18947 Pullout CEO 6-2 2 - Malaysian Palm Oil Board

Potential of Palm Oil forDeveloping Countries and Rolein the Food and Fuel Debate1

Dr Yusof Basiron* and Dr Yew Foong Kheong***CEO, Malaysian Palm Oil [email protected]**Senior Fellow, Malaysian Palm Oil [email protected]

© 2009, GOFB, Vol.6 Issue 2 (April-June)

KDN No: PP 10311/10/2009 (022649) • VOL.6 ISSUE 2 (April-June), 2009Pullout

Agricultural production has become more complex inrecent times. Firstly, an increasing quantity of food –including oils and fats – has to be produced to feed thespiralling world population. Expanding crop productionrequires arable land to be opened up for cultivation,leading to pressure from competing demands for use ofthe land (http://www.globalchange.umich.edu).

Secondly, sustainable land management (Dumanskiand Smyth, 1993) is required to ensure that scarceresources can be used on continuous basis. Mucharable land is lost through unsustainable use, resultingin soil degradation from erosion and desertification.

Furthermore, concerns over climate change nowdemand sustainable practices in crop cultivation, in amanner that minimises life cycle greenhouse gas(GHG) emissions. Another response is the use of veg-etable oils as feedstock in bio-fuel production. The feed-stock is from palm oil (Yusof, 2005; Choo et al, 2005),rapeseed (www.biofuelsb2b.com) and maize (Bourne,2007). However, their use has raised anxiety about pos-sible shortages for food applications and increasedprices.

The tropics with abundant sunshine and rainfall are wellsuited to agriculture. And, as many tropical countriesare developing countries, agriculture is often used tospearhead their development. This paper will thereforediscuss the role played by oil palm with regard to food,fuel and development.

Limited arable land-bank

The world population is increasing at an amazing rateof 211,000 people per day or 77 million per year(http://one-simple-idea.com/Environment1.htm). It grewfrom 2 billion in 1922 (http://www.world-crisis.net) to 6.6billion in 2005 (Figure 1), and is projected to swell to 8billion in 2030 and 9 billion in 2042 (http://www.free-world academy.com/globalleader/trends.htm).

Arable land comprises only 10% of the world’s total landarea of 150 million km2 (http://www.globalchange.umich.edu), and nearly all of the

1 This is an edited version of the paper presented at the ‘Palm Oil – The Sustainable 21st Century Oil’ conference held from March 23-24, 2009 in London,and organised by The Royal Society, UK.

18947 Pullout CEO 6-2_2 5/22/09 1:48 PM Page 1

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productive land is already exploited. In fact, croplandper capita is declining worldwide. Arable land per capi-ta decreased from 7.5 x10-3 km2 in 1922 to 2.27 x10-3

km2 in 2005 (Table 1).This will diminish to 1.88 x10-3 km2

in 2030 and to 1.67 x10-3 km2 by 2042. Therefore, it isvital to use this scarce resource rationally for food andfuel production.

Oil palm, soybean, rapeseed and sunflower seed are thefour primary sources of vegetable oil (Table 2). Togetherthey satisfy 111.4 million tonnes or 81.4% of world demand.Palm oil currently holds a share of 31%, followed by soy-bean (28%), rapeseed (14%) and sunflower oil (8%).

The oil palm is a perennial crop, while soybean andrapeseed are annuals. The oil palm has the best landproductivity and highest yield of oil per hectare of all oilcrops (Corley and Tinker, 2003). It produces 3.68tonnes/ha/year (Figure 2), compared to rapeseed(0.59), sunflower seed (0.42) and soybean (0.36). Thisworks out to 10 times more oil per hectare than soy-bean, six times more than rapeseed and almost ninetimes more than sunflower seed.

Higher land productivity of the oil palm means that itrequires less land to produce the same amount of oilthan other major oil crops. The current combined pro-duction of 111.4 million tonnes of palm, soybean, rape-seed and sunflower oil is obtained from a total area of177 million ha (Table 3). Oil palm uses the smallestacreage of 11.6 million ha, followed by sunflower (26million ha), rapeseed (33 million ha) and soybean (106million ha).

If oil palm, being the most efficient oil crop, is given thesole role in producing vegetable oil to feed the world, itwould only need 30.3 million ha of land (Table 4) now.This means that an excess of 146.5 million ha of land –almost six times the size of UK or about 1% of the totalworld land area – can then be allocated for other land-use purposes.

If the current global harvested area of 177 million hawere occupied by oil palm alone, 651 million tonnes ofoil would be produced.This would amount to almost fivetimes the current global vegetable oil requirement.Since only 137 million tonnes of oil are now needed forfood (Table 5), the balance of 514 million tonnes couldbe put to other uses, such as producing bio-fuels. In


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fact, the combined world requirement for 144.4 milliontonnes of vegetable oil for food and bio-fuel today wouldrequire only 39 million ha of land if cultivated with oilpalm.

A production of 651 million tonnes of palm oil per yearwould even be sufficient to meet world demand for foodand bio-fuels in 2030, estimated at 263 million tonnes.There will then be a surplus of 388 million tonnes ofCPO for other purposes. Furthermore, no new landwould have to be cleared for vegetable oil production.

Oil palm – leader in sustainability

Oil palm can be cultivated sustainably (Yusof, 2007). InMalaysia, it is grown on legal agricultural land which isdistinct from gazetted permanent forest reserve land(Lee and Panton, 1971).

Sustainable and responsible methods are applied inpalm oil production (Yusof et al, 2008; Lee et al, 2007).Some of the Good Agricultural Practices include theuse of zero burning or controlled burning techniques inclearing land; integrated pest management; and treat-ment of wastewater at palm oil mills to reduce levels ofchemical oxygen demand and biological oxygendemand before discharge into waterways (Table 6).

In recent years, the palm oil industry has embarked ontrapping methane when it was realised that this is aGHG with high global warming potential. Mills that trapmethane also gain carbon credits as the activity quali-fies as a Clean Development Mechanism (CDM) projectunder the Kyoto Protocol (Yapp, 2008).

The palm oil industry is the world leader in sustainabili-ty certification systems. The Roundtable on SustainablePalm Oil (RSPO) was established in 2004 and hasmore than 300 members comprising growers, proces-sors, traders, manufacturers, retailers, banks, environ-mental NGOs and social NGOs (Jan Kees, 2008).

Two Malaysian companies – United Plantations Bhdand Sime Darby Plantation Sdn Bhd – were the first toobtain RSPO certification. United Plantations Bhd deliv-ered the first batch of sustainable palm oil at the end of2008. In January 2009, food manufacturer Daniscoannounced the availability of the world’s first sustain-able emulsifier, manufactured from sustainable palm oil.

Other oilseed producers are now following palm oil’sleadership in achieving sustainability – the soybeanindustry, for instance, has set up the Roundtable onResponsible Soy (http://www.responsiblesoy.org/).

Mitigating climate change

The use of fossil fuels in the transport, industrial andbuilding sectors is the prime source of anthropogenicGHG emissions. According to IPCC (2007), emission


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from this source alone is 56.6% of the total GHG CO2

equivalent load (Figure 3). The second cause of GHGemission arises from deforestation and decay of bio-mass, which contributes 17.3%.

One way to arrest global warming due to GHG CO2

emissions is to substitute fossil fuels with bio-fuels.Many countries, particularly in the European Union(EU) as well as the US, have taken the lead to use bio-energy by setting up targets for renewable energy andfuels for the future. The targets range from 4-20% fornext year (OECD, 2008). It is estimated that world bio-diesel production will soar to 102 million tonnes in 2030(Legge, 2008) from 7.6 million tonnes in 2007 (OECD,2008).

Preusser (2008) found that, on land-productivity basis,the biggest volume of bio-diesel is obtained from 1 ha

of land planted with oil palm, rather than other bio-fuelcrops such as sunflower, jatropha, rapeseed and soy-bean (Figure 4). Palm bio-diesel from 1 ha of land wouldallow the VW Polo to run 109,000km, compared to23,660km with rapeseed bio-diesel and only 8,000kmusing soybean bio-diesel.

The use of bio-fuels to replace fossil fuels must result ina reduction of Life Cycle Analysis (LCA) GHG emis-sions. The EU, for instance, expects savings of at least35% relative to use of fossil fuel.

A total of 1,601kg CO2 equivalent (CO2e) of LCA GHGis emitted in the production of 1 tonne of palm bio-dieseland its economic co-products like palm kernel oil, palmkernel cake and empty fruit bunches (EFB). Palm kerneloil and palm kernel cake are used in food and industri-al applications, while EFB are composted for organicfertilisers.

Of the main sources of emissions, 51% or 824kgCO2e/tonne CPO come from methane produced duringmilling; 20% or 315kg CO2e/tonne CPO from productionand use of fertilisers, including nitrogenous varieties;and 6% or 89kg CO2e/tonne CPO from transportationand use of machinery (Table 7).


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The use of palm bio-fuel thus prevents 2,627kg CO2efrom being released into the atmosphere, consideringthat production and use of fossil diesel emits 4,228kgCO2e. A GHG emission savings of 62% is thus obtainedfrom use of palm bio-fuel, which exceeds the thresholdvalue of 35% stipulated in the EU Renewable EnergyDirective. Palm oil should therefore be accepted as abio-fuel source in the EU.

There is great potential for further GHG emission sav-ings from palm oil – for example, the EFB can be com-posted while methane can be trapped and used as bio-gas. These activities reduce GHG emissions by 911kgCO2e/tonne CPO. With the total at 3,538kg CO2e/tonne,the savings are a remarkable 83.7%.

These results have been obtained without including thefact that the oil palm sequesters CO2. If this is taken intoconsideration and if methane is trapped as well, oilpalm is found to be a net sequester – not a net emitterof CO2. In this case, the LCA study shows that 8-8.7tonnes of CO2e are absorbed for every tonne of CPOproduced for bio-fuel (Table 8).

Bio-fuel vs fossil fuel

The use of palm bio-fuel is an option for GHG mitigationin the energy sector (Yusof, 2005; Choo et al, 2005;Unnithan, 2008). Its use results in GHG emission reduc-tion savings when compared to the use of fossil fuel (vanZutphen, 2007). In addition, diesel engines running onpalm bio-diesel do not emit black exhaust fumes. There

are also reductions in particulates, and carbon monoxideand sulphur dioxide emissions (Choo et al, 2005).

All bio-fuels are superior to fossil fuel as they are pro-duced with lower LCA GHG emissions. Palm bio-fuel isthe most environment friendly of the products (Figure5). The LCA GHG emissions to produce 1 tonne of oilare 835kg CO2e (oil palm), 1,387kg CO2e (soybean),1,562kg CO2e (canola) and 4,288kg CO2e (fossil fuel).

Current use of bio-fuels constitutes only a minor fraction ofglobal transport fuel consumption. In 2007, global bio-fuelproduction amounted to 62 billion litres or 36 million tonnesof oil equivalent.This was about 1.8% of total global trans-port fuel consumption in energy terms (OECD, 2008).

Palm oil contributes a small portion to bio-fuel supply.According to OECD (2007), palm oil, mainly supplied byIndonesia and Malaysia, constitutes only 1.2% of theworld’s bio-fuel production (Table 9).


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Bio-fuels account for a meagre 5% of global demand foroils and fats (Sauthoff, 2008). The largest proportion ofoils and fats, at 79%, is used for food, while the sharetaken up for animal feed and oleochemicals stands at6% and 10% respectively (Figure 6).

As the smallest user, bio-fuel is not in a position to dic-tate demand or cause large price movements for relat-ed vegetable oils. The bio-fuel hype has, however,caused vegetable oils to be associated with fossil fuelprice. In fact, CPO futures were highly correlated withNYMEX crude oil futures (Figure 7). So, for a while,palm oil price tracked NYMEX crude oil movements.However, since the end of October 2008, palm oil pricehas been disassociated from developments in crudemineral oil prices (Ng, 2009).

Backbone of economic growth

Agriculture has always played an important role in devel-oping countries, forming the spine of economic activity.Historically, many countries grew from humble rural farm-ing communities into powerful industrialised nations.

In Malaysia, just 52 years ago, the Federal LandDevelopment Authority (Felda) was seen as a develop-ment agency for land settlers. It first planted rubber and,later, oil palm as anchor crops to provide a steadyincome for settlers. Today, Felda enjoys a new image asone of the world’s largest plantation conglomerates(Ahmad Tarmizi, 2008).

Set up under the auspices of the World Bank, Felda hassuccessfully developed 853,313 ha of land and reset-tled 112,635 families. Oil palm is the core business with84% of the land under this crop (Table 10).

Palm oil production in Malaysia is based on the con-cepts and principles of the Bruntland Report (1987)which focuses on the three pillars of sustainability –people, planet and profit (Yusof et al, 2008).Fulfilling these pillars has also enabled eradicationof poverty.

In fact, the oil palm farmer in Felda gets a monthlyincome which is well above the national poverty line(Ahmad Tarmizi, 2008).

The oil palm is a suitable crop for developing countries. Asan example, the palm oil industry is a major revenue earn-er for Malaysia. In 2008, the export of palm oil and derivedproducts raked in RM64,808 million, or 9.8% of total nation-al revenue (Figure 8).


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Land-use comparison

A comparison is made here of the land-use patternin developed countries and tropical developingcountries that produce palm oil. Both the palm oilproducers (30%) and the developed countries (27%)have devoted a similar proportion of land to agricul-ture.

A comparison of findings in Tables 11 and 12 showsthat palm oil producers have retained much higher for-est cover, averaging 54% compared to developed coun-

tries with only 34%. It is clear, therefore, that the majorpalm oil producing countries do not wantonly destroyforests.

Developing countries also have more efficient land-use habits as only 7% of the land is not associatedwith a specific activity. If the 78.2 million ha of cur-rently idle or under-utilised land is planted with oilpalm, the potential yield would be 288 million tonnesof oil.

Conclusions

The escalating need for food and fuel is a global con-cern. Of late, the need to replace fossil fuel with bio-fuelhas also gained prominence among strategies to tackleclimate change.

The versatile oil palm can be used for food, fibre andbio-fuel. It requires 6-10 times less land than the otheroilseed crops to produce vegetable oil or bio-fuel.Cultivating oil palm relieves pressure on clearing anddeveloping large tracts of scarce arable land.

1. If the area equivalent to that now occupied by soybean,rapeseed, sunflower and oil palm were planted solelywith oil palm, the vegetable oil produced would bealmost five times the current world needs.

The surplus of 514 million tonnes of CPO, obtainedwithout opening up any new arable land, could thenbe used as for bio-fuel or other needs. In such ascenario, the palm oil produced could still meet globalrequirements for food and bio-fuel in 2030 and leave388 million tonnes for other purposes.


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2. As a bio-fuel source, palm oil is superior to soybeanand rapeseed in that it delivers the lowest LCA GHGemission. The reduction savings exceed 35%, thusmaking it suitable for use as a bio-fuel source in theEU.

3. Developing countries in the tropics depend heavily onagriculture to create employment opportunities and

generate revenue through exports. Oil palm is aproven crop for these purposes.

4. The main palm-oil producing countries have 78million ha of idle land which could add to productioncapacity by 288 million tonnes. Oil palm cultivationmust therefore be encouraged in these countries.

References

1) Ahmad Tarmizi A (2008). ‘FELDA – A success story’, Global Oils & Fats,Malaysian Palm Oil Council, Vol 5(1), Kelana Jaya; pp 6-11

2) Bourne JK (2007). ‘Biofuels: Boon or boondoggle?’ National Geographic, Vol212(4); pp 38-59

3) Chen, S.S. (2008). ‘The LCA Approach to Illustrate Palm Oil’s SustainabilityAdvantage. Proceedings of Int’l Palm Oil Sustainability Conference, KotaKinabalu, Sabah. pp 11

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5) Corley RHV and Tinker B (2003). ‘The oil palm’, Blackwell Science Ltd, pp 562

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17) Lee PC and WP Panton. (1971). ‘First Malaysia Plan Land CapabilityClassification Report’. Economic Planning Unit, Prime Minister’s Dept, Malaysia.

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27) van Zutphen H (2007). ‘The CO2 and energy balance of Malaysian palm oil’,Zwolle, Netherlands, pp 45.

28) Yapp HH (2008). ‘Clean Development Mechanism (CDM) - Market based solutionin greening the palm oil industry’, Proceedings of Int’l Palm Oil SustainabilityConference, Kota Kinabalu, Sabah, pp 22.

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31) Yusof B (2005). ‘Biofuel: an alternative fuel in the Malaysian scenario’; Palm OilDevelopments, 42, pp 1-4.


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18947 Pullout CEO 6-2 2 - Malaysian Palm Oil Board