REALISING HIGH VALUE ADD FROM THE PLANTATION SECTOR:

THE CASE OF PALM OIL AND RUBBER

Presentation byTan Sri Datuk Dr. Yusof Basiron

Chief Executive Officer

MALAYSIAN PALM OIL COUNCIL (MPOC)

PRESENTATION

PALM OIL INDUSTRY & RUBBER INDUSTRY

1. Innovation to transform ideas into wealth

2. Importance of R & D to value add

3. Transformation of Malaysia from mid to high income status though Economic Transformation Program (ETP) & National Biomass Stategy (NBS)

4. What is needed to realize high value add, and what strategy?

5. Conclusions

PRESENTATIONPALM OIL INDUSTRY & RUBBER INDUSTRY

1. Innovation to transform ideas into wealth

a. Technology, Finance, Marketing, 3 pillars for successful commercialization.

2. What is needed to realize high value add?

a. Strategy: Technology, Ecology, Economic imperatives:-Techno-Ecological-Economic perspectives.

3. Conclusions

THE BASIC LIMITS TO GROWTH MODEL

1900 1920 1940 1960 1980 2000 2020 2040 2060 2080 2100

Pollution Ind. Output Population Food Resources

Exponential growth causes reduction of resources & pollution increase.

This will force reversal of growth.

If industry can resist the decline, high prices due to shortages may occur

Prices of CPO & SMR 20 rubber

0

200

400

600

800

1000

1200

1990 1995 2000 2005 2010

Palm oil

Rubber

sen /kg

Good prices have led to good revenues for palm oil & rubber industries and Malaysia

Importance of palm oil & rubber to Malaysian economy

• Export earnings from palm oil industry in 2011 was RM 80.4 billion

• Export earnings from rubber industry in 2011 was RM 40.4 billion

• They are the top two export revenue earners for primary commodities

• Together they contribute to 17% of Malaysia’s export earnings

• Bright future of palm oil & rubber industry and significant contribution of these 2 industries to Malaysian economy

• NKEA Agriculture = NKEA palm oil & rubber

• Malaysia ranks 88th position out of 215 countries in GNI (World Bank)

• ETP to thrust Malaysia into high income status

• Get Malaysia out of Middle-Income Trap

• GNI per capita of Malaysia to reach USD 20,000 by 2020

Capital through the Government:Economic Transformation Programs (ETP)

National Biomass Strategy (NBS)

• Palm oil industry has a second value add driver

• NBS has a roadmap to use palm oil biomass for biofuels and biochemicals

• To generate RM 30 billion GNI by 2020

• This is additional to palm oil’s contribution from NKEA palm oil

Source Picture: http://www.innovation.my/programmes/wealth-creation/bio-mass/

Importance of R&D

• Oil palm & rubber trees produce raw materials

• Need new products to increase use of these raw materials

• Need evidence (results) from R&D to resolve attacks on palm oil & rubber

• These R&D activities will

Create new products & new demand

Create new markets

Maintain existing markets

Net effect: Increased export earnings

Importance of R&D (palm oil)

• Palm oil has higher amount of saturated fatty acid compared to olive, soya & canola oils

• Higher intake of saturated fat thought to cause poorer cardiovascular health

• > 180 studies on nutritional value and health benefits of palm oil carried out

1. Debunking the saturated fats issue

Conclusions

1. No significant evidence to show that dietary fat associated with increased risk of coronary heart disease (CHD)

2. Consuming palm oil increases ‘good’ high density lipoprotein cholesterol (HDL-C) and trends towards reduced CHD

IMPACT: Palm oil defended its turf & won new markets & retain old ones

i. Dietary manipulations of fatty acids in human “diet”

ii. Blending of palm and soya oils

iii. Humans taking this blend had improved human HDL/LDL cholesterol ratios

iv. Reduced cardiovascular risk

v. This fatty acid blend could replace trans-fats margarine & other solid fats

vi. Patent resulted in successful product commercialization

Importance of R&D (palm oil)

2. Smart Balance

IMPACT: Palm oil exports to USA soared

3. Create more value added products

Importance of R&D (palm oil)

Standard Malaysian Rubber (SMR)

• NR produced as sheets & scraps traditionally

• SMR Scheme is scheme to grade Malaysian rubber based on technical specifications with certain defined packing requirements

• Launch marked success resulting from months of R&D efforts on processing, grading and packaging of NR

• Today (47 years later) Scheme still in use

• Major NR producing countries copied theSMR scheme:

i. Standard Thai Rubber (STR)

ii. Standard Indonesian Rubber (SIR)

Importance of R&D (rubber)

Malaysian NR consumption by sectors in 2011

compounds

thread

others

tyres & tubes

gloves70.7%

8.9%13.1%

6.8%

Source: MRB (Dec 2011)

0.4%

Malaysia is world’s largest supplier of gloves in world

NR latex medical gloves

• R & D to make gloves economically

• Malaysia is largest supplier of gloves in world

• Allergy resulting from use of latex medical gloves in early 1990s caused alarm as >1,000 reported cases

• Alarm also caused by reports of NR latex glove proteins contaminating food due to food handlers in 2001

• Research at RRIM found allergy due to:

i. latex protein

ii. powder added to gloves

Importance of R&D (rubber)

NR latex medical gloves

Solutions

1. NR gloves today have lower latex protein content

2. Gloves sold “With Powder” or “Without Powder”

Impacts:

1. Malaysia remains world’s largest glove supplier

2. One of NKEA Agriculture’s target is to increase

Malaysia’s world market share of latex gloves to

65% by 2020 (Entry Point Project No. 4 for Rubber Industry)

Importance of R&D (rubber)

Heveawood products

• In earlier days rubber wood used as fuel for cooking

• Late 1970s R&D at RRIM and later at FRIM found a method to treat rubber wood & make furniture and other wooden products

• RESULT:

i. Convert use of rubber wood to end product with high value

Importance of R&D (rubber)

Furniture from Heveawood

Source: Malaysian Rubber Board (MRB)

Export revenue from Heveawood products in 2011

Type of product Revenue (RM billion)

NR 13.28

Rubber products 14.18

Heveawood products 8.00 (20% of total revenue)

Other rubber products 4.96

Total 40.42

New rubber products

• R&D found new products that can be made from NR

Ekoprena : form of epoxidised NR (ENR)

i. Considered a green material

ii. Can make tyres with excellent grip & reduced rolling resistance

Pureprena: form of deproteinized NR

i. Its products show low water absorption & consistent modulus

Importance of R&D (rubber)

Production of new products to be commercialized

• Ekoprena and Pureprena to be commercialized

• One of the four EPPs in rubber sector

• Expected to generate RM 1.3 billion by 2020

• Felda Rubber Industries S/B and Mardec Rubber Processing S/B will be pioneers

High value add for palm oil industry

PALM OIL INDUSTRY

• Achieved via NKEA (palm oil & rubber) and NBS

Upstream

EPP 1: Accelerate replanting of oil palm

EPP 2: Improve FFB yield

EPP 3: Improve worker productivity

EPP 4: Increase national average Oil Extraction Rate (OER)

EPP 5: Develop biogas at palm oil mills

PALM OIL INDUSTRY

Downstream

EPP 6: Develop oleo derivatives

EPP 7: Commercialize second generation biofuels

EPP 8: Expediate growth in food & health-based downstream segments

Value addition

• NKEA programme to generate RM 47.1 billion GNI

• NBS to generate another RM 30 billion GNI & 70,000 new jobs

High value add for palm oil industry

Upstream

EPP1: Increasing average national rubber productivity to 2,000kg/ha/yr by 2020

EPP2: Ensuring sustainability of upstream rubber industry

Downstream

EPP3: Increase world market share of latex gloves to 65% by 2020

EPP4: Commercialise Ekoprena and Pureprena

Value Addition: Generate GNI of RM 52.9 billion

High value add for palm oil industry

1. NEED TO CARRY ON R & D

• Great importance of R&D is already shown for both palm oil and rubber industry;

i. to come up with new products

ii. to come up with scientific evidence and provide solutions

• So that new markets can be created

• Existing markets can be retained or expanded

• Increase prices, volumes and lower costs

to generate more value or revenue

Realizing the potential

A need to increase yield productivity for oil palm

0

5

10

15

20

25

1975 1980 1985 1990 1995 2000 2005 2010

t/ha

In 2007, oil palm industry players had a round table discussion on elevation of national average FFB yield to 35t/ha and OER to 25% to obtain 8.75 t CPO /ha/yr. KEY: replant with good materials + best agro-management practices

Average yield 18.94 t/ha/yr

Mechanization

• Good progress made in mechanization

• Mechanized harvesting tool for oil palm:CANTAS

• Mechanized harvesting tool for rubber: ARTS (Mechanized Rubber Tapping System)

• Mechanized field transport vehicles

• Mechanized fertilizer pocketing system for rubber (Bronze award at ITEX 2012)

• Next: To find solutions for weaknesses found in mechanized tools & equipment

• Cost must be affordable

CLOSER COLLABORATION BETWEEN GOVERNMENT & PRIVATE SECTORS NEEDED

Realizing the potential

• Keen competition between palm oil and rubber producing countries

• Expect greater competition in the future when production increases from large areas planted /to be planted

• Indonesian new Export Tax Structure in 2011 has created problems for Malaysia’s palm oil refiners

• Thailand’s new system introduced in 2011 whereby cess for rubber used in local consumption will be refunded created problems for Malaysia’s rubber industry

• Need to tackle problems in minimal time so that profits are not badly eroded

Rapid expansion to plant oil palm & rubber has created shortage of experienced personnel

German investors eye rubber plantations in Indonesia

German investors have expressed interest indeveloping rubber plantations in Bangka-Belitungprovince in east Indonesia, local InvestmentCoordinating Board Chairman, Zakaria said. He furthersaid that the potential of rubber plantation developmentand the rubber processing industry was promising asthere were a lot of vacant plots that could be turned intoproductive land. "Rubber produced by the farmers inBangkareaches 93,000 tonnes peryear," he said.

Zakaria pointed out that German investment in rubberplantations and in the rubber processing industry wouldsurely raise the price of the commodity on localmarkets, thereby encouraging rubber farmers to workeven harder.

-The Jakarta Post, 10 Mar

1. Shortage of wokers well known2. Shortage of high & mid level personnel is present with shortage of experienced planters,

supervisors, agronomists & plant breeders3. Will we have enough expertise to move NBS forward?

Next Wave: need to combine technology, economics & corporate citizenship

In future, companies will have to create social contract to work alongside (not in opposition) with NGOs and governments as co-protectors of environment and co-creators of wealth

Source: Googins et al (2007)

• NKEA (Palm oil and Rubber) expected to play its role to transform Malaysia to high income status

• NKEA (Palm oil and Rubber) expected to generate RM231 billion GNI by 2020

• Additional RM30 billion GNI from NBS

• R & D proven as one of the primary drivers that have contributed to glory of palm oil and rubber today

Conclusions

• R&D must continue to find new products & find solutions

• Both of them are needed to expand into new markets or maintain present ones

• Closer collaboration between government & private sectors called for to tackle issues that will arise

• Need to resolve lack of experienced personnel

• Conduct of businesses in future will be Revolutionary Renewal Approach to value add

Conclusions

THANK YOU