Explore Africa, China as new destinations for palm oil export

The continent’s increasing demand for palm oil has seen a great increase in the import of the commodity

By ALIFAH ZAINUDDIN / Pic By MUHD AMIN NAHARUL

The heightened tension with Europe over the alleged negative impacts that the palm oil has on the environment has forced Malaysia to consider new export destinations for the commodity.

As the European Union (EU) is the second-largest export destination after India, any block on palm oil products is expected to affect Malaysia’s key commodity.

According to the latest official data, the EU represents 12% of the total 13.8 million palm oil shipped globally as of last month.

Africa, with a population expected to hit two billion by 2040, has therefore been hailed as the new frontier of industrial palm oil production.

The continent’s dwindling plantation industry and its increasing demand for palm oil has seen resulting in a great increase in the import of the commodity in recent years.

Additionally, it is reported that up to 22 million ha of land in west and central Africa could be transformed into plantation areas within the next four years.

Industry consultant M R Chandran (picture) said the situation in Africa offers a ripe opportunity for local plantation giants to expand their global land- bank size, and increase palm oil supply to the continent.

“Malaysia should have more offices in this continent, develop trade and make Malaysian palm oil acceptable to them. It is an investment that is necessary,” Chandran told The Malaysian Reserve.

However, he conceded that there are significant challenges to be addressed before any expansion can be done in Africa.

As it is, growing concerns over sustainability has led to tighter government controls on loans given to plantation firms by financial institutions.

Last month, Singapore-based Wilmar International Ltd became the first Asian company in the palm oil industry to peg its interest rate to a sustainability index.

The company said in a joint statement with Dutch bank ING that a portion of its US$150 million (RM612 million) credit facility will be converted to a loan linked to sustainable performance.

If certain performance mile-stones involving environmental, social and governance indicators are met, the interest rate for part of the loan will be reduced for the following year.

Meanwhile, critical haze conditions in 2015 had also prompted the Monetary Authority of Singapore to weigh on local banks to consider sustainable practices when approving loans.

“If financial institutions have these rules, then your expansion will be completely slowed down,” Chandran said.

He said the forest moratorium in Indonesia has contributed to the decline in greenfield development in the country over the last few years.

“It has fallen to about 100,000ha to 120,000ha of new development, and if you go at that rate, we are going to have a shortage of palm oil for the world demand,” Chandran said.

Additionally, Chandran said Malaysia should do more to make headways in China as its vast market offerings had not been fully tapped.

“We have to look at how to strategise and get China to buy more palm oil. That needs to be done. Not necessarily by just sending crude palm oil or refined palm oil, but we have to look at the final consumer product.

“The way to go about it, in my view, is through blends. We need to understand the needs of China and try to do blends. They use a lot of rape-seed, soybean, sesame and linseed oils, so we need to produce blends with palm oil incorporated and then market it,” he said.

Malaysia’s palm supply to China has tapered slightly as supplies of alternative edible oils flood the Chinese market. The country is now the third-largest export destination for Malaysian palm oil, behind India and the EU.