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M.R. Subramani

Malaysian companies will gain control of at least 60 per cent of the oil refining capacity in Europe, said Mr M.R. Chandran, former Executive Director, Malaysian Palm Oil Board.

Recently in Mumbai

BY the end of next year, Malaysian companies could control up to 60 per cent of the edible oil refining capacities in Europe. There are two reasons for this.

One, it helps Malaysia to overcome the issue of traceability of its palm oil products. Two, it is an avenue for Malaysian corporates in the business of palm products to invest upstream, especially when opportunities at home have declined.

According to Mr M.R. Chandran, former Executive Director, Malaysian Palm Oil Board, European stores have tightened up food standards and are insisting on tracing the origin of any food.

Traceability requires a manufacturer to provide details of the farm where a particular food product is grown, the unit where it is processed, places where it is stored and unit where it is finally packed.

The Malaysian companies strategy is in contrast to approach of the Indian Government, which is opposed to the traceability in the World Trade Organisation talks and plans to shelve the clause in the Integrated Food Law introduced in Parliament during the monsoon session.

"For example, European stores which buy noodles from China are keen on the traceability issue and want to know from which estate the palm oil used in making the noodle," said Mr Chandran, who was in India in connection with an international edible oil conference. "Malaysian companies feel the issue will assume more serious proportions in the days to come and have hence begun investing in refineries in Europe," he said.

Companies such as IOI Corp Bhd and Golden Hope and Kuok Oil & Grains are among those that have invested in edible oil refineries in Europe. IOI recently bought a refinery from Unilever and is currently setting up a 0.8 million tonne refinery, stated to be the biggest in Europe.

"Once the refinery goes on stream, Malaysian companies will gain control of at least 60 per cent of the oil refining capacity in Europe. Currently, they control about 30 per cent," Mr Chandran said.

The feature of these companies buying refinery is that crude palm oil is sourced from the plantations of the respective companies back home and even the vessels in which the consignments are shipped are dedicated ones.

"The European stores are carrying out quality audits from the farm to the refinery gate since food safety and quality have become paramount," he said.

Similarly, Malaysian companies are investing in refineries in Saudi Arabia, Vietnam, Bangladesh, and Pakistan.

The other strategy for Malaysian companies to look for investment abroad is that it helps them increase their global market share for their palm oil products.

"Our Government has asked the companies to invest abroad as land for extending palm plantations is limited. As a result, we control about 25 per cent of Indonesia's palm oil plantations," Mr Chandran said.

At home, the plantation companies are looking at sustainability by improving productivity, according to Mr Chandran.

Currently, average productivity of oil palm trees is four tonnes of oil per hectare. Some of the best estates' productivity is 6.5 tonnes, while that of best companies' is 5.2-5.3 tonnes. In comparison, Indonesia's productivity is 3.2 tonnes.

"Our vision is to improve the productivity to 4.5 tonnes by 2007 and five tonnes by 2010," he said, adding that improving yield was important in view of scarce land availability.

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