November 10, 2014

By Shahnaz Mahmud

In the 1960s the Malaysian government took strides to help those deemed “landless” and “jobless” to obtain loans to acquire two hectares of land each to work in their own oil palm field. It is known as a smallholder scheme under the Federal Land Development Authority (FELDA). In 2013, these “FELDA settlers” earned an average of US$1117 per month, which was significantly above the poverty line in Malaysia. These smallholders (farmers) now hold about 40% of the total area in Malaysian palm oil.

Today, Malaysia, together with Indonesia, accounts for 85% of global palm oil production and the industry is widely believed to have transformed the nation. The success of the industry is seen to have improved socio-economic structure, narrowed the rural-to-urban income gap, eradicated poverty, created rural township, and continues to provide social stability and peace, says Johari Minal, Regional Manager of the Malaysian Palm Oil Board (MPOB), which was formed in 2000 in Washington DC.

Sustaining Success with Sustainable Palm Oil

However, in order to sustain success in the global palm industry, Malaysia has had to address the issue of sustainable production. One of the greatest concerns is deforestation. Palm oil can only be grown in tropical regions. With increased demand for the commodity, palm oil has become the leading driver of deforested land, as it gets converted into palm oil plantations.

“In recent years, sustainability has become an access issue into certain markets in Europe and the US,” says Minal and therefore sustainable certification is essential to gain access to many foreign markets.

Because of this and in order to ensure all palm operations in Malaysia are able to compete, in 2013 Malaysia launched the Malaysian Sustainable Palm Oil (MSPO) national standard, a separate standard from the already established Roundtable on Sustainable Palm Oil (RSPO) standard. “The purpose of establishing the (MSPO) standard is to ensure that the Malaysian palm oil industry achieves the balance between economic development, social development and protection of the environment,” says Minal.

The MSPO standard is applicable to all palm oil operations, no matter the size, ensuring that all oil palm premises in Malaysia are able to get sustainable certification, notes Minal, something that was difficult to achieve for small and mid-range cultivators under the RSPO standard. He underscores the importance of this certification, because it implies that the palm oil is produced from legitimate sources, is responsibly procured and doesn’t cause deforestation or the displacement of wildlife. Moreover, he says, it complies with Malaysian laws and adheres to international agreements and conventions.

According to the Roundtable on Sustainable Palm Oil (RSPO), an association responsible for promoting sustainable palm oil globally, 15% of the total global supply of palm oil was certified sustainable in 2013. Minal says Malaysia produces more than 40% of certified sustainable palm oil annually (under RSPO certification) and this volume is growing bigger year by year.

Now, in addition to RSPO certification, a trial run on MSPO is being conducted on a number of oil palm plantations in Malaysia with the goal of having MSPO-certified palm oil that will be produced and available for export in 2015.

Minal adds that palm oil also represents “a zero-waste industry” in Malaysia. The biomass from plantations is either recycled back into the plantations as fertilizers or is processed into value-added products such as furniture, medium density fiber board and potentially into bio-oil, as studies are being done in this area.

Global Challenges

Sustainability is high on the MPOB’s list of priorities to promote globally. Malaysia, for instance, already has a strong relationship with the US, and is the largest supplier of certified sustainable palm oil to the country. Minal notes that consumption of sustainable palm oil is growing worldwide and that the US could become the first nation to consume 100% sustainable palm oil.

But, challenges remain for the palm industry. The main challenge going into 2015, according to Minal, is low prices, which have been the issue for palm and other fats and oils for several months.

“Palm oil prices have been dropping from US$860 in March 2014 to about US$660 per tonne by Sep 2014,” says Minal. “At its height, palm oil was traded at over US$1200 per tonne.” He also notes that the bear palm oil market is preceded by an oversupply of oilseeds and the tumbling crude oil prices since June 2014.

Creating Change

Education remains a critical tool for the MPOB. In the US, for example, the MPOB continues to educate people on the use of palm oil as a healthier alternative to hydrogenated fats or trans fats through seminars, food expositions and workshops, says Minal. “Unlike hydrogenated fats, palm oil is naturally semi-solid, which makes it suitable for many applications without chemical modification,” he explains. “Palm oil is only complementing locally produced oils in the US. As the US has a production deficit of oils and fats, importation of edible oils is necessary to meet the growing demand. Palm oil represents less than 7% of total consumption of oils and fats in the US.”

Main staple events that the MPOB will organize in 2015 will help address a variety of challenges that Malaysia’s palm oil industry faces. These events include the Palm Oil Economic Review & Outlook Seminar in January and the International Palm Oil Congress next October, and will present the obstacles facing the industry, strategies to address these and the outlook for palm oil.

Given these efforts, after being transformed by the industry, Malaysia may now be positioned to play a leading role in transforming the global palm oil market.