank in Sarawak. This includes Sarawak Oil Palm, Jaya Tiasa, Ta Ann, and THPlant, amongst others. However, this would have an impact on companies which have not completed planting in their Sarawak estates, or companies which need to replant.
Nevertheless, there are new refineries coming up in Sarawak -SOP is doubling its refinery capacity (currently at 500,000 tonnes) while TH Plant is setting up a new refinery (600,000 tonnes targeted for end-2016).
Plantation players now also have the option of exporting CPO directly if need be. In addition, as this new policy will only be implemented from 2016 onwards, plantation players in Sarawak will have some time to find alternative solutions.
What is the long term solution?
As Sarawak’s plantations will always be deemed to be at a disadvantage, being planted primarily on peat soil. The Sarawak Government and the Malaysian Palm Oil Board must engage professional lobbyists to fight the powerful smear campaign against the palm oil industry. Having invested in Jaya Tiasa, I am trying to do my part and I hope more Malaysians will join me.
United Nation’s Framework Convention on Climate Change defines a forest as an area of 0.5 to one hectare having more than 30 per cent canopy cover and having a potential height of two to five metres. To accuse the industry in Malaysia and Indonesia of contributing to global warming is sheer nonsense. In fact oil palm trees just as with other forest species, produce oxygen for us to breathe and act to counter coal and oil emissions which are the major cause of global warming.
Environmental activist groups such as World Wildlife Fund, Friends of the Earth and Greenpeace have launched many campaigns alleging that the expansion of oil palm plantations have destroyed forests, threatened endangered wildlife and robbed indigenous peoples of their land. Many of their arguments are not based on fact but are sensationalized from a small number of cases.
The anti-oil palm lobby in the west includes pro-soya bean and rape-seed groups who see oil palm as a major competitor and have recruited food lobbyists to play on fears of the health hazards of palm oil consumption. . Together with environmental activists, these well-funded groups have created trade barriers to the global oil palm trade under the pretext of environmental activism.
In a fair contest amongst competing vegetable oils, palm oil will win hands down. The oil palm tree is the world’s most efficient oil crop because one can harvest five tons of oil per hectare. This is 10 times more productive than soya bean planted in the West, including United States and five times more productive than rapeseed, Europe’s main oil crop.
It is an undeniable fact that palm oil is the cheapest and most popular form of cooking oil for consumers, including many poor families in the west. Should trade barriers to benefit rapeseed farmers who are already heavily subsidised by the European Union (EU) government be successfully implemented, this will hurt consumers all over the world.
Also should alternatives to oil palm be grown, more land would be needed to produce an equivalent volume of oil to replace palm oil, resulting in more deforestation and problems for Mother Earth.
Finally, the western environmental activists’ campaign against oil palm plantation expansion, in the name of “saving rainforests”, is a violation of international norms and Malaysia’s and Indonesia’s sovereignty.
Conclusion: I believe our palm oil industry will remain competitive and profitable for a long time.
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there is definitely more here than meets the eye, for as far is wilmar is concerned.
2014-02-17 14:00
from a fund manager point of view. do u still want to buy jtiasa?? and from jtiasa point of view, do u still want to plant more?
omg. runnnnnnnnnnnnnnnnnnnnnnnnnn.....
2014-02-17 17:21
The movement of share price is much depend on CPO prices. Alternatively, CPO processed from FFB ( peat land ) can be transported to other refinery. It may incur more transportation costs.
2014-02-17 17:58
updown. my family run one of the biggest palm oil estate in msia. according to my relative who work there. there is a time limit for u to send to process. its not just merely transportation cost. btw. why would a fund mgr pick this with such uncertainties. as if it is the only oil palm stock ka.
2014-02-17 18:02
I maybe wrong, my relative may bluff me, I also never bother to check la. wakakakaka. u find out n see
2014-02-17 18:02
Extract from Commodity Knowledge Center:
There are a number of factors which impact the quality of palm oil during storage. These factors are light, oxygen, moisture and heat. In order to maintain a the quality of palm oil during storage these elements must be properly managed.
Crude palm oil is stored in steel tanks at a temperature between 88 and 105 Fahrenheit. This temperature is required in order to prevent solidification and fractionation. During filling and draining of the storage tanks, the temperature will be increased above the 105 Fahrenheit. The storage tank will never be completely filled, because the headspace is filled with CO2 to prevent oxidation.
The maximum storage period of palm oil is 6 months. After 6 months period the palm oil has an increased chance to turn sour and the acid level of the oil will rise to unacceptable heights.
2014-02-17 18:10
No worry. There are plenty of time for transporting. Shelf life is almost 6 months.
2014-02-17 18:13
meaning the fruit can wake 6 month? no la. the info u gave is the processed oil la. or semi. I heard cannot tahan after a very short period la.
2014-02-17 18:17
It is CPO that need to go through refinery. FFB is processed to produce CPO. Many plantation companies have FFB processing plant.
2014-02-17 18:20
this is actually a good policy. nobody should have planted on peat in the first place. note that wilmar is being fair by clarifying that only new plantations will be affected. we should all buy wilmar and not all these land-grabbing, environmentally-damaging crony sarawak companies.
2014-02-17 18:22
Extract from Wilmar:
Peat is an accumulation of partially decomposed vegetation matter. Over time, the waterlogged soils prevent the organic matter from fully decomposing, thereby creating a thick layer of peat soil, also commonly known as peatland. Peatlands perform a significant carbon storage function for the planet.
In recent decades, huge amounts of carbon stored under tropical peatlands have been released into the atmosphere due to deforestation, land use change and fire activities. Such events have undone and upset the carbon sink function and as a result, compounded the problem of global warming.
Wilmar has a policy of not establishing plantations on deep peatlands (peat soil depth of 3 metres or more), in accordance with the Indonesian national regulations. In lowland areas where shallow peatland (less than 3 metres) development is permitted, we adopt a sound hydrological management approach that takes into account critical parameters such as water levels, stream discharge properties, flooding, water quality, peat subsidence, soil properties, erosion sedimentation and fire incidence.
Other than legal and regulatory requirements, it is also not commercially sensible to develop on deep peatlands because they pose a challenge to machine mobility and require a higher fertiliser input. The cost of constructing and maintaining the roads would be very high, as materials like stone will have to be imported from elsewhere. Crop stability will also be an issue. The high water content of peatlands mean that palm oil plantings often have to be made on elevated pedestals to prevent the roots from being in standing water. As a consequence, many trees fall off due to lack of support.
2014-02-17 18:25
Now, I understand why Biological Assets for Jtiasa is stayed at sky high in term of RM / hectare.
2014-02-17 18:28
It seems that Jtiasa has planted a lot palm oil in peatland. It costs much more due to
" Other than legal and regulatory requirements, it is also not commercially sensible to develop on deep peatlands because they pose a challenge to machine mobility and require a higher fertiliser input. The cost of constructing and maintaining the roads would be very high, as materials like stone will have to be imported from elsewhere. Crop stability will also be an issue. The high water content of peatlands mean that palm oil plantings often have to be made on elevated pedestals to prevent the roots from being in standing water. As a consequence, many trees fall off due to lack of support. "
2014-02-17 18:33
Why Biological Assets of TAAN is much lower than Jtiasa in term of RM/ hectare? TAAN is partly indirectly owned by Pec Mo. That's why TAAN is able to fetch land in better location.
2014-02-17 18:37
also. white hair may use ahgong lui to build infra. n transport ma. so simple.
2014-02-17 18:39
a foreign fund mgr see the following run fast fast lo, don wan know how undervalue bcos doesn't comply with their investment standard la.
Other than legal and regulatory requirements, it is also not commercially sensible to develop on deep peatlands because they pose a challenge to machine mobility and require a higher fertiliser input. The cost of constructing and maintaining the roads would be very high, as materials like stone will have to be imported from elsewhere. Crop stability will also be an issue. The high water content of peatlands mean that palm oil plantings often have to be made on elevated pedestals to prevent the roots from being in standing water. As a consequence, many trees fall off due to lack of support. "
2014-02-17 18:40
I think Wilmar might foreseen over supply of palm oil in the future and laid down the policy to reduce over planting at Sarawak. Those big players whose owned half million acres of plantation land may slowly inject the asset into listed companies for big cash.
2014-02-18 08:32
I suggest if wilmar does so , perhaps Msia and indo gov 2 of the largest palm oil producer can impose a fined on wilmar or higher tax on palm oil which it source from non peat oil , in response to the illogical actions taken ..
See later who is the real boss , is it wilmar or the 2 govment
2014-02-18 21:56
I visited peat estates recently, a lot of trees leaning. Some are totally lying on the ground and the leaves grow upwards again attracted by the sunlight. So it is like J shape
2014-02-20 22:14
If the peat is deep, the land will gradually sink under the weight of the trees and the peat oxidize. Sooner or later, the peat land will be lower than the river water level, meaning will not be able to drain the water out by gravity. The estates will be waterlogged and no more suitable for planting. That is the problem with peat
2014-02-20 22:17
Zuode Zhang
It is sad that an Asian company, Wilmar participate in this western propaganda.
Indeed it is important that the Malaysian Palm Oil industry do not be cowed by such cowardly act. Look for alternative markets out there.
2014-02-17 13:58