Issue 3 - American Palm Oil Council

KDN No: PP 10311/9/2006 • VOL.3 ISSUE 3 (July-Sept), 2006 

Focus on Palm Oil 

Bio-fuels 

Palm Bio-diesel Going Places? 

Food Technology 

Understanding Oils and Fats 

Environment 

Hidden Value in Carbon Credits 

Markets 

Edible Oils on Firm Platform 

Market Analysis 

Buoyant Palm Oil 

Official Publication

CONTENTS 

C O N T E N T S 

6 10 14 

Cover Story 

Soaking up CPO 6 

Two factors driving bio-diesel demand could 

see CPO use being pushed up, too 

Bio-fuels 

Palm Bio-diesel Going Places? 10 

The Malaysian industry is picking up pace 

after a slow start 

Environment 

Hidden Value in Carbon Credits 14 

Trade in carbon credits will help reduce 

greenhouse gas emissions 

All Set for Carbon Trading 17 

Japan wants carbon credits from Malaysia 

to meet climate-change commitments 

Markets 

Hedge Funds Eye Malaysia 18 

Investors are flocking on the palm oil market, 

drawn by swings in price 

Edible Oils on Firm Platform 19 

Rising demand for edible oils will add 

volumes to India’s commodity exchanges 

Pakistan Banks on Palm Oil 22 

The edible oil industry will rely on palm 

products despite recent policy changes 

Chinese Contrasts 25 

Trade data for soybean and corn in June 

provides an interesting contrast 

Sunflower to Shine? 26 

Its seed and oil output may expand if 

bio-diesel demand absorbs rival vegetable oils 

GLOBAL OILS & FATS BUSINESS MAGAZINE •VOL.3 ISSUE 3, 2006 3

CONTENTS 

C O N T E N T S 

27 30 41 46 

Deadlock in Doha 27 

The WTO talks need a clear road map 

forward - and soon 


Buoyant Palm Oil 30 

Its price will keep afloat on bio-diesel 

demand and South American 

soybean stagnation 

Market Briefs 33 

Pullout 

Nutrition Briefs 36 

Trade Update 

Figures that Matter 38 


Understanding Oils and Fats 41 

The chemistry of oils and fats made simple 

Many Muslim countries face problems of inadequate 

food production, insufficient food supplies and 

inefficient food delivery systems. Palm oil can become 

a viable option without exposing countries to food 

insecurity risks. 

Branding & Marketing 

Stories of Commodities 46 

Branding is all about telling a story 

4 

GLOBAL OILS & FATS BUSINESS MAGAZINE • VOL.3 ISSUE 3, 2006

from the editor-in-chief’s desk 

This edition takes a close look at global warming as a key aspect of climate change 

and how vegetable oils are entering processes that could ameliorate the situation. 

It is recognised that the greater the concentration of greenhouse gases (GHGs) in 

the atmosphere, the worse the impact on the climate. Carbon dioxide, the most 

common of GHGs, is emitted during the burning of fossil fuels, thereby leading 

to global warming. 

The US holds less than 5% of the world’s population but produces nearly 25% of 

carbon emissions and has failed to ratify the Kyoto Protocol and commit to 

reducing the GHGs to 7% below 1990 levels. 

Global Oils & Fats Business Magazine 

Vol 3 Issue 2 (Apr-June 2006) 

Check us out online at www.mpoc.org.my 

Under the 1997 Kyoto Protocol for climate change, developed countries or 

companies that have overshot GHG emission levels will either have to reduce their 

level or obtain carbon credits from counterparts whose levels fall within the 

specified targets. 

The Clean Development Mechanism (CDM) enables emission-reducing projects to be 

undertaken on a joint-venture basis in developing countries, while trade in carbon 

credits allows developed countries to offset their shortfalls against surpluses elsewhere. 

Editor-in-chief 

Dr Yusof Basiron 

Japan alone bought 38% of carbon credits offered worldwide between January 2005 

and March 2006, making it the world's largest buyer, followed by Britain with 15%. 

Editor 

Belvinder Sron 

Global Oils & Fats Business Magazine is produced 

quarterly by: 

Malaysian Palm Oil Council (MPOC) 

2nd Floor, Wisma Sawit, 

Lot 6, SS6, Jalan Perbandaran 

47301 Kelana Jaya, 

Selangor, Malaysia. 

For editorial/advertising information, contact: 

Global Oils & Fats Business Magazine 

Malaysian Palm Oil Council 

Tel: 603-78064097 

Fax: 603-78062272 

e-mail: bel@mpoc.org.my 

MPOC Copyright 2006 

All rights reserved (KDN PP 10311/9/2006) 

All views expressed in the GOFB are not necessarily 

those of the publishers. No part of this publication may 

be reproduced, stored in a retrieval form or transmitted 

in any for or by any means without the prior written 

permission of the publisher. 

Japan’s entry as a buyer of Malaysia’s carbon credits was anticipated since it must 

reduce GHG emissions by 6% between 2008 and 2012. The partnership 

underscores Malaysia’s good environmental standards, while being of particular 

benefit to the eco-friendly oil palm sector. 

Palm oil is also a rising star of feedstock for bio-diesel. A study by the National 

Renewable Energy Laboratory observed that bio-diesel has the potential to reduce 

carbon dioxide (CO2) emissions. Full bio-diesel use would reduce net CO2 by 

over 78% compared to petroleum diesel, and up to 16% with the use of blends 

comprising 20% bio-diesel. 

While both fuels are almost equally efficient at converting raw energy resources 

into fuels, bio-diesel has a larger part that is renewable. Similarly, bio-diesel is nontoxic 

and environment friendly as it produces substantially less CO2. By virtue of 

availability and price advantage, palm oil is becoming a competitive choice for 

global bio-fuel producers. 

Malaysia, the world’s largest producer of palm oil, has developed technologies for 

palm-based bio-diesel with such advantages as a low pour point. This makes the 

bio-diesel suitable for temperate countries while meeting the stringent European 

Bio-diesel Standard. 

There is no doubt that the Kyoto Protocol has placed the Malaysian oil palm 

industry in a strong position to participate in the carbon credit trading scheme, 

and to reinforce sustainable environmental practices in the process. 


yusof@mpoc.org.my 


Cover Story 

Two factors driving bio-diesel 

demand could see CPO use being 

pushed up, too 

Rising crude oil prices and the 

need to reduce dependence on 

imported oil have made it 

necessary for net oil importers to think of 

alternative energy sources. 

In addition, the Kyoto Protocol, gazetted 

in February 2005, requires participating 

countries to cut carbon emissions. The 

EU, for example, is a big driver of the 

climate change treaty, having set a target 

of 5.75% for renewable energy by the end 

of 2010. 

prices have been supported at the 

RM1,400/tonne level, on expectations 

that bio-diesel will be a major driver of 

vegetable oil prices. 

Malaysian plantation companies have also 

embarked on constructing bio-diesel 

plants. About 905,000 tonnes of capacity 

will be built, although 605,000 tonnes 

may be more realistic. Carotech is already 

manufacturing bio-diesel for export to 

Japan, while Golden Hope completed its 

first plant in June 2006. 

Oil World estimates that new bio-diesel 

capacity with a total of 8 million tonnes 

will come on stream by the end of next 

year. Eight million tonnes of oils and fats 

will be needed as feedstock, which equates 

to two-thirds of global vegetable oil 

inventories. 

Following the euphoria over bio-diesel, 

CPO spot prices have surpassed RM1,600 

per tonne over the past few months, 

despite Malaysia’s inventories climbing to 

record highs of 1.6 million tonnes. CPO 

Most of the Malaysian companies have 

indicated that the bio-diesel is earmarked 

for export, especially to the EU. 

However, the latest European Parliament 

plenary session in Brussels emphasised that 

local cultivation of raw materials is needed 

to produce bio-fuels for heat and power. It 

asked the Commission “to consider putting 

in place specific market access arrangements 

for bio-fuel imports from non-EU 

countries, such as Brazil, in the context of 

high environmental standards”. 

This suggests that the EU may restrict the 

import of palm-based bio-diesel should it 

decide to protect its rapeseed farmers. 

(Bio-ethanol from Brazil is slapped with a 

high import tax, making it unviable to be 

imported commercially.) 

6 


Bullish on CPO 

We remain bullish on CPO prices for four 

reasons: rising crude oil prices have spurred 

the use of CPO as a bio-fuel; the substitution 

effect; Malaysia’s bio-fuel policy; and biodiesel 

exports to the rest of Asia Pacific. 

Crude oil prices have hit historical highs 

of over US$70 per barrel. The economics 

make sense to utilise palm oil whenever 

possible, for example in stationary engines 

such as power generators and power 

plants. In short, if crude oil prices remain 

high, then governments will expedite 

renewable energy plans to diversify their 

fuel sources. 

In addition to the potential of bio-diesel 

in the EU, there is growing demand for 

bio-energy (bio-fuel for power plants), 

which is relatively unknown within the 

investment community. As underlined in 

the Commission’s Green Paper on 

Security of Energy Supply, the EU’s 

objective is to reach a share of 12% 

(including wind, solar, hydro, biomass 

and bio-diesel) for the contribution of 

renewable energy sources to the EU’s 

gross inland consumption by 2010. 

To reach this target, major legislative 

proposals have been adopted. The 

‘Directive on Renewable Energies’ 

adopted in 2001 provides for an overall 

EU indicative target of 22% by 2010, 

from the current level of 

about 14%, for the share of renewable 

energy sources of the EU’s electricity 

consumption. The directives allow 

member-countries to decide how to 

achieve the indicative national targets. 

The main drivers include the move to 

reduce carbon dioxide emissions, enhance 

sustainability, reduce the EU’s 

dependence on imported energy sources 

and increase diversification of fuel 

supplies. 

This suggests that the potential market for 

biomass (including vegetable oils) is 130 

million tonnes per annum. Subsidies will 

help in making palm-based fuel for bioenergy 

commercially viable. The subsidies 

differ for every EU country and can be as 

high as 200% of electricity prices and 

fixed for as long as 10-20 years. 

As palm-based bio-diesel is not significant 

at the moment, we believe that the sharp 

19% jump in CPO exports to the EU in 

2005 was actually channelled into the 

bio-energy sector. Some 600,000- 

750,000 tonnes of CPO were used in the 

renewable energy sector in 2005. Industry 

experts believe that this figure will grow to 

1 million tonnes in 2007. 


Cover Story 

Even if CPO is not used directly to 

manufacture bio-diesel, CPO prices 

should benefit indirectly, due to the 

substitution effect. All vegetable oil prices 

move in tandem with one another, 

although there are varying premiums and 

discounts between them. 

If the price of one vegetable oil rises too 

much relative to others, importers will 

switch to a cheaper alternative. Therefore, 

should soybean and rapeseed oil prices 

rise significantly (due to high demand for 

their bio-diesel), then CPO prices should 

follow suit. 

Malaysian bio-fuel policy 

Malaysia is in the midst of formulating its 

three-prong bio-fuel policy involving: 

• production and use of bio-fuel for the 

transportation and industrial sectors; 

• bio-fuel production for export; and 

• commercialisation of the bio-fuel 

technology. 

Four initial measures, stated by the 

government, include: 

• establishment of a 5% palm-based biodiesel 

blend; 

• encouraging the trial use of bio-fuel; 

• establishment of a commercial plant in 

Negri Sembilan; and 

• development of a standard by Sirim for 

the new bio-diesel. 

Currently, four ministries are using B5, a 

blend of 5% refined olein and 95% 

mineral diesel, in a test run. In Miri, 

Sarawak, three bus companies have 

volunteered their vehicles for B5 trials. 

If Malaysia fully commercialises B5 for 

domestic use from Jan 1, 2007, some 

0.45-0.51 million tonnes of palm oil 

would be used up locally (in 2004, 

consumption of mineral diesel was 9.3 

billion litres with estimated growth of 4% 

per annum). 

8 


South Korea has no domestic oil reserves, 

and is the world’s seventh-largest 

consumer and fifth-largest importer of 

crude oil. B5 bio-diesel (a 5% blend for 

private vehicles), went on sale in July. As 

the government gives tax waivers for use 

of clean fuel, bio-diesel is about 7 won 

(korean currency) lower per litre against 

regular diesel. B20 bio-diesel (20% biodiesel: 

80% mineral diesel) is being 

considered for future use. 

Japan, the world’s fourth-largest energy 

consumer, remains highly dependent on 

oil imports. The 2002 Law Concerning 

Special Measures for Promotion of the 

Use of New Energy requires all electric 

power utilities to supply 1.35% of total 

electricity from renewable sources by 

2010. The government has also set a 

target of 3% of total energy consumption 

from new sources by the same year. 

But availability and stability of supply are 

a major problem in developing a bio-fuel 

market. In May 2005, Japan signed a 

US$578 million loan agreement with 

Brazil to finance infrastructure, which will 

result in increased bio-fuels exports to 

Japan. The Japanese government had 

aimed to introduce automobile fuel 

containing 3% bio-ethanol in the market 

in 2005, but the plan failed because of 

inadequate supply. 

In China, the Renewable Energy Law, 

endorsed in February 2005, raised the 

target from the present level of 3% of 

renewable energy to 10% by 2020. 

This is equivalent to one-third of Malaysia’s 

current CPO inventories, which suggests that 

the perceived large quantity would very quickly 

be absorbed. Interestingly, the 1.6 million tonne 

inventory set against today’s global use is 

equivalent to only 17 days of consumption. 

Exports to Asia 

Due to logistical reasons, the bio-diesel 

market is expected to be quite fragmented - 

soybean-based bio-diesel or corn-based bioethanol 

is likely to be utilised in the Americas; 

rapeseed-based bio-diesel will be dominant in 

the EU; and palm-based bio-diesel in Asia. 

Asian countries like Japan, Singapore, 

Korea, China and India are signatories to the 

Kyoto Protocol. Some governments have 

announced their bio-fuel policies, which 

should be positive for CPO in the medium and 

long term, as this will soak up more inventories. 

The Indian government has foreshadowed 

the mandate of B20 by 2011, but is likely 

to focus on jatropha oil (an inedible crop 

that can grow in arid areas) to supply biodiesel. 

Not yet commercially planted 

anywhere, it also has a low yield. 

In Singapore, the Kyoto Protocol came 

into force in July after it formally 

submitted its acceptance of the agreement 

on April 12, 2006. 

Palm-based bio-diesel is the most logical 

choice for Asia as it is the cheapest vegetable 

oil and, therefore, the lowest priced 

feedstock. The yield is about 5-6 tonnes per 

ha (the highest among the oil crops) and 

therefore, supply is readily available. 

Tan Ting Min 

Analyst, CSFB 

The views expressed are those of the writer. 


Bio-fuels 

The Malaysian industry is picking up pace after a slow start 

High petroleum prices have 

stimulated the rapid expansion 

of the bio-fuel industry. With 

prices reaching a new high of 

US$78.18/barrel on July 14 and palm oil 

at RM1,400/tonne (CPO prices for 

November were trading at 

RM1,715/tonne), it has become 

profitable to use palm oil for bio-fuel. 

In litre terms, the imported price of 

petroleum diesel is RM2.10 sen against 

RM1.40 for palm oil. The export price of 

palm bio-diesel is RM2.50 sen per litre. 

With such price attractiveness, Malaysian 

palm bio-diesel should be going places. 

But it is ironic that no one has built plants 

of sufficient capacity in recent years to 

take advantage of the booming export 

market demand and high prices. 

The recent rush by others to put up plants 

to meet export demand has resulted in an 

exponential growth of licence applications 

and approval for the construction (see 

Table). 

European experience 

In Europe, bio-diesel or methyl ester from 

rapeseed oil is well established, with 

Germany having the largest production 

capacity at a projected 4.2 million tonnes 

this year. The rapid development is seen 

in 10-fold growth between 2000 and 

2005 (see Chart). 

This was stimulated by policies favouring 

bio-diesel development. In May 2003, the 

EU passed ‘Directive 2003/30/EC on the 

Promotion of the use of Bio-fuels or 

Other Renewables for Transport’, which 

set targets requiring member-nations to 

substitute 2% of fossil fuel by 2005 and 

5.75% by 2010. The 5.75% target 

implies that bio-diesel demand will reach 

9 million tonnes by 2010. 

EU rapeseed production for raw material 

is only 5 million tonnes, with half of this 

allocated for the food industry. The 

projected shortage triggered Malaysian 

palm oil bio-diesel capacity expansion to 

supply the EU market. 

Bio-diesel is produced from transesterification 

of rapeseed oil. As an 

incentive, the German government does 

not impose tax on bio-diesel, which 

allows companies to market 100% bio- 

Two small (pilot) plants have been 

running at full capacity continuously to 

supply the export demand. Their 

production has been sold forward by 

many months. 

10 


diesel at the pumps well below the 

fully tax petroleum diesel. If the biodiesel 

is blended, tax exemption is 

given to the bio-diesel component. No 

change is required in labelling for 

blends up to 5%. 

However, because of over-subsidisation, a 

move was made in August in the German 

Parliament to introduce a Euro 0.15/litre 

tax, instead of full tax exemption, for the 

bio-diesel component. It is thus seen that 

policies and incentives are very powerful 

in promoting the growth of the bio-diesel 

industry in EU countries. 

Industry growth in Malaysia 

Malaysia’s bio-diesel industry is starting to 

expand after many years of research in 

developing technology and improving its 

viability on a commercial scale. 

Palm-based methyl ester technology 

developed by the Malaysian Palm Oil 

Board (MPOB) is being commercialised 

with the construction of the first plant in 

Pasir Gudang, Johor, in collaboration 

with the Carotino Group. More plants are 

being planned in the near future. 

The vision to potentially use palm oil for 

fuel was mooted by former Prime 

Minister Tun Dr Mahathir Mohamad 

who encouraged Petronas to jointly 

sponsor research in 1982. Through the 

pilot plant established in 1984, numerous 

application research and vehicle tests were 

conducted. 

Research revealed that palm oil methyl 

esters (palm bio-diesel) are suitable to 

substitute petroleum diesel at any 

proportion in diesel engines without the 

need for modification of the engine. 

This resulted in Mercedes Benz of 

Germany (a partner in the test) declaring 

palm methyl esters as a suitable diesel fuel, 

as a 100% substitute or in blended form 

with petroleum diesel. Palm bio-diesel 

proved so much better than petroleum 


Bio-fuels 

Commercialisation of bio-diesel was conceived in 

the laboratory when test tube reactions were found 

to give a good yield of methyl esters. This reaction 

was subsequently scaled up to pilot plant scale 

reactors. 

funds into commercial implementation. 

This has happened with bio-diesel in 

Malaysia. 

The project was conceived in the 

laboratory when test tube reactions were 

found to give a good yield of methyl 

esters, and this reaction was subsequently 

scaled up to pilot plant scale reactors. At 

this stage two developments were 

important. 

diesel that it was patented as a diesel 

improver because of its vastly improved 

Cetane Number. 

The early strategy in R&D into bio-diesel 

was to develop mild interesterification 

technology to convert palm oil into 

methyl esters so that the carotenes and 

Vitamin E are not destroyed and can be 

extracted separately for their high value. 

This strategy has been taken up by a 

company in Ipoh, Perak, which is now 

producing both products profitably. 

Although the volume of the methyl esters 

is still limited, the company is expanding 

its capacity. 

Another company has managed to build a 

similar pilot plant to that of MPOB and 

is producing palm diesel for export, 

although the capacity is limited. However, 

the knowledge and experience gained 

have been used in constructing MPOB’s 

new large-scale commercial plants. 

Commercialisation of R&D 

The success of R&D results can be 

defined as a stage when investors put their 

First, the government through Petronas 

provided funding to construct a pilot 

plant and contribute to its running costs. 

Second, the output of palm methyl esters 

had to be used in field trials to test 

suitability as diesel fuel. 

So, a reputable collaborator – Mercedes 

Benz – was engaged to test suitability of 

the fuel in extensive field trials. Its 

endorsement provided a major assurance 

in marketing the commercialisation of the 

project. 

Mercedes Benz was engaged to test suitability of the 

fuel in extensive field trials. Its endorsement 

provided a major assurance in marketing the 

commercialisation of the project. 

12 


Fortunately, a breakthrough in research at MPOB 

enabled futher development of technology to 

produce winter-grade fuel. This provided more 

assurance of the feasibility for commercialisation. 

A Detailed Feasibility Study was carried 

out before deciding on 

commercialisation. This not only 

evaluated the technology in detail in 

relation to yield of reactors, but also the 

marketing potential of the products and 

co-products and their prices. In this way, 

the revenue streams from the project 

could be projected. 

The return of investment was calculated, 

based on cost of investment in the plants 

and revenue to be generated from output. 

Interestingly, the integrated project of 

bio-diesel production combined 

with carotene and Vitamin E 

extraction gave an IRR of 

more the 40%, but the 

project investors did not 

want to proceed with 

commercialisation at that 

time. 

Problems with the 

suitability of palm bio-diesel 

for use in cold countries had to 

be solved. Fortunately, a 

breakthrough in research at MPOB 

enabled further development of 

technology to produce winter-grade fuel. 

This provided more assurance of the 

feasibility for commercialisation. 

Research was intensified to improve 

project viability. For example, in addition 

to the winter-grade fuel, the same project 

can be commercialised to generate 

carotene, vitamins, sterols, oleochemicals 

and surfactants for high quality 

detergence as co-products. 

The use of a venture-capital approach 

spurred commercialisation as well. In a 

new industry, it is difficult for the banks 

to approve loans, as there are no 

precedents of bio-diesel plants in 

Malaysia. 

For a while, construction was limited. A 

breakthrough suggestion was for MPOB 

to construct three moderate size plants of 

60,000 tonnes/year capacity each, and 

lease these to partners who would provide 

ancillary facilities such as land, tanks and 

office buildings. 

Banks then began approving loans to other 

bio-diesel investors, and became more 

confident after noting that the 

government has made substantial 

commitment to financially 

invest in bio-diesel projects. 

MPOB’s commitment in 

building and leasing the 

three plants using its 

own technology inspired 

many investors to further 

invest in bio-diesel 

production by constructing 

plants. 

However, the eventual number of 

plants to be constructed by licenceholders 

will depend on how the price of 

palm oil responds. If it escalates, the profit 

margin will be much reduced and biodiesel 

investment will slow down. 


CEO, MPOC 


Environment 

Trade in carbon credits will help reduce greenhouse gas emissions 

Carbon credits were developed 

after the Kyoto Protocol was 

gazetted on Feb 16, 2005. A 

voluntary treaty signed by 141 countries, 

including those in the EU, Japan and 

Canada, it aims to reduce greenhouse gas 

(GHG) emissions to 5.2% below that of 

1990 levels, between 2008 and 2012. 

Countries or companies have reduction 

targets that need to be achieved. 

Countries with high greenhouse 

abatement costs are more likely to buy 

‘carbon credits’ to stay in compliance with 

their commitments, rather than 

undertake expensive activities. 

Emission trading allows countries and 

companies to buy and sell carbon credits 

created by activities that reduce the level 

of GHG emissions. Carbon credits that 

can be traded are those arising from 

carbon sequestration between 2008 and 

2012 (the first commitment period), plus 

any subsequent agreed periods. 

This means that carbon sequestered up to 

2008 is not available for sale as carbon 

credits to meet emission reduction targets. 

Highly polluting countries or companies 

can buy unused ‘credits’ from countries 

and companies that are allowed to emit 

more than they actually do. 

Since the Kyoto accord took effect, the 

market for emission allowances has 

soared. Most of the action is on the 

Amsterdam-based European Climate 

Exchange. In the first month, 1 million 

tonnes of carbon credits were traded. 

Developed countries have to spend nearly 

US$300-500 for every tonne reduction in 

carbon, against US$10-25 spent by 

developing countries. In countries such as 

India, GHG emissions are significantly 

below the target fixed by the Protocol. 

Such countries are excluded from 

reducing emissions, and entitled to sell 

surplus credits. 

14 


The most significant current buyers of 

Kyoto-compliant carbon credits are 

institutional buyers, such as the World 

Bank (the size of the fund is estimated at 

US$409 million) and the Dutch 

government (US$280 million). 

Emerging buyers include Austria 

(US$257 million) and Japan (US$141 

million). 

Price of a carbon credit 

The current carbon market is far from 

liquid, and there is no transparent pricing 

mechanism for carbon credits. Thus, 

estimates of the value range from US$2- 

60/tonne (carbon equivalent). 

There are generally three types of carbon 

credit: 

• A non-Kyoto-certified credit – this 

involves the buying and selling of 

credits that are not eligible for use in 

meeting national Protocol targets. 

• A Kyoto-certified credit that cannot 

be banked for use against future 

targets – these contribute to achieving 

the formal targets agreed in the 

Protocol. 

• A fully transferable and bankable 

Kyoto-certified credit - this commands 

the highest price. Point Carbon, a 

website monitoring emission trades, 

states that the spot price for a tonnecredit 

of carbon, as at April 13, 

2006, is €29.15 (compared to the 

€40 penalty per tonne for exceeding 

of limits). 

Meeting the targets 

The Kyoto Protocol provides three 

mechanisms that enable developed 

counties with quantified emission 

limitation and reduction 

commitments to acquire GHG 

reduction credits: 

• Joint implementation – a developed 

country with relatively higher costs 


Environment 

of domestic GHG reduction would set up a project in 

another developed country, which has relatively low costs. 

• Clean development mechanism (CDM) – a developed country 

can take up a GHG reduction project in a developing country 

where costs are much lower. The investing country receives 

credits for meeting emission reduction targets,while the host 

receives capital and clean technology to implement the project. 

Although this is small relative to palm oil earnings, it places 

plantation companies in a different light. They would be seen as 

being environmentally friendly and could score brownie points. 

Tan Ting Min 

Analyst, CSFB 

• International emission trading – countries can trade in the 

international carbon credit market. Countries with surplus 

credits can sell these to countries with quantified emission 

limitation and reduction commitments under the Protocol. 

A project is eligible for CDM benefits if the project will result in 

a net decrease in GHG emissions – this is called ‘additionality’. 

For example, a company will get certified emissions reduction if 

it installs a waste heat recovery boiler that saves energy. If the 

activity was mandated by law, then it is generally not eligible. 

The Japanese government recently approved two renewable 

energy projects in Malaysia worth 3 million tonnes of carbon, 

involving small-scale power plants using effluent fruit bunches. 

Life Cycle Analysis of palm oil has evaluated the 

carbon neutrality of the industry from planting to 

production and transportation, to the eventual 

burning of palm oil biomass. 

Two processes have affected the carbon neutrality 

scale: 

- use of fertiliser; and 

- release of biogas from the Palm Oil Mill Effluent 

(POME) ponds. 

While plantation owners have overcome the first 

process, they are hampered by economical reasons in 

resolving the second. Consequently, biogas – 

specifically methane – is continuously being released 

into the atmosphere. 

BioX is addressing this issue through joint-venture 

projects involving the Clean Development Mechanism 

(CDM) of the Kyoto Protocol. It has signed an 

agreement to develop projects at palm oil mills owned 

by Tradewinds Plantation Bhd in Malaysia. 

Plantation companies in Malaysia could participate in the CDM 

projects and harness carbon credits. This is not as simple as it 

sounds, given the paper work to be done, limited comprehension 

of the mechanism involved and the need to invest more capital. 

BioX, the EU’s largest bio-fuel trader, is keen to work with 

Malaysian plantation companies to earn carbon credits, for 

example, by cutting the GHG emission of palm oil mills (see 

Box). 

According to CQuest, a plantation may have a sequestration rate 

of 0.5 tonnes/ha/year, which would translate into €14.5/ha (or 

RM65/ha) given that carbon credits are trading at €29/tonne. 

This means that a company which has 100,000ha of plantation 

could potentially earn a further RM6.5 million. 

This will see methane captured by covering the POME 

ponds and then either burnt in the boiler, or 

combusted in a gas engine to generate electricity, 

replacing the existing diesel generator. Excess methane 

will be flared, thus reducing emission into the 

atmosphere. 

Besides facilitating a sustainable and carbon-neutral 

industry, CDM can lead to savings in diesel usage and 

trading of certified emissions reduction (CER). A 40 

tonne/ha mill can potentially generate over 15,000 

CERs annually. 

Mohd Iskandar Majidi 

BioX Group 

16 


Environment 

Japan wants carbon credits from Malaysia to meet climate-change commitments 

Malaysian firms looking to sell 

carbon emission rights to 

Japanese counterparts, 

including Japan Carbon Financing Ltd 

(JCF), now have access to a finance 

package offered by RHB Bank Bhd. 

This will extend loans or guarantees 

backed by the Japan Bank for 

International Co-operation (JBIC) 

which, together with JFC, has been 

sourcing carbon credits in the 

international market. 

Under the 1997 Kyoto Protocol, Japan's 

greenhouse gas emissions must drop to 

6% below its 1990 level. It will have to 

reduce emissions by 14% currently to 

achieve this target, with purchase of 

carbon credits being one of the 

mechanisms identified. 

JCF president Hiromu Tanaka, JBIC 

senior executive director Fumio Hoshi 

and RHB chairperson Datuk Azlan 

Zainol signed a memorandum of 

understanding on July 27. 

International Trade and Industry Minister 

Dato’ Seri Paduka Rafidah Aziz witnessed 

the ceremony in Kuala Lumpur. She said 

companies using biomass as part of 

renewable energy initiatives would qualify 

for pioneer status or investment tax 

allowance. 

The partnership will also promote Clean 

Development Mechanism (CDM) 

projects. Ten potential projects have been 

identified, five of which have received 

initial government approval. The project 

value ranges between RM30 million and 

RM450 million. 

Malaysia signed the Kyoto Protocol in 

March 1999. In August 2003, the 

National Committee on CDM approved 

project criteria. The focus is on utilising 

palm oil effluents including biomass and 

solid waste in urban areas, as well as 

renewable energy sources. 

About 3,000 companies have potential 

for CDM projects, mainly in the biodiesel, 

steel and waste management 

industries. RHB expects to secure 30-40 

clients in the next two years, which would 

reinforce Malaysia’s position as a steady 

source of carbon credits. 

JBIC, wholly owned by the Japanese 

government, is the world’s largest 

government financial arm. JCF was set up 

in November 2004 to purchase carbon 

credits until 2012, with a fund size of 

US$140 million and equity participation 

from 31 corporations. 

The World Bank put carbon credit trade as 

worth US$550 million in 2004; US$2.7 

billion in 2005; and US$900 million in the 

first quarter of 2006. Japan is the biggest 

buyer at some 38% of units from January 

2005 to March this year. Britain was next 

with 15% and Italy followed with 11%. 

This report was based on information from the JBIC, JCF and RHB websites and Press reports. 


Markets 

Investors are 

flocking to 

the palm oil 

market, drawn 

by swings in 

price 

As the world's appetite for green 

fuel grows, the volatility in palm 

oil prices is increasingly drawing 

hedge funds to a market which they once 

shunned. 

And with the food sector also seeing 

sharply higher demand for palm oil, the 

Malaysian market will likely see greater 

interest from hedge funds in coming 

months. 

Palm oil prices have risen about 13% to 

date this year. On Aug 8, the benchmark 

October contract was trading at around 

RM1,632/tonne. 

“This kind of volatility is new to palm oil 

markets. Volumes have doubled. It's clear 

new players are in the market,” said Amir 

Chitta, marketing director with 

Singapore-based trading firm Agritrade 

International. 

Societe Generale de Surveillance, a cargo 

surveyor closely watched by the market, 

said exports of Malaysian palm products 

in July rose 11.8% compared to June. 

Analysts added the palm oil market in 

coming months could go the way of the 

rubber and base metal markets, where 

prices in recent months saw huge swings 

and were no longer determined only by 

production and actual demand. 

Bio-fuel plants are sprouting at a dizzying 

pace as nations from Europe to Asia seek 

ways to cut dependence on soaring crude 

oil, curb greenhouse gas emissions and 

boost agriculture. Oil has rallied 25% this 

year on supply worries. 

Prices have been swinging widely in 

recent weeks on the Bursa Malaysia 

Derivatives, which has been reacting to 

news of rising bio-fuel demand. 

Malaysian palm oil surged 3% in a few 

hours of trading on one day in July when 

Malaysia and Indonesia announced a 

pledge to cap palm-oil allocation for biodiesel 

at 40% of output. 

Since then, daily volumes have nearly 

doubled, with open interest on certain 

days climbing to as high as 60,000 lots of 

25 tonnes each. 

Buying frenzy 

Traditionally, palm oil supplies have 

remained at comfortable levels, with 

buyers not worrying about stockpiling to 

make products that range from cooking 

oil to cosmetics. 

But as bio-diesel firms are hedging their risk 

before they start production, the traditional 

buyers, fearing increasing volatility ahead, do 

not want to be left behind. 

Malaysian bio-diesel manufacturers like 

Golden Hope – which is setting up four 

plants including one in Holland – are 

finding it equally tough. 

“I’m trying to lock supplies for our Holland 

plant but nobody is willing to commit. If at 

all they quote, they quote a very high price of 

RM1,800 or something,” said its 

chairperson Sabri Ahmad. 

“Palm oil markets are about to make a 

transition. The issue will be at what level 

consumers will stop buying vegetable 

oils,” said Mike Coleman, a partner at 

Singapore hedge fund Aisling Analytics. 

And this has made it difficult for some 

leading forecasters and analysts to even 

hazard a guess as to where prices could go. 

“We are into a different game, we are now 

in RM1,600 to who-knows band,” said 

the head of research at a plantation house. 

Traders added palm oil reserves in 

Malaysia and Indonesia will not decline 

immediately, but that supplies could be 

tight towards year’s end with new biodiesel 

plants expected to start operations. 

Naveen Thukral 

Reuters, Aug 8, 2006 

18 


Markets 

Rising demand for edible oils will 

add volumes to India’s commodity 

exchanges 

India, the second largest consumer 

and importer of edible oil after 

China, requires nearly 13 million 

tonnes of oil every year. Nine cultivated 

oilseeds - soybean, rapeseed/mustard, 

groundnut, sunflower, safflower, linseed, 

castor, sesame and Niger seed – provide 

80% of domestic oil output. Cotton seed 

and copra add to this. 

According to Oil World, India accounts 

for 7.4% of oilseeds output; 6.1% of oil 

meal production; 3.9% of oil meal 

exports; 5.8% of vegetable oil production; 

11.2% of vegetable oil imports and 9.3% 

of the edible oil consumption in the 

world. 

India’s oilseed production for 2005/06 is 

estimated at around 27 million tonnes, 

equivalent to around 8 million tonnes of 

vegetable oils. With an estimated import 

of around 5.5 million tonnes in the oil 

year ending October, total availability is 

likely to be around 13.5 million tonnes. 

The demand for edible oils is expected to 

increase from 12 million tonnes to15.6 

million 

tonnes in 

2010, and to 21.3 

million tonnes by 2015, due 

to domestic shortfalls. This assumes a per 

capita consumption increase of 4% and 

population growth of 1.9% which 

translates to an overall growth in demand 

at 6% per capital consumption per 

annum. 

If all of this oil is assumed to come on the 

exchange platform for trading, India’s 

leading commodity exchange – National 

Commodity & Derivatives Exchange of 

India Ltd (NCDEX) – would have 

humungous volumes (see Table 1). Adding 

those of other national-level exchanges and 

the possibility of commodity trading being 

opened up for foreign participation would 

magnify the volumes of oil complexes. 

Price discovery process 

The basic function of any exchange is to 

facilitate the process of fair price discovery 

of commodities. The normal economic 

law of large numbers holds true in 

commodity markets as well. As markets 

grow and gain depth, and additional 

participants come on the exchange 

platform, there will be further evolution. 

Externalities like taxes and duties do 

distort price discovery processes. For 

instance, India’s total imports in 2004/05 

comprised 47% of CPO and 40% of 

degummed soybean oil (SBO). But the 


Markets 

import duty 

structure for 

both oils has 

c h a n g e d 

drastically over 

the past six years. 

From 16% in 

June 2000, the 

import duty on 

CPO has risen steeply to about 90% in 

June 2006. Duty on SBO has not 

increased proportionately - from 38% to 

50% – over the same period. 

Although the WTO bound rate for SBO 

is 45%, it is still 300% for palm oil. 

Currently the CPO landed cost works out 

to US$849/tonne, while that of SBO is 

US$863/tonne. With higher refining cost 

of CPO, there is a trend to import SBO as 

the gap between the two imports is 

narrowing. 

While Indian refined soybean oil prices 

exhibit around 85% correlation with the 

Chicago Board of Trade, the world 

benchmark for soybean oil, trading in 

CPO and other palm oil complexes have 

not picked up on Indian exchanges. The 

most valid and obvious reason is the 

uncertainty over the customs tariff and 

duty rates of the landed crude oil. 

Besides, almost the entire volume of palm 

oil is imported from either Malaysia or 

Indonesia, so delivery-based contracts 

could be a deterrent for market 

participants. Since Indian commodity 

exchanges are still at a nascent stage – 

such operations being permitted from 

2003 only – much reform is awaited in 

the sector. 

20 


Grassroots education 

Apart from CPO and soybean oil, 

exchanges in India trade on groundnut 

(peanut), castor, sunflower and 

rapeseed/mustard (canola) oils. Of these, 

rapeseed oil is the only one traded 

globally. But the domestic exchanges have 

liquid contracts for all these oils. 

A look at the prices in 2005/06 reveals 

that most of the agri-commodities have 

mirrored the bull-run across the sector. 

Few commodities have shot up as high as 

170%. This was the period when 

commodities, be it agro or metals or 

energy, were rallying worldwide. 

Liquidity over the exchanges has gone up 

thrice that of 2004. Commodities, which 

have a physical market size of US$200 

million, are now trading with the same 

volume over the exchanges in a single day. 

In most, the rally turnaround time was as 

low as one month. Although the retail 

investor in India has still to come to terms 

with such volatility in commodities that 

affects them directly, the markets are 

growing and maturing by the day. 

NCDEX, which 

commenced 

operations 

on Dec 

15, 

2003, has a daily turnover of over US$2 

billion. It offers the entire range of 50 

commodities in the agro, metals and 

energy sectors. It pioneered spot price 

polling to facilitate Indian participants in 

the futures market and made its mark 

globally through tie-ups with the Dalian 

Commodity Exchange, the Tokyo Grains 

Exchange and the International Petroleum 

Exchange. 

NCDEX is also spreading awareness and 

taking the commodity markets to the 

grassroots so that farmers, the real hedgers, 

can benefit. Price Ticker boards are put up 

in every possible location including post 

offices, bus stands and panchayat (village 

governing bodies). Millions of rupees are 

being spent in the first three years on 

awareness programmes conducted 

by product and relationship 

managers and 

economists. 

In addition, 300 weather stations (other 

than those set by the government) have 

been set up to date by NCDEX associate 

companies, since Indian agriculture is 

largely monsoon dependent. Although the 

farmers haven’t come to trade on the 

exchange platform, they are aware of 

NCDEX, ask for the price quoted on it, 

uphold their selling decisions looking at 

futures prices on NCDEX and make 

informed decisions. NCDEX realises that 

the spread of price information is the 

most vital link in empowering farmers. 

Shilpa Jain 

Economist 

NCDEX India 

The writer is grateful to Mr Madan Sabnavis, 

Chief Economist, NCDEX Ltd & Mr Tapan Mishra, 

Asst Vice-President, Products, for their usefull comments & suggestions. 


Markets 

The edible oil industry will rely on palm products despite recent policy changes 

Pakistan’s edible oil industry has 

undergone an overhaul that is 

nothing short of remarkable. It 

began importing 150,000 tonnes of palm 

oil for commercial use in the early 1970s 

but, by end 1999, the volume had surged 

to 1.3 million tonnes. 

Over 30 years, the refining sector grew 

from 30 to 120 units, with installed 

capacity increasing from 0.25 million 

tonnes to 2.5 million tonnes. 

The turnaround started in 2000 and 

continued into 2004, as major changes 

were made in fiscal budgets to transform 

purchase decisions. 

The first change in the tariff structure was 

to eliminate duty on oilseeds (see Table). 

This was done to provide high quality 

oilseeds for planting of canola and 

sunflower. However, solvent extraction 

units took the opportunity to import 

huge quantities of oilseeds for crushing. 

Imports rose dramatically to register a 

growth of 14.82% over three years, 

leading to about 10 solvent extraction 

units being installed. In the following 

years, the government levied a marginal 

duty on oilseed imports, but later 

22 


emoved this. Sales tax was imposed in the 

2005 budget. 

A major shift in the buying behaviour was 

observed in 2001 when duty on palm 

olein was brought down in parity with 

soybean oil. This was aimed at curbing 

mishandling of RBD palm oil and to 

support usage of soft oils. 

Pakistan, which had been a consistent 

buyer of 1 million tonnes of RBD palm 

oil, switched attention almost fully to 

palm olein. 

This boosted the region’s palm oil imports 

and eliminated quality problems arising 

through mishandling of RBD palm oil. 

Within a year, palm olein imports grew by 

72.15%. 

Discount on duty 

To encourage investments, the 

government reduced duty on crude palm 

oil from 2001-2002 by providing a Rs. 

500 incentive to physical refineries to 

import CPO. This, coupled with the 

lower CPO price and ready sales of RBD 

palm oil, led to a race to set up physical 

refineries. 

Of the 12 frontrunners, seven have set up 

plants ranging in size from 150 to 800 

tonnes. From a single refinery of 800 

tonnes per day, this sector achieved 

installed daily capacity of 3,700 tonnes 

within three years. 

CPO imports grew as well. This trend is 

likely to continue in the coming years as 

demand from refineries goes up in 

tandem with commercial operations and 

sales. 

Malaysia has sustained an export volume 

of about 1 million tonnes. The major 

share is held by RBD palm olein at 

742,370 tonnes (74.2%). CPO (95,846 

tonnes, 9.6%), RBD palm oil (79,348 

tonness, 7.9%) and palm fats (82,523 

tonnes 8.3%) make up the rest. 


Markets 

Market Outlook 2006-2010 

The first five years of this decade have 

been the most eventful in the history of 

Pakistan’s oils and fats industry. Imports 

have gone up by 9.8%, per capita 

consumption has reached 16.5 kg, 

physical refining capacity is touching 

4,000 tonnes per day and there has been a 

substantial increase in CPO imports. 

While it appears likely that Pakistan is 

following in India’s footsteps to switch 

from refined to crude oil imports, the 

situation is not all that grave. Imported 

palm olein, with similar duty as CPO, is 

competing strongly with domestically 

produced RBD palm oil. 

easily grow to 350,000 tonnes by year’s 

end to feed about 35% of total installed 

capacity. 

It is likely to grow at a steady rate of 4- 

5%. By 2010, the import volume is 

forecast to touch 3.4 million tonnes. 

With the refining costs as high as 

US$25/tonne, the price differential 

between CPO and RBD palm olein is a 

crucial factor. If the differential falls below 

US$35, then it will become difficult for 

physical refiners to compete with 

imported palm olein. 

Despite installed physical refining 

capacity of about 1.1 million tonnes, 

none of the seven operating units are 

running at more than 50% capacity. CPO 

imports, now at 176,161 tonnes, may 

Overall economic growth augurs well for 

industrial development and investment. 

The turn of events after 9/11 highlighted 

Pakistan’s strategic location in South Asia, 

and it is now a re-export hub for 

Afghanistan and Central Asia. Pakistan 

has also seen extraordinary growth in 

other sectors including foreign 

investments, GDP, per capita income and 

foreign currency. 

With higher purchasing power, the oils 

and fats industry has a promising future. 

Further investment is anticipated in 

physical refining, fractionation and 

oleochemical plants, as this sector has 

good prospects for downstream activities. 

Pakistan’s oils and fats industry holds out 

a promising picture. With more than 

70% dependence on imports and the 

domination of palm oil, it will be among 

the most reliable destinations for 

Malaysian palm products. 

Faisal Iqbal 

MPOC Pakistan 

24 


Markets 

Trade data for soybean and corn in June provides an interesting contrast 

China exported just 7,720 tonnes of corn in June, the lowest monthly total since1997 when it was an importer. But it imported 

3.67 million tonnes of soybean, making this the largest monthly volume ever absorbed – beating the July 2005 record by about 

600,000 tonnes. The imports were from Brazil (2 million tonnes), Argentina (1.5 million tonnes) and the US (about 203,000 

tonnes). 

In the second quarter of 2005/06, China imported a record 8.65 million tonnes of soybean, about 1.9 million tonnes more than in the 

same period in 2004/05. In the final quarter, imports will slow to about 6.5 million tonnes because of large stocks at the ports and poor 

crush margins. Still, the total will touch 27.7 million tonnes, yet another record. 

USDA has forecast that China’s soybean imports could jump to 31.5 million tonnes 

for 2006/07 even with the government’s intention of slowing runaway economic 

growth. 

The sharp drop in corn exports in June was the culmination of the government’s 

suspension of export subsidies in March. Exports became 

uncompetitive in Asia, so importers turned to US and Argentina. 

To date in the 2005/06 (October to September) year, China has 

exported 3.71 million tonnes of corn. USDA estimates exports 

will reach 4 million tonnes. 

Prospects for the Chinese corn crop are excellent, with 

predictions of record production that will top 140 million 

tonnes, perhaps even reaching 145 million tonnes. 

Traders expect the government will avoid export 

subsidies until late summer or early fall when crop 

expectations are confirmed. 

Higher world corn prices have increased the required 

export subsidy to US$18-20 per tonne if Chinese 

corn is to compete in Asia. If ocean freight rates 

climb, that would help Chinese corn, but freight 

spreads might not offset a still-rising world corn 

market. 

Rising domestic demand will keep pressure on corn 

production and supplies. USDA predicts China will use 

141 million tonnes in 2006/07. Demand from the ethanol sector is rising rapidly as 

well, and total corn output may reach 143-144 million tonnes this year. 

The authorities will want to ensure ample domestic supplies for both feed use and 

ethanol. Chinese exports may therefore drop to 2.5 million tonnes or lower for 

2006/07. 

Bob Kohlmeyer 

Source: Ag Perspectives 


Markets 

Its seed and oil output may expand if bio-diesel demand absorbs rival vegetable oils 

Global sunflower seed output is 

forecast to grow to 29.56 million 

tonnes this year compared to 

23.16 million tonnes in 2000/01, or an 

increase of 28%. Russia, Argentina, 

Romania and the Ukraine are the major 

producers and exporters. 

Sunflower oil has a strong following in 

France, Algeria, Spain, eastern Europe, 

Russia, Ukraine and Turkey. 

Russia, the world’s biggest producer, 

showed the highest nominal increase. 

Output in 2005 reached 6.45 million 

tonnes, or 65% more than in 2000/01 

and 142% higher than in 2001/02. The 

bulk is domestically processed because of 

higher export taxes on unprocessed seed. 

USDA estimates that Russia will consume 

1.83 million tonnes of the oil this year 

and export 425,000 tonnes. Five years 

ago, it exported only 130,000 tonnes and 

consumed only 1.37 million tonnes. 

tonnes are likely to be crushed 

domestically and 200,000 tonnes to be 

exported, mainly to EU-25 and Turkey 

which could take up 90,000 tonnes. 

In the US, plantings and production have 

been on a downward trend this decade 

because of competition for land from 

wheat. The March Prospective Plantings 

report showed that US farmers intend to 

plant only 844,000ha of sunflower this 

year, well below the 1.06 million ha 

harvested in 2005 and the record 

harvested area of 1.41 million ha. 

The EU-25, the largest importer, is 

expected to absorb 940,000 tonnes of 

seed and 990,000 tonnes of oil in the 

current marketing year. The forecast is for 

the oil imports to increase in 2006/07 to 

1.05 million tonnes. 

Argentina remains the largest exporter of 

the oil but is close to being overtaken by 

the Ukraine. USDA expects Argentina to 

export 1.15 million tonnes of oil in 

2005/06. Plantings and oil exports may 

grow in the year ahead, since wheat 

planting has been discouraged by dry 

weather. 

If bio-diesel boosts global vegetable oil 

prices, the incentive to plant sunflower 

will be greater. The oil already sells for 

about US$120/tonne more than soybean 

oil out of Argentina. The premium may 

narrow as more soybean oil goes into biodiesel 

production worldwide. 

John Baize 


Between 2000/01 and 2005/06 

Ukrainian seed output increased by 1.24 

million tonnes (36%), almost all of which 

were crushed within the country. Most of 

the oil is exported because of the small 

population size. USDA estimates that 

only 57,000 tonnes will be consumed 

locally this year, and 1.08 million tonnes 

will be exported. 

USDA estimates that Romania produced 

1.34 million tonnes of seed in 2005, or 

86% more than in 2000. Of this, 950,000 

26 


Markets 

The WTO talks need a clear road map 

forward – and soon 

DOHA 

DEVELOPMENT 

AGENDA 

The world trade talks known as 

the Doha Development 

Agenda began nearly five years 

ago, aimed at helping the poorer countries 

to benefit from trade liberalisation with 

the reduction of tariff and non-tariff 

barriers and poverty eradication. 

But the goodwill and political will that 

helped launch the Doha Round in the 

Qatari capital amidst much fanfare in the 

aftermath of Sept 11, 2001 seem to be 

fading. 

In Doha in November 2001, rich 

countries pledged to give something 

more than money: the opportunity for 

poor countries to sell their goods and 

earn their way out of poverty. The 

focus was on fair trade and a more 

level-playing field for the developing 

world, including advocating big cuts 

on farm subsidies by the industrialised 

nations. 

In agriculture, developing countries are 

required to cut tariffs by 24% while 

developed countries are to reduce these by 

36%. Thus, the Doha Round was tasked 

with the mandate of reforming the world 

trading system by putting together a 

broad negotiating framework on world 

trade liberalisation. 

Meeting in Geneva at the end of June 

2006, international trade negotiators 

failed once again to conclude the Doha 

Development Round. This two-year 

stalemate is the result of the major 

players – particularly the EU, US, and 

G-20 – persistently treating the 

negotiations as a zero-sum game, only 

making a concession in exchange for one 

from the other sides. 

Wrangling and the blame game on who is 

not prepared to make concessions have 

been the order of the negotiations. 


Markets 

There is growing awareness that subsidies are not only immoral, but also illegal. They increase 

poverty in developing countries, encourage inefficiency among producers in developed nations 

and punish consumers worldwide. 

EU and US farm subsidies 

The US maintained that the Europeans 

are highly protective of their farmers and 

that the European Union (EU) needs to 

do much more to reduce the subsidies 

which Washington says are twice those in 

the US. 

(The US now spends about $20 billion 

(RM74 billion) annually on tradedistorting 

farm subsidies. However, 

Washington has offered to cut its WTO 

allowance for the main farm programme 

by 60% to US$7.6 billion, but trade rivals 

argue the reduction leaves real spending 

unaffected.) 

With no player willing to take the first 

step, the talks remain deadlocked. 

Regrettably, this inconsiderate approach 

to trade negotiations overlooks two 

important considerations. 

First, many ‘painful’ concessions are, in 

reality, beneficial policy measures that 

should be undertaken whether or not 

concessions are extracted from the other 

parties. Second, negotiators have lost sight 

of the big picture, namely that all parties 

stand to benefit from an agreement, even 

if concessions are not equally balanced. 

A bigger factor in the collapse might have 

been the decision in 2001 to label the 

negotiations a ‘development round’, 

which raised expectations that could not 

be delivered. 

Protectionism and employment 

The Doha Round is the best opportunity 

there is to reduce and eventually eliminate 

agricultural subsidies and to open markets 

for agro-products. These steps are 

essential to increase wealth and create jobs 

through 

international trade, 

particularly in 

developing world. 

There is growing awareness that 

subsidies are not only immoral, but 

also illegal. Decisions by WTO over the 

past few years, in response to complaints 

from Australia, Brazil and India among 

others, have endorsed the view that 

subsidies profoundly distort international 

trade. They increase poverty in developing 

countries, encourage inefficiency among 

producers in developed nations and 

punish consumers worldwide. 

Trade in agricultural goods has never been 

the subject of a serious liberalisation 

effort. Trade in industrial goods, by 

contrast, was the main goal of previous 

rounds under the General Agreement on 

Tariffs and Trade. 

As a result, protection of industrial 

products was significantly reduced 

everywhere, while protection of the 

agricultural sector was barely scratched. 

Eliminating agricultural subsidies and 

opening markets in rich countries will 

affect no more than 2% of their labour 

force. This is nothing compared to the 

30-35% of workers who hold industrial 

jobs in developing countries, whose 

markets for imported industrial goods are 

being targeted by richer nations. 

Agriculture protectionism depresses living 

conditions worldwide to the benefit of a 

handful of privileged farmers in rich 

countries. More balanced international 

trade relations will have a multiplying 

effect on developing countries, where a 

significant part of the population makes a 

living from agriculture. 

28 


Concessions as opportunities 

The players in the Doha Round make 

much of the offers they have placed on the 

table, but truly many of these 

‘concessions’ are tantamount to sound 

domestic policy measures. Even as the EU 

and the US face off, they ignore the 

economic gains from lower prices and 

decreased tax burdens that would be 

captured by their own consumers if these 

concessions were made. 

Moreover, producers in the EU and the 

US – in the face of greater competition 

from abroad – would have to rise to the 

challenge of responding to market signals; 

many would actually become more 

competitive as a result. Rather than cling 

to high tariffs or trade-distorting support, 

these producers would do better to turn 

their attention to expanding their export 

markets. 

Food demand is expected to double in the 

next 50 years, due to increasing 

populations, and most of this growth will 

occur in developing countries. The 

producers need to look ahead to the 

population boom beyond their borders to 

be in position to meet demand. However, 

this surge will only translate into greater 

purchasing power if incomes grow in the 

developing world. 

Moreover, the most effective way to 

reduce poverty is to provide developing 

countries with the opportunity to export 

products in which they have a 

comparative advantage, many of which 

are agricultural products. 

Experience clearly shows that countries 

that are integrated into the global 

economy grow faster than those that are 

not and that open trade is a key 

determinant of economic growth. This, in 

turn, is the only path to sustainable 

poverty reduction. Unfortunately, 

developed countries myopically place 

high levels of protection on many of these 

agricultural products from developing 

countries. 

Developed countries are not the only 

parties who need to reconsider their 

approach to concessions. Developing 

countries are clearly justified in calling for 

an end to export subsidies and a drastic 

reduction in domestic support and tariffs 

in developed countries as well as for 

special and differential treatment for their 

own reforms. However, demanding 

reform of others while postponing their 

own liberalisation will not serve them 

well. 

If developing countries insist on a large 

number of exemptions in the form of 

‘sensitive’ and ‘special’ products and on 

expansive and long-lasting special 

safeguard mechanisms, they will limit the 

benefits that liberalised trade will deliver 

to their own economies and hamper 

opportunities for trade with developed 

countries and, more importantly, with 

other developing countries. 

A cloudy future 

It seems unlikely that the Doha Round 

can be concluded any time soon for it 

lacks a clear roadmap forward. Yet, it is 

imperative that some form of agreement is 

concluded by the end of this year. 

While WTO has its share of critics, it is 

the only body overseeing the reform of 

the global trading system. The stakes are 

high for export dependent countries like 

Malaysia, which is ranked among the top 

20 trading nations by the WTO. Indeed, 

exports make up more than 100% of 

Malaysia’s gross domestic product. 

For a start, the collapse of the Doha 

Round could nullify the commitments 

already made in agriculture. These would 

include the removal and reduction of 

subsidies on exports by 2013, as well as 

allowing duty-free and quota free market 

access for some 32 least developing 

countries by 2008. 

Tariff barriers will also continue to distort 

world trade. The biggest losers may well 

be the smallest and weakest countries, 

given that they have few or no bargaining 

chips. 

MR Chandran 

FISP, FBIM, FMOSTA 



Instead of posting slight gains, July palm oil 

production in Malaysia dipped slightly by 1% at 

about 1.31 million tonnes. The southern regions 

were down 3-6%, central was about unchanged, while the 

East Coast and northern regions were up 8-15%. Sabah 

remained slightly negative at about 1-3% lower. OER was 

slightly better. 

Feedback on early August performance was not 

impressive, but the National Day holiday on Aug 31 must 

be taken into account. With this lower platform, we 

would curtail output estimates in the peak months. 

Weather remains ideal despite the light ongoing haze. 

The Indonesian selling pattern has not been aggressive 

with local prices commanding a premium due to 

continued poor output in Kalimantan (a phenomenon 

consistent with east Malaysian performance over the last 

30 


Malaysian CPO Production 

2003 % 2004 % 2005 % 2006 % 

January 863,307 876,490 1,153,177 936,592 

February 765,530 862,359 1,048,180 1,051,904 

March 985,106 940,761 1,215,932 1,243,204 

2,613,943 2,679,610 2.51 3,417,289 27.53 3,231,700 -5.43 

April 1,089,482 1,008,717 1,246,938 1,310,806 

May 1,172,828 1,099,195 1,299,467 1,391,347 rev 

June 1,218,995 1,170,126 1,206,718 1,328,394 prelim 

3,481,305 3,278,038 -5.84 3,753,123 14.49 4,030,547 7.39 

July 1,283,587 1,270,090 1,291,164 1,310,000 est 

August 1,298,402 1,322,144 1,365,816 1,360,000 est 

September 1,297,032 1,488,215 1,431,654 1,450,000 est 

3,879,021 4,080,449 5.19 4,088,634 0.20 4,120,000 0.77 

October 1,192,684 1,362,323 1,400,591 

November 1,054,692 1,259,896 1,226,122 

December 1,132,059 1,313,679 1,074,777 

3,379,435 3,935,898 16.47 3,701,490 -5.96 - -100 

Jan-June 6,095,248 5,957,648 -2.26 7,170,412 20.36 7,262,247 1.28 

July-Dec 7,258,456 8,016,347 10.44 7,790,124 -2.82 4,120,000 -47.11 

Total 13,353,704 13,973,995 4.65 14,960,536 7.06 11,382,247 -23.92 (Jan-Sept) 

Soybean (mil bu) 

Soybean oil (mil lb) 

2005/06 2006/07 2006/07 2005/06 2006/07 2006/07 

(est) June projection July projection (est) June projection July projection 

Opening stocks 256 570 545 1,699 2,789 2,849 

Production 3,086 3,080 3,010 20,065 19,775 19,775 

Ending stocks 565 655 560 2,789 2,419 2,479 

few months), resulting in low domestic 

stocks. This situation is likely to continue 

for a few months before the production 

pattern picks up significantly. 

the previous month) respectively. 

However the crop is still in the sensitive 

pod-setting phase and the latest weather 

reports suggest a return of dryness. 

yields due to Asian Rust, the strong Real 

and tight credit facility. Traders estimate a 

reduction of 1.5-2 million ha, compared 

to a marginal increase in Argentina. 

Weather in the US has been fair with 

required rains received, putting both 

soybean and soybean oil prices on the 

defensive around US$5.70/bu (about 

US$6.10/bu the previous month) and US 

Cents 26.20/lb (about US Cents 26.60/lb 

In the next major planting, South 

American soybean production is expected 

to stagnate due to a substantially reduced 

acreage in Brazil. The Brazilian soybean 

profitability has been severely impacted 

by rising fuel and fungicide costs, reduced 

The South American CdSBO against 

RBD palm olein price basis has narrowed 

further to about US$40 (US$60 the 

previous month) probably due to the 

increased energy-led demand for palm oil. 

South American CdSBO flat price 



Malaysian Palm Oil Board 

2006 (rev) prelim est est est 2005 

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec 

Opening stocks 1,603 1,540 1,645 1,586 1,518 1,573 1,645 1,565 1,535 1,601 

Production 937 1,052 1,243 1,310 1,391 1,328 1,310 1,360 1,450 1,074 

Imports 145 119 49 49 55 22 30 30 30 94 

Total Supply 2,685 2,711 2,937 2,945 2,964 2,923 2,985 2,955 3,015 2,769 

Exports 972 937 1,184 1,238 1,170 1,100 1,220 1,220 1,250 1,017 

Domestic usage 173 128 167 189 221 178 200 200 200 149 

Ending stocks 1,540 1,646 1,586 1,518 1,573 1,645 1,565 1,535 1,565 1,603 

Total Offtake 2,685 2,711 2,937 2,945 2,964 2,923 2,985 2,955 3,015 0 0 2,769 

remains firm, currently around 

US$510/tonne and RBD palm olein at 

around US$470/tonne. 

Crude petroleum prices have risen further 

and remain resilient above US$72/barrel 

(currently just above US$76/barrel). 

Prices are anticipated to remain firm due 

to a shutdown in the BP Alaskan oilfields 

resulting from a pipeline leakage. 

As anticipated, palm oil demand in July 

powered back to about 1.42 million 

tonnes (1.28 million tonnes the previous 

month based on MPOB figures). There 

was exceptional demand from China, 

although the rest of the world lagged. 

Trade feedback on August exports remains 

positive. 

The Chinese ‘black hole’ for commodities 

is now sucking in palm oil, at about 

470,000 tonnes (268,000 tonnes the 

previous month). Word has it that the 

Chinese are burning palm olein as a fuel 

blend, due to high local diesel prices, and 

that this is expected to continue within an 

environment of high petroleum prices. 

EU demand increased to about 230,000 

tonnes (194,000 tonnes the previous 

month) and will probably increase with 

higher usage of palm oil as feedstock for 

bio-diesel production before winter. Much 

will also depend on the EU-25 rapeseed 

crop, already slightly curtailed from earlier 

estimates at about 15.6 million tonnes 

(15.5 million tonnes last year) and any 

shortfall will lend strength to other oils. 

Pakistan’s offtake was maintained at about 

74,000 tonnes (83,000 tonnes the previous 

month), while Indian demand dipped to 

about 20,000 tonnes (43,000 tonnes the 

previous month). With the Indian 

government’s latest requirement to increase 

use of domestic rapeseed/mustard oil to 

20% (on top of the 12% minimum share 

of indigenous oils) in vanaspati production 

and the 100,000 tonne/annum limit on 

vanaspati imports from Sri Lanka, imports 

will remain low. Moreover the Indian 

monsoon has been normal to date. 

Based on data, July 06 stocks will counterseasonally 

decline to about 1.56 million 

tonnes (1.65 million tonnes the previous 

month). 

The June/July shortfall in palm oil output 

has effectively offset anticipated normal 

harvests in the US and India. More 

importantly, the improved rate of demand 

now appears sufficient to absorb the 

curtailed high output months. Peak stocks 

will likely be kept below 1.65 million 

tonnes and year-end carry over stocks will 

be at a manageable sub-1.6 million tonne 

level. 

The Malaysian Budget to be presented on 

Sept 1 may present important 

developments on the bio-fuel blueprint. 

The B5 bio-diesel plan, earmarked for 

implementation next year, will certainly 

impact the supply-demand scenario. 

In the medium term, the increase in biodiesel 

demand and expected stagnation in 

the South American soybean production 

will be able to keep prices buoyant. 

In the immediate term, US and Indian 

oilseed crops are not out of the woods yet. 

We would look for levels to buy and 

RM1,500/tonne is certainly impossible in 

the present scenario. 

Report as at Aug 7, 2006 

KK Loh 

Broker/Analyst 

CIMB Futures Sdn Bhd 

32 


Market Briefs 

TANZANIA’S NEW DUTY 

RATES ON PALM OIL 

Tanzania will delay 

implementation, by one year, of 

the East African Common 

External Tariff (CET) that would 

have eliminated duty on CPO. 

Instead, it will impose a duty rate 

of 10% on CPO, while reducing 

the duty on RBD palm stearin to 

10% from 25% at present. 

Finance Minister Zakia Meghji 

announced this in the 2006/07 

budget proposals, saying it was 

among measures agreed upon by 

Kenya, Uganda and Tanzania in 

June. 

The countries will review the CET 

to protect regional industries and 

consolidate the manufacturing 

sector. This will also protect local 

farmers who produce alternative oil 

seeds, while curbing tax evasion. 

Source:The East African (Nairobi), 

June 20, 2006 

BIO-DIESEL VOLUME 

TO DOUBLE 

The International Energy Agency’s 

five-year outlook report issued on 

July 12 forecasts that global biofuel 

production will almost double 

by 2011. 

Production will rise to 1.2 million 

barrels/day compared to 650,000 

barrels/day in 2005. 

European output will more than 

double by 2008 from 64,000 

barrels/day in 2005. The global 

share of bio-fuels from the US and 

Brazil is expected to decline from 

92% in 2005 to 78% by 2008. 

The report says ethanol produced 

in Brazil from sugarcane is 

competitive when crude oil prices 

are over US$40/barrel, while biodiesel 

produced from animal fats is 

competitive when crude oil is over 

US$60/barrel. 

Bio-diesel and ethanol produced 

from other feedstocks are only 

competitive in the absence of 

government subsidies and when 

crude oil prices are over 

US$70/barrel. 


VEGETABLE OIL OUTPUT 

UP IN UKRAINE 

Ukraine produced 1.47 million 

tonnes of crude vegetable oils from 

September 2005 to May 2006, or 

1.5 times more than the indicators 

for 2004/05. Crude sunflower oil 

accounted for 1.4 million tonnes 

of this. 

In the same period, 343,400 

tonnes of refined vegetable oil were 

produced, or 2% higher than the 

indicators for 2004/05. Refined 

sunflower oil registered 338,200 

tonnes. 


KABUL OPENS DOORS 

TO IMPORTS 

Afghanistan has allowed imports of 

cooking oil from June, adding to 

direct availability of 150,000 

tonnes of vanaspati ghee annually. 

The majority of the ghee-makers in 

Peshawar had been getting their 

supply of edible oil and vanaspati 

via Pakistan, Iran and UAE. 

Source:Daily Business Recorder, June 

13, 2006 

FARMERS TO CERTIFY 

SUSTAINABILITY 

With many traders recently 

deciding to stop buying soybean 

produced in deforested areas of the 

Amazon, many farmers in the 

Matto Grosso region have been 

forced into action. 


Market 

Foreseeing a price drop if the 

market shrinks, they have agreed to 

certify output with Independent 

Quality Standards to demonstrate 

that the area was not deforested 

over the past two campaigns. 

capacity of 300 tonnes. It will be 

located at Port Qasim. 

Paracha Textiles in Faisalabad is 

planning a 500-tonne per day 

refinery at Port Qasim. Civil works 

have started on the facility. 

Shujabad Agro, which operates a 

solvent extraction unit, has begun 

work on a plant that will have a daily 

capacity of 150 tonnes. Located in 

Port Qasim, it is expected to open 

by the end of September. 

Source: MPOC 

Trading companies may also need 

to add such certification if they 

wish to export to Europe. This 

could be the beginning of a 

traceability requirement for 

commodities. 

The system is likely to extend to 

other areas and countries for 

different factors such as 

sustainability and genetically 

modified organisms. 


NEW REFINERIES 

IN PAKISTAN 

Three small to medium-size 

refineries are expected to come into 

operations by the end of the year. 

Sufi Group of Industries has 

purchased equipment from Alfa 

Laval for a refinery with a daily 

FDA MULLS FOOD 

LABEL CHANGES 

The FDA is said to be considering 

a number of changes to food 

labelling requirements in the US. 

One issue involves clarifying the 

trans fatty acids (TFA) labelling, 

which could include setting a daily 

value percentage. This column has 

so far remained blank due to lack 

of scientific information. 

The FDA, which agrees that TFA 

intake should be kept as low as 

possible, is said to be thinking of 

harmonising the 0g requirements 

of the US with those of Canada. 

Currently US law allows food 

products with up to 0.5g of 

TFA/serving to carry a ‘0g trans 

fat’ claim. Canada places the 

undeclared amount at 0.2g. 

If approved, the proposal would 

see US manufacturers face 

additional reformulating of 

products if they want to make a 0g 

claim. 

Another revision may be to the 

nutrition facts panel to emphasise 

the calorie content of a product. 

Among the proposals are to 

increase the font size of the calorie 

listing and drop ‘calories from fat’ 

as this could detract from the 

calorie declaration. 

The FDA is also said to be 

considering allowing a health claim 

for reduced calorie foods, as these 

help reduce the risk of obesity and 

related diseases. 

It may adjust the way serving sizes 

are labelled, to increase consumers’ 

awareness of how much they eat. 

Proposals include increasing the 

font size and revising reference 

amounts for serving sizes based on 

updated consumption data. 

34 


Briefs 

Other issues involve defining 

‘gluten free', ‘low carb' and 

‘reduced carb' claims. 

The FDA is also due to issue 

guidance on the unintentional 

presence of allergens in food and 

beverage products, as well as to 

reconsider the regulatory 

framework for qualified health 

claims and permitted levels of lead 

in candy. 

Source: FOODUSA Navigator.com 

EU TO REVIEW 

BIO-DIESEL STANDARD 

BY 2009 

The quality standard for bio-diesel 

is expected to be changed by 2009, 

when a EU review is completed. 

At issue is whether the maximum 

iodine value (a measure of 

unsaturation of vegetable oils) for the 

feedstock blend should be increased 

above the current level of 120. 

because certain German auto 

manufacturers only provide an 

engine warranty when bio-diesel is 

made from rapeseed oil. 

The preference for rapeseed oil has 

resulted in prices of US$210/tonne 

premium over soybean oil. 


GERMAN TAXES 

ON BIO-DIESEL 

Germany will phase in a 

€0.09/litre tax on bio-diesel from 

this year. This will rise to €0.06 

eurocents/litre per year from 2008 

to reach €0.45 eurocents/litre in 

2012. 

Vegetable oils used directly as fuel 

will be taxed at the same rates. 

About 2 million tonnes of biodiesel 

were sold last year, but the 

volume is expected to increase 

sharply this year. 

Zimbabwe is also facilitating the 

planting of the drought-resistant 

Jatropha curcas, a multi-purpose 

plant with high oil content in its 

seed. 

Bio-fuel made from this oil is 

targeted to supply about 10% of 

national requirements, thereby 

reducing the fuel import bill. 

Source: The Herald, June 30, 2006 

PETROBRAS LAUNCHES 

BIO-DIESEL 

Petrobras of Brazil has launched a 

bio-diesel product derived from a 

new refining process. H-Bio was 

created after investing US$38 

million in research. 

It is produced by mixing vegetable 

oil obtained from soybean and 

mamona or papaya, with mineral 

diesel. 


The value currently limits the 

volume of soybean oil and 

sunflower oil used, and favours 

rapeseed oil instead. 

It is thought that the iodine value 

will be increased since the EU will 

need to use more soybean oil as a 

feedstock to meet its bio-fuel goals. 

EU bio-diesel manufacturers have 

already found a way to reduce the 

amount of rapeseed oil in biodiesel 

feedstock blends by adding a 

blend of soybean oil and palm oil. 

However, some hesitate to do so 


BIO-DIESEL DEAL 

FOR ZIMBABWE 

Agro-industrial company Dutch 

Agricultural Development and 

Trading Company BV (Dadtco) has 

entered into a joint venture deal to set 

up a bio-diesel plant in Zimbabwe. 

Dadtco will bring in the required 

technology and expertise to build 

the plant, while South African firm 

Intshona Agriculture Products will 

provide the funds. 

CPO USE CAPPED 

FOR BIO-DIESEL 

Malaysia and Indonesia, the 

world’s largest palm oil producers, 

have agreed to limit the use of 

CPO for bio-fuel production. 

The ceiling has been set at 6 

million tonnes a year or 40% of 

their combined total production. 

This is designed to ensure 

sufficient supply of palm oil for the 

edible oil and oleochemical sectors. 



Nutrition 

TFA-free items on 

Wendy's menu 

Wendy’s is enhancing TFA 

reduction via par frying process at 

suppliers’ facilities, before 

shipping to restaurants. 

Its salad dressings have zero grams 

of TFA per serving. Since 2005, it 

has offered margarine with zero 

grams of TFA per serving with 

baked potatoes. 

Source: 

Mozaffarian D. et al. (2006). Trans 

fatty acids and cardiovascular disease. 

N. Eng. J. Med. 354:1601-13. 

Wendy's International Inc 

announced on June 8 that it 

would begin frying french fries 

and breaded chicken items with 

non-hydrogenated oil by Aug 8, to 

offer healthier choices. 

The change in 6,300 outlets in the 

US and Canada will see a 95% 

drop in trans fatty acid (TFA) 

content. This will range from zero 

to 0.5 grams for the fries menu, 

depending on the serving portion, 

while eliminating TFA in breaded 

chicken items (see Table). 

TFA diet leads to 

‘apple’ body shape 

A diet rich in trans fatty acids 

(TFA) leads to weight gain and 

redistribution of fat tissue to the 

abdomen – causing the body to 

take on the ‘apple’ shape, which is 

associated with increased risk of 

diabetes and heart disease. 

This was part of six-year study 

findings reported at the 66th 

Annual Scientific Sessions of the 

American Diabetes Association in 

Washington DC on June 12. 

Researchers from Wake Forest 

University School of Medicine 

studied male monkeys fed with a 

Western-style diet, with 35% of 

the calories derived from fats. 

percentage from monounsaturated 

fat. The dietary TFA was reported 

to be similar to that of an average 

person consuming a diet high in 

fried foods. 

Monkeys on the TFA diet had an 

increased weight of 7.2% against 

1.8% in the other group. 

Computed tomography scans 

found 30% greater abdominal fat 

deposit in monkeys on the TFA 

diet. 

The study concluded that a diet 

high in TFA causes a 

redistribution of fat tissue into the 

abdomen and leads to higher body 

weight, even if total calories intake 

is controlled. 

One group was fed with a diet of 

8% calories from TFA, while the 

other group received the same 

Source: 

http://www.cbc.ca/cp/HealthScout/0 

60613/6061316U.html 

36 


Briefs 

Move to lower 

acrylamide in 

baked foods 

Science and Nutrition in Zurich 

headed by Renato Amado 

collaborated with Swiss biscuit 

manufacturer Kambly to study 

acrylamide in semi-finished 

products. 

reduced the pH of the mix, also 

significantly affecting arcylamide 

formation. 

The study clarified that such 

reduction only holds true if 

browning is not a key step of the 

baking process. 

Source: Food Navigator Europe 

GM rice 

faces hurdles 

Acrylamide is a reactive 

compound which was proven to 

induce cancer in laboratory rats in 

2002. It has since been established 

that acrylamide is formed when 

foods rich in starch are baked, 

fried or roasted during domestic 

cooking or industrial processing. 

This caused a worldwide alert. 

Investigations were undertaken by 

health authorities, co-ordinated by 

EU and the United Nations, to 

establish a mechanism to control, 

reduce and eliminate acrylamide 

from the food system (see Table). 

Recently, the Institute of Food 

Modifications to ingredients 

included: 

• Replacing the baking agent 

ammonium hydrogencarbonate 

with sodium hydrogencarbonate 

• Replacing inverted sugar syrup 

with sucrose solution 

• Increasing tartaric acid 

Acrylamide formation was 

reduced by 70% when sodium 

hydrogencarbonate was used by 

itself. When used with 

ammonium hydrogencarbonate, 

the content was significantly 

higher. 

Replacement of inverted sugar 

syrup with sucrose syrup 

decreased content by 70% and 

vice-versa. Adding tartaric acid 

Greenpeace is calling for an 

outright global ban on shipping 

US rice following the discovery of 

an errant gene, but advocates say 

that this will hurt people. Much of 

the population growth is 

occurring in rice-eating countries, 

which will require a 25% boost in 

rice production at the same time 

that land and water availability are 

declining. 

The solution is seen in the recent 

mapping of the rice genome. 

However, this is also caught up in 

economic protectionism, as 

evidenced by India ’s adoption of 

GM cotton, including the 

introduction of a national variety. 

Yet it is attempting to label GM 

foods that are largely imported. 



Trade Update 

Summary of the Malaysian Oil Palm Industry 2006 

Dec-05 Jan '06 Feb Mar Apr May Jun [r] July [p] 

PRODUCTION (TONNES) 

Crude Palm Oil 1,074,777 936,592 1,051,904 1,243,204 1,310,806 1,391,347 1,328,397 1,375,061 

Palm Kernel 274,129 249,144 292,288 337,895 351,915 364,115 341,020 347,004 

Palm Kernel Oil 138,853 117,195 126,449 160,275 161,026 171,690 167,953 182,923 

Palm Kernel Cake 158,558 133,043 143,870 181,885 181,396 193,545 188,052 206,452 

CLOSING STOCK (TONNES) 

Palm Oil 1,603,800 1,539,796 1,645,637 1,586,070 1,518,594 1,573,407 1,645,865 1,580,318 

Palm Kernel 174,334 185,177 205,178 207,631 210,739 216,668 199,251 163,147 



EXPORT (TONNES) 

Palm Oil 1,023,669 972,184 937,159 1,183,966 1,238,465 1,170,901 1,100,768 1,233,489 



Oleochemicals - 127,445 153,635 185,322 146,732 183,060 190,175 173,410 

IMPORT (TONNES) 

Crude Palm Oil 93,704 145,115 119,302 49,153 49,264 55,667 22,067 19,257 

Processed Palm Oil 12,198 7,040 21,168 3,732 3,137 4,354 12,686 7,313 

Total Palm Oil 105,902 152,155 140,470 52,885 52,401 60,021 34,753 26,570 

Fresh Fruit Bunches 14.43 14.75 15.02 14.62 14.40 14.44 14.07 14.54 

(1% Equivalent) 

Source: MPOB 

38 


mg/dL 

Palm Olein Reduces Blood 

Cholesterol 

Palm Olein reduces blood cholesterol as 

effectively as the high oleic Canola and 

rapeseed oils 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

mg/dL 

200 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

TC LDL-C HDL-C L/H 

TC LDL-C HDL-C L/H 

Canola oil 

Palm olein 

Canola or palm olein results in similar beneficial effects on plasma cholesterol. 

Sundram et al. (1995), J. Nutr. Biochem 

Rapeseed oil 

Palm olein 

Rapeseed oil or palm olein results in similar beneficial effects on plasma cholesterol. 

Sundram et al. (1997) J. Nutrition 

Palm Olein, The Superior 

Choice 

Higher Antioxidant Content 

Richest source of Tocotrienols 

(Vitamin E) that helps reduce 

cholesterol 

Excellent Frying Oil 

Ideal and stable frying oil 

Low in linolenic acid compared 

to Canola and rapeseed oils 

Competitively Priced 

More affordable than Canola and 

rapeseed oils 

Palm Olein Adds Heart Healthy Goodness to Your Foods 

MPOC 

Malaysian Palm Oil Council 

www.mpoc.org.my


The chemistry of oils and 

fats made simple 

Nine propositions cover the basic chemical information required 

to understand the main technical terms used in the oils and fats 

industry. 

1. The Element Carbon – chemical symbol C – is common to 

all substances involved in living things. 

2. Each atom of Carbon is capable of linking to other atoms by 

means of four bonds. 

3. Carbon often joins to form linear chains, using two of these 

bonds as shown. 

create fuel for internal combustion engines, and very long 

chains provide wax for candles.) 

5. Sometimes there is a deficit of hydrogens in the hydrocarbon 

chain. 

The chain is unsaturated. There is one double bond. 

6. A fatty acid consists of a hydrocarbon chain with an acid 

group at one end. 

4. The unused bonds are often linked to hydrogen. 

A saturated acid (O stands for oxygen) 

Or 

This is a saturated hydrocarbon chain – all the bonds are 

satisfied. (Short chains give us cooking gas, longer chains 

An unsaturated acid 



The most common saturated acids occurring in 

fats have 4 to 18 carbon atoms. The most 

common unsaturated acids have 18 carbons. 

That with one double bond is oleic acid, while 

linoleic acid has two double bonds and 

linolenic acid has three. 

What makes fats solid and oils liquid? More details about fatty acids are 

useful in answering this. 

7. Every natural fat is a mixture of compounds 

called glycerides. Each glyceride contains three 

fatty acids joined to one glycerol molecule as 

shown: 

A, B and C may be identical, but more often 

than not, are chosen from a number of natural 

fatty acids which differ from each other in one 

of two ways: 

a) The length of the chain (usually between 4 

and 18 carbons) 

b) The unsaturation (number of double bonds) 

8. These variations in A, B and C result in 

different physical properties in the glycerides. 

Some are solid, others are liquid. Each natural 

fat is a mixture of many glycerides. Therefore 

the physical properties of a fat such as palm oil 

are a sort of average of its major constituents. 

9. The glycerides make up about 99% of most 

natural oils; the rest consists of oil soluble 

chemicals of different types. 

Those important in palm oil are carotenes, 

which are responsible for the strong colour of 

the unrefined oil and capable of being transformed 

into Vitamin A in the body; and the tocopherols, 

or the Vitamin E group, which have valuable 

antioxidant properties. 

At first sight one would think that a double bond would be stronger 

than a single one in linking the Carbon chain. However, the two bonds 

involved are bent out of their natural position and therefore are under 

strain. So, a double bond is actually weaker. 

While the saturated acid chain is straight, unsaturated acids have a kink 

at the double bond. So triglycerides containing only or mainly straight 

saturated acids align easily together to form crystals. Such triglycerides 

are solid at room temperature. The kink in the unsaturated acids makes 

it more difficult for their triglycerides to align and form crystals, so they 

stay liquid. 

Most of the major vegetable oils contain mainly unsaturated fatty acids 

and are liquid at room temperature. These consist of soybean, rapeseed, 

sunflower, cotton seed, groundnut, olive and maize oils. 

The most important exception is palm oil. With 50% unsaturated and 

50% saturated acids, it has a solid consistency at room temperature and 

is therefore unusual among vegetable oils. 

Coconut and palm kernel oils are also solid due to their unusual content 

of short and medium chain saturated acids. They have special 

applications in food and in the oleochemical industry. In terms of world 

supply, they are available in relatively small amounts. 

42 


Physical properties 

Many of the food uses of oils depend on 

the consistency or body. A simple example 

– you can’t pour margarine or butter on 

salad, and you can’t spread olive oil on 

bread. A solid character to varying degree 

is necessary in fats for margarine, for 

bakery products, for ice cream. 

Historically, this solid character was 

provided by animal fats, but these are 

little used in margarine and bakery fats 

nowadays. 

The liquid oils can be modified to have a 

solid consistency by hydrogenation. 

Hydrogen is added to some of the 

unsaturated component fatty acids, so 

increasing the average saturation of the 

oil. The process takes place at around 

100°C when the oil is mixed with 

hydrogen gas in the presence of a catalyst. 

This sounds very simple but at the 

molecular level there is a complication. 

During hydrogenation the unsaturated acid 

has to go through an intermediate stage. At 

this point the kink at the double bond is 

ironed out, the chain becomes straight but 

the double bond is still there. It is now a 

‘trans’ unsaturated fatty acid (TFA). 

Partly hydrogenated oils always contain a 

mixture of saturated acids, unchanged 

unsaturated acids and ‘trans’ unsaturated 

fatty acids (TFA). TFA are now known to 

be nutritionally undesirable, since 

research has shown that they 

raise the level in the blood of 

undesirable ‘LDL cholesterol’ which is 

involved in the process of clogging up the 

arteries. At the same time they also 

decrease the blood level of the desirable 

‘HDL cholesterol’ which removes excess 

cholesterol from the blood stream. This 

doubly adverse result is now universally 

recognised and has led national and 

international expert bodies to advise 

minimising TFA in foods. 

Some countries have labelling laws to 

declare TFA content in food products. 

Denmark has imposed a legal limit on the 

amount. Consumer awareness of 

nutritional issues is high everywhere and 

food industry management is therefore 

strongly motivated to remove TFA from 

products. In the UK a large supermarket 

chain is stating that most of its 

merchandise is now TFA-free and that the 

rest will follow soon. 

Two approaches are used to make 

consistent fats without TFA: 

1. If you completely hydrogenate liquid 

oil, so that all double bonds are 

saturated, clearly you no longer have 

any TFA. However, such a fat is as hard 

as bricks and, on its own, no use in 

food. Another simple 

chemical process, 

‘interesterification’ 

comes into play. The 

fully saturated fat is 

melted and mixed 

with liquid oil. A 

catalyst is added, which induces all the 

fatty acids to disconnect from their 

glycerol and re-attach to some other 

available glycerol in a random manner. 

If you get the right proportions of the 

ingredients, you finish with a fat of 

just the desired consistency. 

2. The second approach uses palm oil or 

its higher melting fraction, palm stearin, 

either in a mixture with other oils, or 

by using the interesterification procedure 

on a mixture designed to get the 

characteristics needed. 

The choice between the two approaches 

will depend on circumstances; for 

example the availability of locally 

produced oils may point to the first 

method. In many situations the palm oil 

method is the more economic, as in the 

US. 

The steady increase in recent US imports 

(see Fig 1) shows that some manufacturers 

have been taking advantage of the ‘solid 

fat’ properties of palm oil and palm 

stearin since 2000. This trend can 

confidently be predicted to continue. 

Some commercial firms in the US already 

offer palm products for trans-free 

formulations. 



due to marketing 

considerations; palm oil is 

therefore a unique ingredient for this 

purpose. 

For use as a salad oil it is desirable that the 

oil should remain clear at the temperature 

of a domestic refrigerator (5°C or 40°F). 

This criterion is met by soybean, 

rapeseed, olive and sunflower oils. It is 

also met by maize oil provided its traces of 

natural waxes have been removed, so they 

can all be regarded as interchangeable. 

Both groundnut and cotton seed oil tend 

to crystallise in the refrigerator, as does 

palm olein, the more liquid fraction of 

palm oil. 

While the above salad oils are 

interchangeable as regards technical 

performance, there are still aspects of 

consumer choice. Thus olive oil is often 

prized for its special flavour characteristics 

and commands a high price. There may 

be a preference for sunflower or maize oils 

because they have long been promoted as 

being healthy, due to their high content of 

the nutritionally essential linoleic acid. 

Interchangeable use 

A degree of interchangeability of oils is 

welcomed by the food industry as it gives 

the buyer a choice of the cheaper supply. 

But just how interchangeable are 

vegetable oils? This answer very much 

depends on the intended use. 

For example when selecting the solid 

component for a margarine formula, it 

was possible to choose between partly 

hydrogenated soybean, rapeseed or other 

liquid oil and palm oil. 

Today this option is much less available 

Frying fats 

A major use of oils worldwide is in the 

preparation of fried foods. When frying is 

carried out in a shallow pan, as for example 

cooking an egg for breakfast, a little oil is 

heated in the pan and is absorbed by the 

food; any small residue is discarded. 

44 


It can be said that any 

refined oil or fat will serve, whether of 

vegetable or animal source, provided it is 

in good condition, so for this application, 

oils are fully interchangeable. Some users 

may prefer to use an unrefined product 

especially olive oil, butter and beef fat 

because of the characteristic flavour it 

imparts to the food. 

For use in deep-fat frying, the situation is 

different. This is done at home in a pan 

holding up to about 1kg of oil; by the 

restaurant and fast food outlet in a pan 

using 5-10kg or more; and by the snack 

food manufacturer in continuous frying 

baths containing 1 tonne or more of oil. 

During use a proportion of oil is absorbed 

by the food, but most of the oil remains in 

the pan for further use. 

In a restaurant outside the main meal 

times, use is intermittent, but to ensure 

quick service, the frying pan is kept hot. 

Since the temperature used for frying is 

high (usually 175-185°C), some chemical 

changes in the oil will take place during 

use and are exacerbated during the slack 

periods, especially when the oil used has a 

high content of the more reactive 

unsaturated acids. 

In France for example, there is legislation 

against the use of oils containing more 

than 2% of linolenic (3 double bonds) 

acid, so ruling out the use of soybean and 

rapeseed oils, which have 8-9% of 

linolenic acid. 

To render the unsaturated oils suitable for 

deep frying they are partly hydrogenated, 

but this has the disadvantage of 

introducing TFA. Palm oil and palm olein 

have in practice proved highly suitable for 

deep frying, and currently 5-10 million 

tonnes are used annually by snack food 

manufacturers across the world for potato 

crisps and other starch-based snacks, and 

for instant noodles. Some manufacturers 

find blends of palm olein with one of the 

liquid oils to be satisfactory. 

New trials 

At present, therefore, interchangeability 

of oils is limited in deep frying. This is 

likely to change in the future due to the 

efforts of plant breeders. They are 

succeeding in producing oils with reduced 

levels of the more unsaturated acids. 

Extensive full scale trials with a ‘high oleic’ 

sunflower oil (and low in linoleic acid) have 

proved its good performance in potato 

crisps, and other oils are in the pipeline. 

Some snack 

food operations have already 

changed from palm olein to the high oleic 

sunflower oil despite its significantly 

higher price. This demonstrates the 

dynamic nature of the competition 

between the different oils and of their 

interchangeability. 

The reason for the decision to change is 

the perception that the more unsaturated 

sunflower oil is healthier. It is clearly 

important for the long term that research 

into creating a palm oil low in saturates 

and high in unsaturates should be 

successful. 

To take full advantage of the productivity 

of the oil palm, the world market has a 

clear demand for two types of palm oil. 

Firstly, the present type of palm oil, so 

valuable in the production of consistent 

fats, but secondly an unsatisfied demand 

for a palm oil that is truly competitive in 

its characteristics with the liquid vegetable 

oils. 

KG Berger 

Food Technology Consultant, UK 


Branding & Marketing 

Branding is all about telling a story 

Brands have transcended cultures. 

A marketing professor estimates 

that 10% of a two-year-old’s 

nouns are brand names. A well-known 

English study found that one out of every 

four babies speaks a brand name as a first 

word. I could go on. 

Brands are so ubiquitous that the 

Marlboro man is better known than 

Nelson Mandela. The golden arches are 

better recognised than the Red Cross; 

Mickey Mouse and Coke are part of the 

‘cool’ generation, while the UN and 

WHO are part of the ‘who?’ generation. 

What about commodities? Often defined 

as lowly differentiated products with a 

high degree of substitutability, it is true 

that commodities are usually 

differentiated only on price. What would 

be an effective marketing strategy for a 

commodity like palm oil? 

In my view, a commodity can be branded. 

The onus is on the enlightened marketer 

to show why palm oil from say, Malaysia, 

is of better quality than from competing 

countries. It is all about telling a story. 

One way is to differentiate Malaysian 

palm oil from the rest. If that is difficult, 

I would recommend that, rather than 

communicate the physical qualities, it 

might be a better option to focus on 

planting the projected or inferred quality 

in the consumer’s mind. 

That is where the ‘branded ingredient’ or 

‘hero ingredient’ strategy is particularly 

effective. This has been successfully 

employed for many commodities, the best 

known of which is probably ‘Aspartame’, 

used in Equal. 

When I was a teenager, I wondered why 

people would pay for a bottle of branded 

water when water was free. What was more 

shocking was that bottled water cost more 

than an equivalent quantity of petrol. 

This phenomenon still holds true. Drive 

to a supermarket and pick up a bottle of 

Evian or Spritzer. Drink the water as you 

drive to the nearest petrol station and fill 

up the empty bottle with petrol. Voila! 

You will find that the petrol is cheaper 

than bottled water. 

The reason for this phenomenon is 

branding. It is well established that 

branding changes the economics of a 

product, even for a commodity like water. 

The reason? A successful brand increases 

switching costs and allows a premium to 

be charged on the finished product based 

on esteem, differentiation, relevance and 

familiarity. 

LS Sya 

Brand Identity Specialist 

London BrandMagic 

46 


Global Oils & Fats Business, a quarterly news magazine with a 

circulation of 25,000 copies worldwide has been reporting on the 

oils & fats industry since 2004 and continues to inform decision 

makers, regulators, health professionals and those involved in the 

oils & fats business on key issues widely discussed in the industry. 

Each issue contains specific editorial sections: environment, 

nutrition, regional market analysis and review, market briefs, 

branding and oils & fats technology. The magazine presents the 

key developments and opportunities and strategic challenges that 

exists in building a successful business globally in new and 

developing markets. 

The Global Oils & Fats Business Magazine helps you to reach a 

world wide audience through a distribution network that reaches 

six major regions in the world. 

To request for more details on advertising rates or to place an 

advertisement, please e-mail Advertising Sales - gofb@mpoc.org.my 

or call 603-78064097/ Fax 603-78062272. 

Download a copy of the GOFB at www.mpoc.org.my

Issue 3 - American Palm Oil Council

Create successful ePaper yourself

Delete template?

Save as template?