Consumer Cooking Oil Industry in Pakistan 2009 by ofm13546

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  MALAYSIAN PALM OIL COUNCIL                            KKDN PP 14669/05/2009                                           VOL: 8 2008

    Olein         Makes Inroads In Pakistan

Farooq        Oil Industries, with the        this category include sunflower, canola,
support of Malaysian Palm Oil Council,        cottonseed, soybean, corn and olive oils.
launched      Pakistan’s    first   palm      Located in Karachi, Farooq Oil Industries
                                                                                                      MARKETING & MARKET
olein-based blended cooking oil in            has been in the edible oil business for the            DEVELOPMENT DIVISION
Karachi and its surrounding areas.            last three decades. The group consists of
“Soneri”, which is a blend of Malaysian       chemical refineries, physical refinery,         Wira Adam
super palm olein and canola cooking oils,     fractionation plant and an oleochemical
is the first liquid cooking oil made          plant. It is one of the leading suppliers of
                                                                                                Sum Kum Mooi
available to consumers in a wide range of     oils and fats to the confectionery and
consumer packs.                               snack food industries of Pakistan.             MARKET ANALYSTS
                                                                                                Asia Pacific   Desmond Ng Kok Hooi
The liquid oil market in Pakistan has         The launch of Soneri cooking oil by                    
shown promising growth over the last 10       Farooq Oil Industries is the first step in
                                                                                                South Asia     Fatimah Zaharah Md Nan
years and is anticipated to capture the       introducing Malaysian super-olein to the
share of vanaspati in the country’s oils      consumer market in Pakistan. In the first
and fats industry. Economic growth,           phase, this product was launched in               Middle-East    Norhaznita Husin
                                              Karachi and its surrounding areas only,                
greater        consumer          affluence,
urbanisation,      increasing        health   with brand activation activities carried out      Africa         Lim Teck Chaii

awareness and the negative image of           in cooperation with MPOC. The response                 

vanaspati are a few of the factors that       from both distributors and consumers has          Europe         Sum Kum Mooi
have led to a six per cent consistent         been overwhelming after just one month                 
switch from vanaspati to liquid oils.         of consumer interaction activities. After
                                                                                                Americas       Wira Adam
Pakistan’s total edible consumption of        completion of the first phase in Karachi,              
oils and fats consists of almost three        the brand will be launched in the central
million MT, out of which soft oils account    parts of Pakistan during the first quarter          For more information, please contact
                                                                                                        Tel : 603 - 7806 4097
for nearly 30 per cent. The leading oils in   of 2009. Faisal Iqbal                                     Fax: 603 - 7806 2272

                                       Malaysia Palm Oil. A Gift From Nature. A Gift For Life
                                                                                          Malaysian Palm Oil FORTUNE                      3

                                Palm oil and biofuel
                     Demand for renewable
                        energy will ensure the
            success of palm oil
                                                                                                 His argument centres on the importance
   “We have at present a deadly cocktail of rising production combined with                      of biofuel demand, which will become
   some demand rationing. In such circumstances, prices have to go to the                        more and more obvious as this market
   level where they create strong demand growth” – Dorab Mistry                                  progresses in the coming months.

                                                                                                 Signs of Demand Destruction
                                                      companies, with just one or two            Dorab highlighted the discerning signs of
At the 2nd International Palm Oil Trade                                                          “demand destruction” as a result of high
Fair and Seminar 2008 held in Kuala                   honourable exceptions, have kept their
                                                      heads down rather than propagate and       prices. Strong prices during the first
Lumpur on Aug 28, leading oils and fats
                                                      explain the case for palm diesel.”         quarter of 2008 met resistance during the
industry analyst Dorab Mistry said, “It is a
                                                                                                 second quarter. This was reflected by the
pity that major plantation companies have
                                                      Here, we highlight his general idea why    volume of business transactions in June,
enriched themselves from high crude
                                                      palm oil needs that additional biofuel     especially the strong evidence in the case
palm oil prices but have refused to invest
                                                      demand to ensure remunerative prices as    of sunflower oil and soybean oil. The palm
in biodiesel or to invest in creating a
                                                      well as ensure to its long-term success.   oil market was the quickest to take note
market for biofuels. Almost all plantation
                                                                                                 and it soon sank to a wide discount
                                                                                                 against competitors, keeping palm oil
                                Prices of 3 Major Vegetable Oil Prices                           export volumes at a high level.
                                                                                                 Almost Ideal Weather
                                                                                                 The weather overall in 2008, especially
                                                                                                 after the second half of June, was almost
                                                                                                 ideal in all parts of the world. Wet
   1400                                                                                          conditions in the United States were
                                                                                                 resolved in June, with bigger crops
   1200                                                                                          anticipated in the northern hemisphere,
                                                                                                 including the European Union, Ukraine
   1000                                                                                          and southwest Russia. Above all, the
                                              Soybean oil, fob Rott                              expansion has been in high oil bearing
         800                                  CPO, cif Rott                                      seeds – rapeseed and sunflower seed.
                                              RSO, fob Rott                                      Palm oil production also benefited from an
                                                                                                 extension of the high cycle. Estimates of
               Jan        Feb        Mar        Apr       May         Jun        Jul       Aug   CPO production in Malaysia for 2008
                                                                                                 have been revised to 17.4 million metric
                                        Discounts to SBO (USD/MT)                                tonnes (MT) while Indonesian CPO
         600                                                                                     production is likely to comfortably exceed
                        Discounts of CPO                                         Jul-Aug
         550                                                                                     19 million MT. According to Dorab, the
                        to SBO (USD/MT)                                     average discount
                                                                                                 very generous use of fertilisers, given the
         500                                                                    USD 433
                                                       Q2                                        high prices of CPO, coupled with the
         450                                     average discount                                almost ideal weather, have done the job.
                                                     USD 268

         400                                                                                     The Case for Biofuels
                     average discount
         350             USD 227                                                                 Exuberant do-gooders are on the verge of
                                                                                                 saying that Thomas Malthus would be
                                                                                                 proved right, that mankind would fail in its
         250                                                                                     endeavours to feed the growing world
         200                                                                                     population. It has become fashionable to
                                                                                                 blame biofuels for all the problems of
         100                                                                                                         (Continued on page 10)
               Jan        Feb         Mar       Apr           May     Jun        Jul       Aug

                                               Malaysia Palm Oil. A Gift From Nature. A Gift For Life
                                              BIPORT BULKERS SDN.BHD.

                          BIPORT BULKERS SDN.BHD.

Biport Bulkers Sdn.Bhd. (BBSB) is the newest gem of Bintulu Port Holding Berhad (BHB) after
Bintulu Port Sdn.Bhd. (BPSB) which are a wholly owned subsidiary of Bintulu Port Holdings Berhad.
BBSB was established to manage and operate a vegetable oil bulking terminal to cater for ever
growing palm oil industries in the state of Sarawak, Malaysia specializing in the storage and the main
outlet for vegetable oils.

            STORAGE TANK CAPACITY                                       BERTHING FACILITIES
                                                                                 Malaysian Palm Oil FORTUNE                            5

                 Biofuel Targets
    Moving Forward
                          No Rolling Back in Mandates, according to Global Biofuels
The     Global Biofuels Center (GBC)            recognition, more and more countries          environmental impact and whether
recently released its Global Ethanol and        are continuing to discuss, develop and        they are actually contributing to the
Biodiesel Outlook, 2008-2015: Projecting        implement programmes that GBC will            lowering of GHG emissions or
Market Demand by Country, Region and            see taking effect on a wide scale by          increasing them. Allegations of
Globally. This study reviews local and          2010, as depicted in figure V.1.              biofuels-related    deforestation    in
global drivers, public and fiscal policy                                                      Indonesia and Brazil have forced
developments, production capacity,           2. Volumetric vs GHG-Driven Biofuel              stakeholders to look closer at biofuels
feedstocks and supply and demand                Targets: GBC sees policymakers in             and question their sustainability.
projections for the years 2008, 2010 and        the developed world moving beyond
2015 in key countries around the world.         volumetric       biofuel  consumption         Sustainability criteria have been
Covering predominantly ethanol and              targets     into    ones   based     on       developed or are being looked at
biodiesel, but also including ETBE (ethyl       greenhouse gas (GHG) emission                 around the globe in the hope that
tertiary butyl ether), cellulosic ethanol       reductions, particularly in developed         biofuels can ensure environmental
and renewable diesel (also known as             economies such as the US, the state           benefits as well as other benefits such
non-ester biodiesel), the key findings in       of California, Europe and some                as rural development and energy
this study are summarised below.                provinces in Canada. Most of the              security. GBC finds that the
                                                countries      implementing    biofuels       complexity of the schemes raises
1. Biofuel Targets Moving Forward: With         programmes during the study period            doubts     about    their   successful
   all the recent controversy over the          are in developing countries, opting for       implementation, even more so in
   potential contribution of biofuels to        traditional volumetric blending targets       developing countries. The fact that all
   climate change, sustainability issues        of two per cent volume to five per cent       the schemes differ points to an
   and increasing food prices, not a            volume.                                       additional concern, as they could end
   single country featured in this study                                                      up being trade barriers blocking out
   has cancelled or otherwise rolled back    3. Major Exporters: In addition to               developing countries from market
   mandates that have begun to or will          ethanol, Brazil will also be a dominant       access, especially Brazil, Indonesia
   take effect during the study time            biodiesel exporter, competing against         and Malaysia.
   period. GBC finds that some countries        Indonesia, Malaysia, Argentina and
   have     been     forced     to   delay      even the US for global market share.       5. Hindrances:        Specific issues or
   implementation        of      mandates,      Finland, with NExBTL production from          dynamics that do and will continue to
   particularly for biodiesel, because of       Neste Oil, will emerge as a major             serve as hindrances to the global
   high feedstock prices for rapeseed,          exporter     of    renewable     diesel       biofuels market include but are not
   soy and palm oil. Nevertheless,              (non-ester biodiesel).                        limited to the following:
   biofuels can be an important tool to
   promote      economic     and    social   4. Sustainability: As trade in biofuels and      such as rapeseed, palm and soy oil,
   development, energy security and             biofuels feedstocks has increased             which will impact the biodiesel market
   even     sustainability.    With   this      over the last several years, questions        for the next few years at least;
                                                are arising over their potential
                                                                                                                    (Continued on page 9)

                       Figure V.1: Biofuels Programmes in 2010

                                                                                           North America: RFS, LCFS
                                                                                           Latin America: Typically B2-B5,
                                                                                           Europe: Typically 5.75% EC, France,
                                                                                           Germany and Spain are exceptions
                                                                                           Asia: Blend levels highly variable
                                                                                           Africa: Many projects, no programs yet

                                                                                                 Ethanol            Ethanol &
                                                                                                                    No known
                                                                                                                    biofuels program

                             Source: Global Biofuels Center, June 2008

                                       Malaysia Palm Oil. A Gift From Nature. A Gift For Life
                                  China International
                                  Conference of Seed Crushers
                                  Malaysia-China Palm Oil
                                  Trade Fair & Seminar 2008
                                  October 16-17, 2008
                                  Grand Metropark Hotel, Nanjing
  Development and trends in vegetable oil industry in China
  Policy support from Chinese government for oilseed production and industrial restructuring
  Development of soybean crushing industry in China and policy in dealing with surplus production capacity
  Present situation and future trend of edible oil consumption in China
  Promoting import and export of China oils, fats and oilseeds through further liberalization of trade policies
  China’s grain security and development of soybean industry
  Standardization and brand building of oils and fats industry in China
  The fast development of olive oil demand in China
  The development and trade of soybean industry in South America
  Market influence of U.S. soybean and soybean products in the international market
  Impact of development of bio-fuel industry on the supply and demand of edible oils, fats and oilseeds market
  Analysis on the supply and demand of global oils and fats industry in 2007/08 and 2008/09
  Factors affecting the price hike in international oils, fats and oilseeds market
  The production, trade and price trend of Malaysian palm oil

EXHIBITION                                             SPONSORSHIP
Exhibition - Nanjing International                     Sponsorship Opportunity
Exhibition Center                                      Malaysia-China POTS 2008 presents an excellent opportunity
Standard Stand size : 3 m x 3 m booth                  for companies to build brand awareness and make lasting
Rate : RM 2,700 per booth                              impression amongst delegates and trade vistors to this event.
                                                       Sponsorship opportunity is designed to provide companies with
Malaysia-China POTS 2008 offers a limited
                                                       unique marketing opportunities to reach out to the audience and
number of exhibition opportunities. This has
                                                       to maximize exposure during the event. Whether your company
become the avenue for making contacts and
                                                       wishes to promote your products or services, MPOC provides
networking, and to attract new clients. A
                                                       this sponsorship opportunity to enhance visibility and greater
physical presence at the conference is often
                                                       recognition for your company and your products.
the best way to promote business
development, and to showcase and promote
products, equipment and services to decision           Value of Sponsorship
makers worldwide.                                      Your company can make a Sponsorship contribution RM 20,000,
                                                       and receive the following advantages:
                                                          One complimentary conference registration worth RM1,000.
                                                          One exhibition booth (3mx3m) is included in this sponsorship.
                                                          Company logo will be displayed on the conference backdrop.
                                                          A full-page advertisement in the conference program book.
                                                                       Malaysian Palm Oil FORTUNE                  7
      China International Conference of Seed Crushers                Malaysia-China Palm Oil Trade Fair and Seminar 2008

Please complete the form below. Form may be duplicated for additional registrations.
Mail or Fax this form to: Fax No : 03 - 7806 2272 [Attn: Desmond Ng ]

     Title: Mr / Ms / Mrs / Dr / Others:
     Name: (please underline surname)
     Name to appear on Badge: (max 25 letters)
     Company:                            Attach your Business Card Here

     Tel:                                                   Fax:

Registration Fee : RM 1,000*
Registration fee includes conference materials,
conference admission, tea breaks, buffets during
conference, reception, shuttle to exhibition venue and
tour on Qinhuai River.

 All fees must be paid to the order of Malaysian Palm Oil Council
             Bank-in to CIMB Bank
             Details: CIMB Bank Berhad
                      No 60-62, Jalan SS6/14
                      47301 Kelana Jaya, Selangor
                      SWIFT CODE: CIBBMYKL
                      Account No: 12160012671053C
             Cheque/Bank draft No:
             To be paid to the order of Malaysian Palm Oil Council
             Payment by Credit Card:
                    VISA            MASTERCARD
             Card Number:
             Expiry (mm/yy):
             Name printed on card:

 *Request for refund will not be entertained
                         Mail or Fax form to :
                         The Malaysia-China POTS 2008 Secretariat
                         Malaysian Palm Oil Council (MPOC)
                         2nd Floor, Wisma Sawit
                         Lot 6, SS 6 Jalan Perbandaran 47301 Kelana Jaya, Selangor, Malaysia
                         Tel: 603 - 7806 4097 Fax: 603 - 7806 2272
                         Contact Person : Desmond NgGift From Nature. A Gift For Life
                                     Malaysia Palm Oil. A
 8       Malaysian Palm Oil FORTUNE

            West Africa’s hidden jewel:

         Nigeria has great potential
         as palm oil importer
With     a population of 148 million,            Total production of soap in Nigeria is          mainly owned and managed by Unilever.
Nigeria is the most populous country in          estimated at 120,000 MT a year. Real Oil        The FFB yield for oil palm in Nigeria is
West Africa. The country consumed                Mills operates a refinery and fractionating     low, averaging six to 10 MT per hectare
about 1.8 million MT of oils and fats in         plant for crude palm oil and crude palm         for smallholdings and eight to 12 MT per
2006. As an indigenous oil, palm oil is the      kernel oil. It supplies refined oil to          hectare for the plantations. A small
most widely used edible oil used,                Unilever, Nasco Biscuit and to                  amount of oil palm is grown in wild
accounting for 58 per cent or 1.03 million       distributors that sell ready-packed             natural groves and these have a FFB
MT of the oils and fats consumed.                cooking oil. Rivers Vegetable Oil Co Ltd,       yield of about two MT per hectare. The oil
                                                 (RIVOC) is the third largest fast-moving        extraction rate (OER) of palm fruits
The household sector in Nigeria                  consumer goods manufacturer in Nigeria          obtained from natural groves is nine per
accounts for 85 per cent of the palm oil         and the country’s largest producer of           cent, while smallholdings and plantations
consumed and the industrial sector, the          edible grade palm kernel oil. RIVOC             average 20 per cent. The source of
remaining 15 per cent. A popular dish            produces about 20,000 MT of soap and            planting materials for smallholders is the
with Nigerian households is the frying of        detergent a year. The company’s Jumbo           Nigerian Institute for Oil Palm Research
cassava for the production of yellow             detergent and laundry soap, Majik brand         (NIFOR). Plantations generally prepare
garri. Domestic consumers purchase               laundry soap and Aura toilet soap are           their own seedlings or purchase them
palm oil in jerry cans of one, two, five and     household names in Nigeria. Golden Oil          from Unilever.
20 litres, while smaller quantities of less      produces high quality olein, margarine
than one litre, packed in plastic pouches,       and bakery fats. Food manufacturers             In 2006, Nigeria could only meet 81 per
are also sold. Industrial application of         such as Nestle and Indomie are the              cent of its edible oils and fats needs and
palm oil is estimated at 250,000 MT,             company’s major customers.                      went on to import 390,800 MT of oils and
much of it going into soap, bakery fats                                                          fats, of which palm oil accounted for 66.5
and margarine.                                   Nigeria’s vegetable oil production in 2006      per cent or 260,000 MT. The palm oil
                                                 stood at 1.4 million MT, of which palm oil      imported is largely from Benin. In 2006,
         Estmated Palm Oil Usage                 accounted        for     815,000       MT.      Benin imported 170,000 MT of palm oil
            In 2006 (’000 MT)                    Smallholdings account for about 2.1             and re-exported 160,000 MT, mainly to
 Household usage                   994.2         million hectares of the oil palm planted in     Nigeria. The other main supplier of palm
                                                 Nigeria, with another 240,000 hectares          oil to Nigeria is Togo. In 2006, Togo
 Industrial application
                                                 under plantations. The smallholdings are        imported 64,000 MT of palm oil and
     Soap                          135.7         normally     characterised     by    mixed      re-exported 10,000 MT, mainly to
     Bakery fats & margarine       49.7          cropping, where oil palm is cultivated          Nigeria.
 Others                            62.1          along with food crops to maximise the
                                                 use of land. The plantation sector is                              (Continued on page 9)
 Total                            1,242.8

In the industrial sector, five companies          Major Uses Of Palm Oil In Nigeria (% )       Nigeria Vegetable Oil Production ('000 MT)
use up 90 per cent of the palm oil in
Nigeria – Unilever, Peterson & Zochonis              Rivers                                                    Soybean
Nigeria, Real Oil Mills, Rivers Vegetable         Vegetable Oil                                                   oil Cotton
Oil Company and Golden Oil Industries              Com pany                    Golden Oil                        48.7 oil 19.6
Ltd.                                                (RIVOC) Others, 9        Industries Ltd.       Palm Kernel
                                                                                                    oil, 216.7             Groundnutoil
                                                       16                         22
Unilever produces cooking oil, soap and
margarine mainly for the local market and
obtains its raw materials from local
plantations and the outgrowers’ scheme.
Peterson & Zochonis Nigeria (PZ) is the
country’s    largest   soap     producer,                                               Unilever
controlling 60 per cent of the market for         Real oil                                 16
both toilet and laundry soap. This Greek          Mills 16    Peterson & Zochonis                                Palm Oil, 815
company is affiliated to Cusson’s soap.                           Nigeria, 21

                                           Malaysia Palm Oil. A Gift From Nature. A Gift For Life
                                                                                Malaysian Palm Oil FORTUNE                          9

                             Nigeria has great potential
  (Continued from page 8)    as palm oil importer
                                                                                           cent average growth rate the country
                                                                                           enjoyed from 2002 to 2006, driven
                                                                                           mainly by higher crude petroleum output.
                                                                                           Based on this scenario, it is expected
                                                                                           that the annual increase in oils and fats
                                                                                           consumption from 2007 to 2009 will not
                                                                                           be less than the 2002-06 consumption
                                                                                           rate of 40,000 MT a year. Apart from
                                                                                           exporting palm oil products to Nigeria,
                                                                                           there is also scope for investment as the
                                                                                           country is offering opportunities for
                                                                                           investment in oil palm plantations.
                                                                                           However, there are constraints. Issues
                                                                                           pertaining to the oils and fats trade in the
                                                                                           country need to be looked into before
                                                                                           one can tap the potential offered by
                                                                                           Nigeria. Then too, it will not be easy for
Potential and the challenges                offers enormous room for growth in oils        Malaysian      suppliers     to    establish
Taking into consideration Nigeria’s per     and fats consumption. Annual population        business relationships with the Nigerian
capita oils and fats consumption,           growth of 2.5 per cent or three million        as most Nigerian importers do not know
population growth and economic              people in this oil-producing country is        the Malaysian palm oil suppliers well –
conditions, the country offers room for     another driver for the growth in oils and      and vice-versa. A greater insight into the
higher export of palm oil from Malaysia.    fats consumption.                              opportunities     offered     by     Nigeria
With a per capita oils and fats                                                            countries will be made available next
consumption of 11.9kg that is well below    The Economist projects GDP growth for          year running up.      LIM TECK CHAII
the global average of 22.5kg, and a         Nigeria to average 6.5 per cent from
population of 148.09 million, Nigeria       2007 to 2009, higher than the six per

   (Continued from page 5)                                                                 to develop next generation biofuels and
                                                                                           those biotechnological advancements
            Biofuel Targets                                                                that currently defy categorisation, but

    Moving Forward                                                                         could catapult the world into a new era of
                                                                                           sustainable, bio-based transportation
                                                                                           fuel use.
                                            Finally, GBC observes that another
  production;                               hindrance is the “baby with the                For find out more on this study on the
                                            bathwater” approach to solving some of         Global Ethanol and Biodiesel Outlook,
  schemes that could end up serving as      the complex issues that some types of          please contact Karen Chan, marketing
  a trade blocks.                           biofuels manufactured with certain of          manager, Asia & Middle East, Hart
                                            feedstocks present. GBC notes with             Energy Consulting, at +65.6435.0122 or
  rules to support the development of       some degree of irony that the same hype
  the global biofuels market;               that surrounded the “biofuels gold rush”
                                            several years ago has the exact same
  policies to foster “next generation”      tenor of the hype that now surrounds
  biofuels; and                             some critics’ calls to forget about biofuels
                                            altogether.      GBC        sees      some
  ascertain the real advantages and         acknowledgement from policymakers
  disadvantages that biofuels present,      and other stakeholders of the clear fact
  so that advantages can be maximised       that not all biofuels are created equally.
  and      disadvantages      minimized.    Failure to recognise this fact, however,
  Moreover, the tools that have been        could serve to limit the development of
  developed by countries such as the        new technologies to improve existing
  US (including California), Europe and     biofuels production practices (e.g.
  Canada differ in approach.                “first-generation biofuels”) and all but
                                            destroy R&D efforts ongoing worldwide

                                     Malaysia Palm Oil. A Gift From Nature. A Gift For Life
10      Malaysian Palm Oil FORTUNE
 (Continued from page 3)
                                   Palm oil and biofuel
                                   Demand for renewable energy                             production in 2008 will be down slightly at

                              will ensure the                                              1.35 million barrels per day (bpd),
                                                                                           compared with the May 2008 forecast of
                                   success of palm oil                                     1.5 million bpd. But, Dorab has no doubt
                                                                                           that the current easing in prices will once
                                                                                           again hoist the figure to 1.5 million bpd,
mankind, said Dorab, who disagrees. His       There are finite reserves of mineral oil     from 1.06 million bpd in 2007. By 2013,
opinion is that one should never              and unfortunately, most of these are         the IEA estimates biofuel production to
underestimate mankind’s ability to            concentrated in the hands of a cartel that   be 1.95 million bpd, for “biofuels have
innovate and find resourceful solutions to    does not hesitate to use its muscle to       become a substantial part of faltering,
the most intractable of problems. For         boost prices. Dorab sees the case for        non-OPEC supply growth, and will
example, just when people thought             biofuels to be as obvious as the case for    contribute around 50 per cent of the
arable land was in short supply and that      alternative and renewable energy.            incremental supply in the 2008-2013
North and South America were                  Biofuels and alternative energy sources      period”.
approaching the limits of expansion,          such as wind and solar must be
Eastern Europe emerged as a location          encouraged and expanded, instead of          The Case for Palm Oil as a Biofuel
with enormous potential. Ukraine,             arguing over the pros and cons of            There is a widely held misconception that
southwest Russia and parts of Eastern         biofuels. How vulnerable would the world     the cultivation of oil palm is harmful to the
Europe hold great promise for new             be, without the added security and           environment, that tropical rainforests are
investments and bumper profits in             comfort of biofuels!                         destroyed. This is a misconception based
agriculture.                                                                               on outdated information. No plantation
                                                                                           company resorts to slash-and-burn these
Case for Biofuel                                                                           days; degraded forests are cleared and
 The case for biofuels is as obvious          Rising supply and falling demand             re-planted in a sustainable manner, with
 as the case for renewable energy:                                                         the high conservation value areas
                                                                                           preserved. The economic benefits in
  In 2008, world biofuel production will        2007-08 supply has risen stronger
                                                than expected                              terms of employment generation and
  be 1.35 million barrels per day (bpd),
  and by 2013, it will rise to 1.95 million                                                wealth creation are too great to be
                                                2008-09 supply is rising even more
  bpd.                                                                                     ignored. Tropical, equatorial lands have a
  Biofuels have become a substantial                                                       right to development and to prosperity,
  part of faltering non-OPEC supply                                                        and therefore should not be made to pay
  growth, contributing around 50 per                                                       for the past sins and excesses of people
  cent of incremental supply in the                                                        in the more temperate lands of our
  2008-2013 period     – International                                                     planet. There is also a very strong
  Energy Agency                                                                            argument that the productivity of oil palm
                                                                                           trees is very high in a world where arable
Falling real prices of agricultural           Preserving remunerative prices as            land is thought to be in short supply.
commodities over the last 30 years            real    prices   of     agricultural
                                                                                           There is also an argument that prices of
                                              commodities over the last 30 years
                                                                                           agricultural commodities have been
  Agriculture has lost its appeal in terms     World oilseeds output expanding due         falling in real terms over the last 30 years.
  of returns, and is “last resort” as a        to advances in technology and in            Agriculture has become the last resort of
  profession                                   acreage                                     the uneducated and the under-employed,
  Steps taken to make agriculture              World demand for vegetable oils is          and that descendants of farmers do not
  profitable include minimum support           expanding at about six million MT a         wish to embrace farming as a profession.
  prices                                       year – four million MT for edible oils
                                                                                           Therefore, there is a crying need to
  The use of palm oil as a biofuel is          demand and two million MT as biofuel
                                               demand                                      underwrite remunerative prices for
  market-based solution to keep prices
                                                                                           farmers and planters. That job can either
  remunerative   for    farmers    and         Palm oil production alone can expand
  planters, as well as to ensure the                                                       be done by Minimum Support Prices or
                                               by more than five million MT, and
  long-term success of the oil                 even higher than expansion in food          by finding a market-based solution –
                                               demand during certain years. Thus,          such as the conversion of palm oil into
                                               an additional demand outlet is              biofuel.
                                               needed to preserve remunerative
                                               prices                                      The global production of oilseeds is
                                                                                           expanding with advances in technology
                                                                                           and expansion in acreage. On the
We seem to forget that the history of         In July 2008, the International Energy
mineral oil dates back to only 150 years.     Agency (IEA) forecast that world biofuel                          (Continued on page 11)

                                        Malaysia Palm Oil. A Gift From Nature. A Gift For Life
                                                                                Malaysian Palm Oil FORTUNE                         11
 (Continued from page 10)

                                                                                           Incremental Supply and Demand of
                                                                                           World Vegetable Oils
                                                                                           Between October 2007 and September
                                                                                           2008, crops in the northern hemisphere
                                                                                           crops shaped up extremely well, with
                                                                                           bumper harvests of rapeseed and
                                                                                           sunflower      seed,     while    soybean
                                                                                           production in the US has also been good,
                                                                                           despite the planting problems of June.
                                                                                           The very high prices of these seeds in
                                                                                           the first quarter of 2008 led to an outcry
                                                                                           against biofuels. The new regulatory and
                                                                                           tax regimes for biodiesel in Germany and
                                                                                           parts of the EU also led to a scaling back
                                                                                           of biodiesel production and demand.
average, world demand for vegetable oils      in food demand. In order to preserve         Dorab’s estimate is that on an annualised
is expanding at about six million MT a        remunerative prices, there has to be         basis, we have already lost one million
year – four million MT as edible oil          additional demand of the oil from            MT of food demand and about 500,000
demand and two million MT for biofuel         biofuels. Otherwise prices will collapse     tonnes of biodiesel demand resulting
demand. In some years, with good              and will have to be supported – or           from high prices during 2007-08. Some
weather and rainfall, palm oil production     farmers will be driven to distress and       of this lost demand may be re-captured in
alone will expand by more than five           impoverishment.                              2008-09, but price will be the determining
million MT, or higher than the expansion                                                   factor.

  Summary                                     mandatory blending of ethanol from           unsustainable premium to palm oil. The
  The economic outlook for the big            corn in the US has been doubled by the       larger than normal stocks of soybean,
  population countries for 2008-09 is less    tonnage of voluntary blending, which         meal and oil in Argentina will need an
  than that of a year earlier. Prices of      was triggered by the lower price of          outlet and world prices will have to do
  edible oils are already very high and       ethanol as compared with gasoline. We        their job. So far, palm oil has been very
  the morale of consumers is lower than       used to see this happen in the case of       fleet-footed and its lower price has
  a year ago. The misguided outcry            rapeseed diesel in Germany, until            managed to grab market share and so
  against biofuels and the Food vs Fuel       de-taxation was removed. At present,         keep stocks at less than burdensome
  debate has eroded or postponed the          biodiesel production in Argentina and in     levels.
  various mandates and incentives             Indonesia are facilitated by the levy of
  required to make biodiesel production       differential export taxes. It remains to     Dorab’s conclusion is that if crude oil
  attractive. In the final analysis, growth   be seen how this will change when            prices stabilise around US$100 per
  in demand will depend on price, though      export taxes are reduced.                    barrel with a 10 per cent range, he
  it is amply clear that demand for                                                        believes CPO futures need not go
  biofuels is absolutely essential to         We have at present a deadly cocktail of      lower than RM2,200 a metric tonne for
  ensure remunerative prices for edible       rising production and some demand            the next few weeks. At that level we
  oils. Vegetable oil prices would be         rationing. In such circumstances,            should see strong demand growth.
  lower and the industry would not be         prices have to go to the level where         Soybean oil, on the other hand, needs
  able to expand and create wealth on         they create strong demand growth. At         to substantially decline in price from its
  the current scale if not for biofuel        the same time, markets have been             current level. If vegetable oils were not
  demand.                                     over-sold and only recently, the news        put into biofuels production, the price
                                              has been positive. There are                 level would be unthinkable.
  There has been a big correction in          uncertainties over crop production in
  prices, but it may not be enough to         the US, related to a lack of moisture,
                                                                                           Dorab Mistry’s paper, “Why Palm
  ensure strong growth in demand. RBD         while the Indian monsoon season
                                                                                           needs Biofuel Demand for its Long
  palm olein at US$900 per MT, FOB, is        appears to be ending earlier than
                                                                                           Term Success?” was presented at the
  a very high price in a historical           usual. A lot is riding on the time when
                                                                                           2nd International Palm Oil Trade Fair &
  perspective. Vegetable oils need to be      the high cycle of palm oil production will
                                                                                           Seminar 2008 (POTS 2008) on Aug 20.
  cheaper than fossil fuels if we are to      finally turn. Until this happens, large
                                                                                           It   can     be    downloaded     from
  make biodiesel profitable and expand        production and huge stocks will weigh
  its market. Ultimately, commercial          on the market, with pressure from
  success is the best guarantee for           sunflower oil and soybean oil,
  demand expansion. In recent months,         especially the latter which is at an

                                       Malaysia Palm Oil. A Gift From Nature. A Gift For Life
Malaysian Palm Oil Council (MPOC)

                                                                 Annual Forum
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Fax:      603-7806 2272
                                                                          7 November 2008
American Palm Oil Council
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Contact: Mohd Salleh Kassim
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                                                               Forum speakers and topics: -
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E-mail:                               “Palm Oil : Can the Current Prices Be Maintained?”
Contact: Bhavna Shah
MPOC Europe Regional Office
31 Avenue Emile Vendervelde
1200 Brussels Belgium                                    “Sustainable Palm Oil: The Reality of Business”
Tel:     +32 (2) 7748 860
Fax:     +32 (2) 7794 371
Contact: Zainuddin Hassan
                                                         “World Supply, Demand and Price Outlook of Vegetable
MPOC Dubai
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                                                          Industry Golf Game and PORAM Annual Dinner
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