Thursday, Dec 14, 2017
Industry & Trade | Asia-Pacific | Malaysia

ASEAN a ‘world centre’ of palm oil production


4 years ago

Makhdzir Mardan, CEO of Malaysian Palm Oil Association
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Makhdzir Mardan

CEO of Malaysian Palm Oil Association

The Malaysian Palm Oil Association’s mission is to ensure the long term profitability and growth of the Malaysian palm oil industry and other plantation crops including oil palm, rubber, coconut, sugar cane, cocoa, tea, banana, and pineapple. With ASEAN country’s producing 85% of the world’s palm oil, CEO of MPOA Makhdzir Mardan talks to PM Communications about the impact that the ASEAN Economic Community will have on the industry

The ASEAN region is one of the fastest-growing region of the world. Next year there will be the establishment of the AEC single market. Would do you think it would be the impact on Malaysia?

It is unprecedented for ASEAN and therefore I think it would be a mixture of things will unfold; in a sense that the survival need to economically and culturally integrate a group of diverse countries is simply monumental. However, it is motivated by the need to combine certain affinities and commonalities that those countries have.


The population accounts for a population footprint of 600 million at the moment, which, in due time is estimated to reach 1.3 billion by 2050; an increase of slightly more than one and a half generation.  A festoon of ASEAN-centric applications must be built to found the AEC integration initiative. The oil palm supply chain is one example to begin with.

 
Nevertheless, in the process of establishing the AEC, we should be learning from the EU experience of the single currency union, and contemplate on the disparities between the countries. When creating a single market unity countries have to analyse deeply what are the similarities, the gains, the losses, etc., and be prepared for all the trade-offs. That is the case of palm oil, for example.

Malaysia and Indonesia account about 82% of the world’s palm oil production. By including Thailand as well, it would raise to 85-90%. That is, we can be considered the world centre of palm oil production.

Yet the service segment of the palm oil supply chain is being controlled by the EU. To me the establishment of the RSPO is mechanism or trade tool that is serving the purpose and design to regulate and control the palm oil supply chain. Inserting the principles, criteria and values along the nodes of the palm oil supply chain is as good as establishing the objective of controlling the supply chain. It does not take long for us to realise.

Take a step back to observe the flow, trace and track the supply chain.  Stemming from the stakeholders residing from the end nodes at the downstream end of the palm oil supply chain we can see that the trade flow along the supply chain can be systematically choked!
 
Back to the AEC per se, and to the ASEAN community, everyone looks up to the prospect to embrace the principles and criteria of sustainable development goal, SDG in ASEAN. If ASEAN wants to move towards a single market, the first thing that it needs to establish are the flagships products, that is, specific products that everybody can share the same values and principles towards a shared destiny.

That’s where the production of palm oil kicks in. Being a common product between three ASEAN countries, palm oil will definitely represent a flagship of the whole community. ASEAN is producing 85% of the world’s crude palm oil. A strong reason for ASEAN to build an economic community within ASEAN countries.
 
Back to the issue of sustainable development goal for palm oil, Indonesia can count on the Indonesian Sustainable Palm Oil System (ISPO), whilst Malaysia is establishing the Malaysian Sustainable Palm Oil System (MSPO). During the last  Palm and Lauric Oils Conference & Exhibition Price Outlook (POC) people were wondering what would have been the next international moves.

We have noticed that at the ISCC, ISPO, RSPO, MSPO, all ASEAN countries agreed on 80% of the principles and criteria. The difference was just on 20%. 
 
Would you say that this is where the complications lay?
 
Yes indeed. The complications stand in retrofitting the details, in the thresholds precisely. During the Roundtable on Sustainable Palm Oil (RSPO) we disagreed with the NGOs’ settlement on the disparities on thresholds. Some of these NGOS are clueless about oil palm production; they are not the real practitioners. Yet they have the audacity to prescribe the level of thresholds. Consequently, when the growers propose something good, it is never being followed.

Therefore, we begin questioning their agendas; because they are uncompromising and intransigence and not willing to follow those who are knowledgeable on this matter, whether it is on the best practices, plant lifecycle or anything else. To begin with, a common platform  should be created between the proponents of Malaysia’s MSPO and Indonesia’s ISPO. The complements can come later.
 
As you may know, China takes about 25% of the Malaysian market. UK and Europe takes between 10% to 12%, while India is between 12% and 15%. China and India together have a population of 2.3 billion people, and almost 33-35% of Malaysian market. The expanding middle income population of India and China present opportunities, as well as challenges in setting the priorities on sustainability index. Quite important for us is that, when countries get to the supply chain, we have to adjust our system in conformity with the sustainability standards.

The market must be ready! Nowadays there are bigger players who interact in the market with significance. We cannot rely on the single-crusade NGOs, who don’t even believe in palm oil utility to make decision for the oil palm growers! We want is to understand what are the main features of the different market sectors, and what are the other countries’ main concentrations and preoccupations. 
 
What emerges from our analyses is an aggregate of criteria, something that can be compiled for aggregate or cross-compliances for sustainable palm oil supply chain. This unprecedented development and unfolding event in the palm oil supply chain is being keenly observed by the other producers of vegetable oil.
 
Could you give us an example?
 
For example, if the Chinese are interested in something sustainable, we customise according to their need. Every country has its own requirements for sustainability. It matters and I think we have to engage them! Yet, what is not clear about sustainability are its parameters, certain definitions. That is, people may have a different concept of what is sustainable. For instance, if you are in the palm oil sector, how would you sustain the industry? The lifecycle becomes of concern to the carbon balance because it has a long life cycle.
 
In my opinion, we can take inspiration from the proven living models to emulate. What would be the perfect living model that you want to emulate to embrace the right values on sustainability? I think we can glean at the operating algorithm of sociality or communal living principles practiced by social insects, in the likes of termites, ants, and bees.

They have existed on planet earth for several hundreds of millions of years. Specialisation, sharing, convivialism, sacrifices, etc. are inherent traits for communal living. By the same token we draw inspiration to find a workable formula for sustainable development. Throughout those millions of years or survival strategies, they have survived through many periodic episodes of global warming and climate changes. How do these insects survived? Sociality founds the basis of optimal, harmony, parsimonious living.

Thanks to their equitable and synchronised lifestyles that they practiced in their nests over the years. We should try to catch the main points, find the commonalities, decide what is doable and see how it works. For instance, mantises, they have a great perception of what balance represents, as well as a very strict sense of managing what is critical to their life.

Thanks to those senses they survive. We know that in the stratosphere the carbon emission is the main cause the global warming. Therefore, we have to ensure that the emissions are lessened by the end of the century, to prevent the climate change.
 
Nonetheless, efforts are made on the opposite direction. In Australia, Tony Abbott repelled the carbon tax, after the previous government had created it. In Europe the Emissions Trading Scheme (ETS) was rejected last April by the EU Parliament. That does not help but aggravate the EU carbon market to collapse further. Japan was supposed to make a commitment to lower the emissions by 25%, yet it drew back to less than that. The US is going to review the authority of EPA in determining the carbon currency, as well. 
 
The world is actually deferring or unwilling to commit the necessary sacrifices. Despite the unwillingness to make sacrifices EU, through its proxies, unabashedly extend surreptitious support via WWF and the cohorts to force the adoption of sustainability onto the palm oil industry in Asia. Nobody is sure about what needs to be done. Surely, countries want to do something, but they are not willing to make sacrifices.

Earth changed a lot between 2003 and 2013, since when the carbon has increased in the atmosphere. We live on Earth on the same stratosphere along with other species, like those insects. We have shared destiny: living together here. However, they act naturally to keep their planet safe and save us at the same time. On the other side, we respond by polluting and ignoring their concerns. 
 
How would you describe the future of the ASEAN community as part of this shared destiny?
 
Back to your question about the ASEAN community, we must realise the need to sacrifice for a shred destiny. There must be sacrifice once you enter and embrace the shared economic destiny of ASEAN. We have a shared destiny and it can’t be all wins and no losses at all! There are some wins and some losses! Through the sustainable living model of the social insects we can produce more with less. The excesses of waste, time, money and energy can be optimised through communal shared values.
 
I insisted on the argument of mixture, because people in Southeast Asia are equally as diverse as the rest of the world. You can expect the kind of diversity as the rainforest nurtured on the sprawl of 20 000 islands of the Indo-Malaya archipelago. Culturally they are as diverse as the 20.000 islands in Southeast Asia. I’m not saying that they cannot be together, but they have to look for points of commonality between each other. This has to be fully studied before they engage in the ASEAN community.

Media should have started broadcasting information on Asian TV news, on certain prime-time for two hours. When you get common sense on what is the broadcast footprint, you can gather tons of eyeballs in front of the TV! There was a program on discovery channel showing that on week days 150 million eyeballs can be in front of a TV. On weekends it can be 300 million eyeballs. That program has been repeated for more than 15 times. 
 
What I’m trying to say is that, if in ASEAN there are 600 million people, we have to promote commercial products for advertisement. Then the countries commonalities must identified, otherwise they cannot stay together.
 
Palm oil is about 5.2 million hectares in Malaysia, and with almost 9 million hectares in Indonesia. The two countries must prepare to dismantle certain political and cultural barriers and embrace common ASEAN values, begin with the wealth of the palm oil economy. Nonetheless, there are outstanding issues between Malaysia and Indonesia about export duties, but I believe they are not irreconcilable, because they must subscribe to shared, economic destiny. If that is not the case, then there would not be negotiations for the single market. 
 
Palm oil is an indigenously ASEAN flagship product. Yet, economic flagship applications should actually be more flagship applications to develop more economic festoons to glue the ASEAN economic integration; maybe ten or fifteen. It is strictly necessary to find the commonalities between each economic sector or sub-sector, something that ASEAN can share: like sports, music, culture, or education. Once ASEAN finds those festooning factors, they become the connectors and anchors for the ASEAN economy.

Of course, other issues like taxes regime, logistics, broadcasting media and many others are candidates for fostering AEC.
 
Going back to the palm oil sector, the people involved in this business pay the most taxes in the country, such as windfall taxes, or export duties. In palms agriculture taxes are usually 1% to 3% of the production, whilst in manufacturing and processing taxes could reach 27%. Moreover, there are probably 2 million people involved in the manufacturing of the palm oil sector, split between Indonesia, Malaysia, Myanmar, and Bangladesh. 
 
Another problem is the lack of accessibility to advance possibility to productivity, enabling technologies in the plantation areas.

Although the in some areas of ASEAN people manage their assets and accounts through telephone banking, yet in the plantation estates there is no reception for smart telephones. This might sound like a joke, but in a region where phone technology is the mainstream for communication, internet reception is vital. I firmly believe that improvements in technological innovation for the plantation sector must make this important stride to innovations. Satellite communication is much too expensive to be adopted. For instance, if we could set a reception tower every 5.000 hectares of estate, telephone communication could become local and precise. A lot can be achieved if there is a regional, political heft to further foster AEC.
 
I like this application of ICT in the palm oil sector. I noticed, for instance, in Bangladesh how the telephone banking has made a massive difference.
 
Unfortunately, Malaysian agriculture and plantation is not fast in adopting technology. Glaringly, the infrastructure sector is not well grounded on the ICT to climb the next level of innovation plateau. Precision farming needs ICT infrastructure to be installed.
 
Don’t you think that this is a major opportunities for British investors and partners to come in?
 
Yes, definitely! This is an opportunity for British investors to come in. However, we must firstly work closely with the Government, to receive incentives. They should apply improvements to the plantation farming. Also, the community itself should work towards sustainability. Access to education material in that sense is very important. 
Nevertheless, authorities don’t bother too much. If you look at the economy you notice that something is missing: 15% of our GDP is in palm oil; 8% of our GNI is in palm oil. Those numbers are significant! I think this is a security issue not only for the country, but for the whole region. This is a product that should be enlarged to an ASEAN level.
 
Indeed, palm oil is not only a national key economic area, but is also a strategic one. Besides its contribution to the economic transformation of Malaysia, what do you think has been the impact on the socio-economic development? Moreover, as you said, there is a huge contribution, 5.2 million hectares of planted area in Malaysia, so how did that contribute to the socio-economic development of the country and the region?
 
I didn’t have the opportunity to think deeply on that. I certainly think this area is “the goose that laid golden eggs”, meaning that I see palm oil as more than just agricultural production.

It gives rise to the manufacturing and processing and also to a host of services industries. It represents a value chain that transcends political and geographical boundaries.

But how long will we be able sustain the large producers, especially when competition is in play? Indonesia, for example, we can either join them or fight them! I think that, if we are going for economic shared destiny, we should join forces and install the relevant infrastructure for economic integration. Of course, there are expected in congruencies that we have to reconcile, because cooperation between economic rivals it’s not easy. But if we keep our attitude towards a shared destiny, everyone will be following on the same line of thought, sooner or later.

That should be the main mindset: shared destiny, shared mission, and thoughts alignment. For instance, there are more than 400 000 immigrant workers from ASEAN countries working in the Malaysian plantation industries who remitted billions of Ringgits to their countries monthly. Meaning….

The ASEAN palm oil industry is already mature to be integrated on full scale spectrum of upstream and downstream along the palm oil supply chain for sustainability. We realise there are about 15 million hectares of cultivated oil palm producing crude palm oil that is worth more than USD $ 40 billion, annually, which succours the livelihood of more than 2 million people in the ASEAN countries. ASEAN has to pursue a sustainable development pathway for the palm oil supply chain, without waiting to be prompt by the EU.
 
If we look at the Malaysian Palm Oil Association how would you describe its main activities and how are you collaborating with other agencies, such as the Malaysian Palm Oil Board or the Malaysian Palm Oil Council, in order to promote the palm oil sector?
 
I have high expectations because time is short and is a constraint. One thing about the Malaysian plantation is that our members are diverse, but fractious on issues by virtue of the nature of diversity of the membership. We have small and big plantations, all with different needs and capability. They are so diversified and different that even I find it hard to reconcile points of commonalities between them. Nonetheless, we have to make inclusive decisions. For instance, one case could be about subsidies. For a big, fully integrated palm oil company that doesn’t matter. But for the small growers, since subsidiaries are only in the production side, they matter, because it’s pay by production. 
 
Obviously, everyone has his own view on certain issues. Even on issues like embracing sustainability in communication, the capacity of small companies and big companies are different. Usually, big companies are able to comply, thus our support goes to small companies. The sustainable development principles cannot be implemented to the hilt when we deal with small holders because of their inadequacies and unreadiness. We bring them along and on board to embrace at a slower pace. We allow them to subscribe in whatever level of sustainability that they can. We need to issue certifications describing the degree of compliance and they should receive incentives for this. 
 
Of course it easier said than done. However, it is something that has been reached out in Malaysia with small companies, when addressing the replanting program. Yet, it is difficult, because of the presence of local cultures and local values, but nevertheless it has been on for more than two decades. 
 
Since you are the second largest producer in the world, how do you see the opportunities arising from market liberalisation, for example with the European Union?
 
Palm oil is the most efficient oil existing in the market. From one hectare you can get 7 or 8 times more than what it can be produced in a cultivation of the same size of soy beans. But that, again, is a typical tropical product. Palm oil doesn’t grow in Europe, because of humidity and other diverse climate conditions. What I’m trying to say is “you do what you are good at; I do what I am good at.” 
 
The whole world has to accept this. Look at the bees, for example. They use to divide their resources in partitions. The smaller bees do not interfere with the bigger bees. Strong flyers go in the upper part of the tree, while small flyers stay low. 
 
What I am trying to say is that palm oil is very productive. It could happen that some countries in the region might not have energy sources. That’s when negotiations start. Countries make trade agreements and decide strategically at the ASEAN regional level what is the energy requirement. Thus, we go back to the shared destiny: “I bring you what I am good at, you bring me what I am good at and we complement on each other’s hands.” This is the rule of the game for the whole region.
 
Can we talk a little more about the uses of palm oil? Actually, I think that the British reader is uniformed about the palm oil utility, except for the NGOs staff. I think it would be interesting to know what people usually use it for, other than in cooking oil, because I know that there are many different uses.
 
There are more than several hundred uses of palm oil by-products that diverges into food, fuel or pharmaceuticals. Food safety is the prime importance. In China, for instance, it is part of their diet. Also it can be used as chemical. Of course, it all depends on what countries need it for. Sometimes they do not realise what product we can provide them with palm oil. Therefore, what we need to do is inform customers on its utility. This information must be spread through the media.
 
In addition, there an anthropologic study of what could be the usage of this oil might be helpful as well. Surely, it can be used as health restorer, but there are also some sorts of aromas that can be explored through the application biotechnology investigation. 
 
It is not a coincidence that 40% of the world’s flora and fauna heritage is archived in Malaysia and Indonesia. People need to understand that, in order to keep providing natural products, our patrimony must be preserved. I do understand the concern of the depletion of the rainforest, for example. If people save the rainforest, there is going to be a benefit in return. There must be sacrifices!
 
Exactly on this point, I know that in the UK there is the Tun Abdul Razak Research Centre (TARCC), that actually marked the 75th anniversary last year, which is a research and promotion centre for the Malaysian Rubber Board. In order to implement those kind of policies in terms of research and development, exploring different areas, and meeting the needs of a market that could be Europe, would you promote something similar to the Malaysian TARCC in the palm oil?
 
Definitely! I think this has to be done between ASEAN countries. You see how many British people come here in Malaysia to discover and meet new people. My son studied in Canada. I tried to make him apply for Talent Corp in Malaysia, because I wanted him to work in Malaysia. But when I asked he said “I already got enough help from the government, you should donate it to somebody else.” A lot of people here reach that level of understanding. When our people go abroad they assimilate the values of other countries and cultures. These values have to be universal. 
 
What I’m trying to say is, for ASEAN countries to make it workable, they need to reach universal values. Everyone must be clear about the share destiny, the rules, the shortcomings, and the sacrifices. Something like that happened with the oil palm itself. When the seed was imported from Africa, we learned to plant it with the African rules, thanks also to the similar habitat and weather conditions. After 42 years it became commercialised. 
 
At POC much of the discussion focused on biodiesel and its opportunities. What do you think is the prospective growth in that sense?
 
First and foremost, I think every country has to look at its energy policy, because each country has its own resources, and its own internal problems as well. Once everyone does this analysis, then it is time to look for the bigger metrics. 
 
Back to biodiesel, Indonesia has strong leadership in terms in biodiesel. They committed 3 million funds to meet their domestic consumption. This accounts to almost 40%, thanks also to their strong domestic market.
 
Regarding growth in general, in order to foster it you have to rely on history and trace back your connections. In our case, I think that the strongest link between Malaysia and UK is education. Indeed, they are the largest investors in education in Malaysia are the British. When they invest here they transfer technology and knowledge, and the spinoffs are great. 
Strong of this relationship, establishing a bilateral understanding for palm oil would be a galvaniser of the growth.
 
What would you like the palm oil sector to achieve by 2020?
 
The palm oil industry cannot continue to expand for more land. I think it will become marginalised, but still expanding for productivity. Our R&D has to be increase, as a consequence of increasing productivity. On one side expansion for agriculture is 10%, on the other R&D is close to 70%. The main opportunities are R&D and innovation. 
 
As for the shortcomings of the palm oil industry, my dream is to overcome labour problem. We want to invest in young people; we want the best brain for our industry. Our traditional link with the UK allows us to send our students to train in the best European education institutions. If we get the best young-generation brains from Europe and Malaysia work together we will definitely build something positive.

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