Malaysia needs more innovations in downstream palm oil

It can safeguard the upstream operations by ensuring uptake of CPO and PK for palm-based downstream activities

by ANIS HAZIM / pic by TMR FILE 

MALAYSIA shall not heavily depend on the palm oil upstream market and need to step up efforts in unlocking the downstream value chain to ensure the sustainability of the plantation sector.

Irga Sdn Bhd chairman MR Chandran said it is imperative for the industry to increase investments in value-added downstream activities while crude palm oil (CPO) commodities could be facing inherent price volatility and market uncertainties.

“Malaysia’s long-term agribusiness strategy should boost the processes in the downstream sector through a regulatory framework and fiscal incentives.

“It can safeguard the upstream operations by ensuring uptake of CPO and palm kernel (PK) for palm-based downstream activities,” Chandran said in a plantation sector roundtable series organised by CEO Action Network and Climate Governance Malaysia yesterday.

He said the agri-commodity industry could embark on the value chain transformation of CPO, PK and by-products such as oleochemicals, biodiesel, specialty oils and chemicals, phytonutrients and fast-moving consumer goods.

Chandran, who is also the Roundtable on Sustainable Palm Oil advisor, said the downstream segment must be developed to become a major economic driver for the palm oil industry.

“The growing interconnectedness of the various segments in the value chain makes it important to have the entire view of the downstream value chain.

“The industry cannot work in suboptimal silos. Full integration or cooperation across the entire value chain is a necessity and everyone has to play their part,” Chandran added.

He noted that mitigation of market access risks and environmental impacts largely depend on upstream activities, which need an integrated approach.

The industry veteran said ensuring an adequate and reliable supply of raw materials at competitive prices is crucial for developing value to the downstream sector.

“The upstream sector is also a vital component of the supply chain as feedstock disruptions can have serious implications for downstream operations.

“For example, the rubber, timber and cocoa industries in Malaysia suffer from a shortage of domestic raw materials and are dependent on overseas feedstock for their downstream activities,” he noted.

Moreover, he said the increasing global demand for sustainability makes it imperative to increase productivity.

He said oil palm sustainability starts with the upstream sector and getting it wrong at the upstream would affect the entire value chain.

He suggested that agricultural investments to increase productivity has to be an essential part of the strategy to energise the downstream sector.

The industry is also facing the issue of average national oil yield at a low of 3.6 tonnes of CPO per ha, which shows that the country has not moved far from the 1960s despite continuous improvement in planting materials.

“Nationwide testing of oil palm has shown an unbelievable 13% contamination with lower-yielding non-tenera palms.

“This is currently resulting in annual losses of more than RM1 billion,” Chandran added.

He noted that oil palm has an economic lifespan of 25 years, which can help to sustain the industry, though it is imperative to get the commercial planting right.