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Oil Palm Plantation:Meeting Demands and Challenges

Y Bhg Dato’ Dr Mohd Basri WahidDirector-General

&Dr Chan Kook Weng

Senior Research FellowMPOB

18 November 2008

Outline of presentation• Introduction:

- Crude oil price Jan 59- Jun150- Oct70 USD/b- Oil palm response to fluctuations- Food and bio-energy: A new initiative

• Aim of paper• Seven focus areas:

1. Production increase: Breeding & Biotech2. Food versus fuels3. Second generation biofuels4. Mitigating climate change5. Sustainability6. Diversification : crop and livestock inter 7. Policy needs

• Recommendations and Conclusion

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PALM OIL INDUSTRY

RM 86 Billion

Nutraceuticals

GM DerivedProductsRM 50 Bill

BiomassRM 20 Bill

EnergyRM 20 Bill

OleochemicalsUSD 160 Bill

FeedUSD 10 Bill

FOOD

Palm MachineryRM10 Bill

Phenolic-basedIndustry

Services

Processing

Livestock/cropintegration

• Phenolics• Tocotrienols• Lycopene• Minor components• Vaccines• Antibodies

• Functional food• Nutraceutical• Pharmaceutical• Cosmaceutical

• In-field• Harvesting machine

• Laboratory (analysis)• C-trading• Food Safety• Sustainability Certification

•Bakery•Confectionery•Snack Food•Liquid Oil•Functional Food•Programme Food

• Animal feed• Livestock• Aquaculture

• Soap• Surfactant• Fatty Acid• Fatty esters• Fatty alcohol

• High oleic acid oil• High Stearic• High Palmitoleic• High ricinoleic• Biodegradable plastic• High lycopene

• OP lumber• OP plywood• OP mdf• OP chipboard• OP composite• OP Automotive

industry

• Solid-pellets• Liquid – biodiesel

- bioethanol• Gases – BTL

- Methane• Gasification - Bioil

• Biorefinery

• Livestock• Cereal• Agriculture

Birth and Enhancement of Palm Oil and Related Industries : Macro & Micro

PU polyolα SMEDHSALubricantPG GreenInkAdhesiveCoatingsUSD500 millionHydraulic fluidCandelsPesticidesSolvents

(Source: Basri and Chan 2007a & b)

Oil Palm Industry’s Response

• New insights on how to manage with fluctuations - Keep cost well monitored- Adopt flexible mechanism adjusting forward and

spot sale percentages to meet price sale trend• Fear of another world recession:

- Price of CPO followed crude oil trend - Cost of fertilizers sky-rocketted

• Crude oil price, CPO price drop but not fertilizers:- Production cost up- Default in palm oil contract- Deferment in shipment- Built up in stock- Fear of recession kept CPO price down- Joint Malaysian and Indonesian action

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Source : (Tarmizi 2008)

Year RM/Ha

2003 808

2004 851

2005 874

2006 841

2007 1882

2008 (1ST Quarter) 2128

2008 (2nd Quarter) 2912

Escalated Fertilizer Cost/Hectare (N,P,K at 8kg/ha)

0

5001000

15002000

25003000

3500

2002 2004 2006 1stQtr

2008

Year

RM

/T

SOAUREAPRMOPKieseriteF1

Trend of inorganic fertilizer prices from 2002 – 2nd Qtr 2008

(Source:Khalid and Tarmizi 2008)

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0

5001000

1500

2000

25003000

3500

2003 2004 2005 2006 2007 1stQtr

2008

2ndOtr

2008

Year

RM

/Ha

)Trend of fertilizer costs from 2003-2nd Qtr. 2008 (RM/ha)

(Source:Khalid and Tarmizi 2008)

Action by Industry

• Strengthen existing contracts• Establish new ones• Explore new and exciting technologies• Participate in energy security sector• Commercialize B5 by February 2009• Dawn of a Food and Bio-energy Initiative

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Response of Private and Government Sectors

• Private sector:- Remove excessive stock- Set up biodiesel infrastructure

• Government sector:- Malaysian Cabinet Committee announced:- 5% blending policy from February 2009- All Government vehicles to use B5- RM200 Million replanting grant for 200,000ha- RM 200 Million for Biofuels infrastructure

Aim of Paper • Show guiding principles:

- Forward move to Food and Bio-energy should gointo second –generation technologies

- Explore potential barriers to trade of food and bio-energy

- Require life cycle accounting of greenhouse gas(GHG) emissions

• Meet global challenges:- Reduce food miles- Utilize wastes- Reduce GHG emissions- Meet sustainability criteria

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Focus Areas

• Crop breeding and biotechnology• Avoid ‘food versus fuel’ issue• R&D into second –generation technologies• Mitigate climate change with Kyoto mechanisms• Sustainability certification• Diversification into crop and livestock integration• Policy needs

Why Food and Bio-energy Together?

• Potential renewable energy (RE) untapped• Potential path to Food and Energy security• Slow down carbon emission• Displace some fossil fuel with B5• Collection and conversion set up in rural areas• Construction of bio-energy infrastructure

generate extra socio-economic activities• Fight to eradicate rural poverty • Ensure sustainable use of local resources• New rural economic activities linked to excess

energy generated stimulate rural development

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1.1. Crop Breeding and Biotechnology: CPO Demand

(‘000 t) 2000 2003 2007

Opening Stock 14,652 14,850 17,176

Production 114,757 125,622 154,107

Imports 35,682 44,027 58,381

Exports 35,934 44,282 57,906

Disappearance 113,432 125,841 154,834

Closing Stocks 15,724 14,376 16,924

Source : (MPOB 2008)

1.2. World Production of Oils and Fats (‘000 t)

Source : (MPOB 2008)

2000 2003 2007

Palm oil 21,867 28,259 38,246Palm kernel oil 2,698 3,347 4,397Soya bean oil 25,563 31,241 37,481Cotton seed oil 3,850 3,987 5,119Ground nut oil 4,539 4.568 4,156Sunflower seed oil 9,745 8,917 10,997Rapeseed oil 14,502 12,698 18,521Corn oil 1,966 2,017 2,337Coconut oil 3,261 3,270 3,033Olive oil 2,540 2,904 2,993Others (Castor, Sesame, Linseed )

1,907 1,892 2,094

Total Vegetable oils 92,438 98,368 129,374Total animal oils 22,319 22,645 24,733Grand total 114,757 125,622 154,107

(Source: MPOB 2008)

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1.3. World Major Export of Oils and Fats (‘000 t)

Source : (MPOB 2008)

2000 2003 2007

Palm oil 15,019 21,911 29,694

Palm kernel oil 1,220 1,788 2,574

Soya bean oil 6,771 9,327 11,197

Cotton seed oil 196 156 141

Ground nut oil 235 228 204

Sunflower seed oil 3,054 2,593 4,162

Rapeseed oil 1,783 997 2,162

Corn oil 768 741 707

Coconut oil 2,046 2,036 1,889

Olive oil 496 548 781

Others (Castor, Sesame, Linseed )

423 327 445

Total Vegetable oils

32,011 40,652 53,956

Total animal oils 3,923 3,630 3,950

Grand total 35,934 44,282 57,906(Source: MPOB 2008)

1.4. Major Producers of Palm Oil (‘000 t)

Source : (MPOB 2008)

2000 2003 2007

Indonesia 7,050 10,600 16,800

Malaysia 10,842 13,355 15,823

Thailand 525 690 1,020

Nigeria 740 785 835

Columbia 524 527 780

Others 2,186 2,302 2,988

Total 21,867 28,259 38,246

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1.5. Major Exporters of Palm Oil (‘000 t)

Source : (MPOB 2008)

2000 2003 2007

Malaysia 9,081 12,266 13,738

Indonesia 4,139 7,370 12,530

Papua New Guinea 336 327 385

Columbia 97 115 290

Cote de Ivoire 72 78 104

Others 1,294 1,755 2,647

Total 15,019 21,911 29,694

1.6. By-Products from Processing 80million t FFB

Types % to FFB Estimated Production (Million t/yr) based 80million t FFB processed

1. POME 65 52.0

2. EFB 23 18.4

3. Fibre 13 10.4

4. Shell 6 4.8

Total 85.6

Source : (Ravi Menon 2008)

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1.7. Calorific Value (Heat Content) of Palm Products

Source : (Ravi Menon 2008)

Product Calorific Value (KJ/Kg)

CPO 39,380

Trunk 17,471

Frond 15,751

POME 16,992

Root 15,548

Empty fruit bunches 18,795

Fibre 19055

Shell 20,093

Kernel cake 18,884

Direct planting in biomass Chipping of EFB

Applying POME to Chipped EFB windrow Applying POME to Chipped EFB windrow

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Production of compost from EFB and effluent – Asia Green

1.8. Role of Biotechnology

Second-generation technologies:• Reduce lignin content in crop biomass• Improve bio-refinery efficiencies• Use genomics, proteomics and metabolomics to

understand lignin synthesis pathway• Care that lowering of lignin will not lower

disease resistance

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2. Avoid ‘Food versus Fuel’ Issue

• First-generation to second-generation technologies move from palm oil to non-food biomass feedstock

• Second-generation technologies:- Thermal-chemical processes - Gasification and pyrolysis- Bio-ethanol, syngas and charr

• Balance use of biomass feedstock for mulching and bio-energy conversion

3.1. R&D Requirements on Second-generation Biofuels

• Crop productivity to accompany feedstock production

• EU biofuels demand 10% 2010, 15% 2015 and 20% 2020

• Second –generation technologies on-stream 2015

• Right balance between supporting a domestic program and an efficient export biofuels scheme

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3.2. R&D Requirements on Second-generation Biofuels

• Energy efficiency in mill boilers• Release balance of biomass as feedstock for

second-generation biofuels production• Trapping methane:

- Retrofitting effluent ponds with geo-membrane

- Inverted moving roof top concrete cylinderto trap methane

- Methane through use of gas turbine use excess energy to feed into national grid

Effluent pond Tank Digester

Poly ethylene membrane

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4. Mitigating Climate Change with Kyoto Mechanisms

• Land use change and net carbon and energy savings

• Eco-system approach for food and bio-energy production with carbon balance

• Go for high energy ratio crops as energy crops• Increase higher amount of carbon sequestered• Original forest carbon spread out over 100

years due to sustainability of growing on same land

• Post-2012 negotiation:- Posnah, 2008 and Copenhagen 2009- Afforestation, Reforestation, avoided Deforestation and REDD

Source : (Wood and Corley 1991)

Crops Energy Input (GJ/ha)

Energy output (GJ/ha)

Output/input

Oil palm 19 182 9.0

Rape seed 23 70 3.0

Soya bean 20 50 2.5

4.1 Energy Ratios of soil crops

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4.2. Biomass Pools and Carbon Recycling

Source : (Henson 1999)

Plant parts Net dry matter production (t/ha/yr)

Shoot biomass increment 7.05

Root biomass increment 1.23

Litter biomass increment 9.00

FFB Production (Non-oil equivalent)

24.42

Root turnover 2.27

Total 43.97

Source : (Oil World 2008)

Crops Area planted (million ha)

Average oil yield (t/ha/yr)

Production(Million t)

Oil palm 9.17 3.68 33.73

Soya bean 92.10 0.36 33.58

Rape seed 27.30 0.59 16.21

Sunflower 22.90 0.42 9.66

4.3. Area Planted and Avoided Deforestation

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5. Sustainability Certification: COA, CoP & RSPO• COA:

- Planted on genuine agricultural land - All growers licensed, registered and

regulated- To assure clients of production on legal

land• CoP:

- Cover entire supply chain- From nurseries, plantations, mills,

refineries, kernel crushers, and transport and storage

• RSPO:- Meet 8 principles and 39 criteria- United Plantations Bhd 1st to be awarded

Certificate of Assurance (COA)

• Smallholders form 40% of total oil palm area• RSPO comes with a cost that not all

smallholders can afford• Smallholders may not have all information

required for certification

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6. Diversification of crop and livestock Integration• Intercropping and integration:

- Raise land productivity without going for new land

- Double avenue planting allow succesful intercropping

- Cattle integrated to increase meet production

• Success factors for cattle integration:- Selection of suitable breeds- Well coordinated management cycles- Harmonized estate operations to keep

livestock from sprayed fields- Stocking rate dependent of grass

availability

7. Policy Needs to Deliver Benefits

• Enhanced food and bio-energy production:- Select high energy ratio crops- Second-generation technologies- Focus on non-food biomass as feedstock- Small holders to grow and collect biomass

to centralized processing plants- Use oil palm as energy dedicated crop- Palm biomass-based as significant source

of jobs in rural areas- Remove barriers to trade

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Conclusions• Nurture food and bio-energy production to be

on way to food and energy security

• A complementary set of investment into large scale cellulosic conversion technologies

• There must be crop productivity improvement to accompany aggressive biofuels production

• Fulfillment of Small Renewable Energy Programme (SREP) for lower GHG emission

• Ensure steady supply of sustainable palm oil and bio-energy cost-effectively

Thank You Thank You

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