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THIS year marks 100 years since the first commercial oil palm plantation was established in the country. From its humble beginning, the palm oil industry is today the main pillar of the commodities sector, contributing RM67.6bil in export value in 2016, equivalent to 6.1% of Malaysia’s GDP.

In the second part of the series, the 100-year journey continues with another FIVE milestones; from 1981 to 2013.

Milestone #6: 1981

Constant supply of palm oil and palm kernel oil enabled Malaysia to become a world leader in the oleochemicals sector.

A unique feature of the oil palm is that it produces two types of oil, respectively from the flesh and kernel of the fruit. Both are edible, but can also be used as feedstock for non-food applications such as the production of oleochemicals. These are renewable and environment-friendly chemicals derived from oils and fats of vegetable, animal or marine origin. As an alternative to petrochemicals, oleochemicals are used in products like surfactants, personal care items, soaps, detergents, inks and coatings.

The Malaysian oleochemicals industry flourished in the 1980s following a shift in policy away from the mining- and agriculture-based economy, to one led by manufacturing. Initially, basic oleochemicals like fatty acids, fatty alcohols, methyl esters and glycerine were produced. As global demand for oleochemicals increased and new technologies emerged, the operations were expanded to produce oleo derivatives and consumer or industrial end-products.

Benefitting from the uninterrupted supply and competitive price of palm oil and palm kernel oil, the Malaysian oleochemicals industry became a world leader. Today, with 20 plants and joint capacity of 2.73 million tonnes, Malaysia accounts for at least 20% of global production of oleochemicals.

Milestone #7: 2005

The National Biofuel Policy paved the way for commercialisation of biodiesel and a new high-growth industry in Malaysia.

Depleting reserves of fossil fuels and rising alarm over their negative environmental impact led to escalation of R&D efforts toward renewable and eco-friendly alternatives. The interest brought in new technologies and mandates to increase the global output and use of biofuels.

Malaysia has carried out extensive R&D work on palm-based biodiesel since the 1980s. The National Biofuel Policy was announced in August 2005, facilitating commercialisation of palm-based biofuel, in particular palm biodiesel. A year later, Malaysia’s first commercial-scale biodiesel plant commenced operations in Pasir Gudang, Johor.

Following successful on-road trials of palm biodiesel, the government initiated the B5 programme — a blend of 95% diesel and 5% palm methyl ester (biodiesel) – in June 2011. Used first in the administrative capital Putrajaya, it was extended to the central region the same year and to the southern region by July 2013. The completion of blending facilities in the northern region, as well as Sabah and Sarawak, by mid-2014 enabled B5 biodiesel to reach users nationwide. Since January 2015, the government has mandated the use of B7, in which the percentage of palm biodiesel is increased to 7%.

Multiple grades of Malaysia’s biodiesel are also exported, taking advantage of the indigenous properties and characteristics of palm oil. Apart from being suitable for use in temperate climates, these also meet stringent international specifications, namely ASTM D6751 and EN 14214.

Milestone #8: 2008

Malaysia became the first country to produce and export certified sustainable palm oil (CSPO).

Consumption of vegetable oils has grown over the last decade, in tandem with an increase in the global population. As a key commodity, palm oil is traded to satisfy the demand for oils and fats. This necessitated the expansion of oil palm plantations. However, some quarters then questioned the industry’s sustainability credentials and impact on the environment.

In 2004, the Roundtable on Sustainable Palm Oil (RSPO) was set up to promote the production and use of sustainable palm oil through a credible global standard derived in consultation with stakeholders. Following pilot implementation, the RSPO’s Principles & Criteria for sustainable production of palm oil were finalised in November 2007.

Certification of oil palm plantations began in 2008. Malaysia became the first country to produce and export CSPO, when one of its companies received the inaugural RSPO certification. To date, Malaysia accounts for 31% of global CSPO production and the volume is growing.

Milestone #9: 2010

Malaysia’s oil palm sector was identified a National Key Economic Area (NKEA) under the Economic Transformation Programme.

The combined oil palm and rubber sector was designated as one of 12 NKEAs in the Economic Transformation Programme, aimed at achieving high-income nation status by 2020.

Accounting for more than 5% of annual exports, the palm oil sector is a major contributor to the economy. It has moved up the value chain to introduce high-end products to meet food and health needs, among others. Efforts are continuing to boost the productivity of smallholdings, because of limited agricultural land for to increase cultivation.

This two-pronged approach toward a more efficient palm oil supply chain targets the generation of RM178 billion in Gross National Income and 41,600 new jobs by 2020 through the implementation of eight Entry Point Projects. Currently, the palm oil industry is the second biggest provider of jobs, employing more than 440,000 people.

Growth is projected to strengthen, powered by business opportunities in upstream expansion; development of existing downstream activities; and biodiesel production worth RM57.6 billion by 2020. The challenges to be addressed include mechanisation to reduce dependence on foreign labour, improved productivity, and the creation of value-added products.

Milestone #10: 2013

Sustainability and transparency are taken to the next level through the Malaysian Sustainable Palm Oil (MSPO) standard.

While the RSPO is an important player in palm oil certification, its criteria and processes have proven to be simply too broad and too expensive for most small farmers to satisfy. The MSPO brings on board all levels of producers to meet a broad range of standards that still provide an assurance of sustainability and traceability.

The MSPO also represents the qualitative difference between palm oil from Malaysia and the output of other producers. Just as quality assurance is attributed to Japanese manufacturing or American innovation, a level of assurance can now be connected to the ‘Malaysian Palm Oil’ brand.

Following a pilot programme in 2014, a number of plantation companies and small farmers have received MSPO certification covering a planted area of more than 0.24 million ha. Progress is being made in training auditors and conducting awareness sessions across the country to further encourage acceptance of the scheme.

Establishing a standard was an important first step. Measures are being put in place to ensure there is the capacity for the MSPO to be implemented and verified in a cost-efficient manner. It could then play a significant role in the future of palm oil certification.

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