Malaysian Palm Oil: Commitment Malaysian Palm Oil: Commitment towards Food Security and towards Food Security and yy

SustainabilitySustainability

POTS Japan 200918 May 2009

Tan Sri Datuk Dr. Yusof BasironChief Executive Officer

Malaysian Palm Oil Council

Presentation OutlinePresentation Outline

• Food Security in the Modern Context• What is Sustainability?What is Sustainability?• Malaysian Palm Oil Industry and the 3Ps• Palm Oil’s contribution to the world’s oils and fats supplypp y• How palm oil provides food security through its sustainableproduction

• How palm oil has resulted in avoided deforestation in• How palm oil has resulted in avoided deforestation inimporting oils & fats countries

• Why palm biofuel demand is not the cause of high priceof vegetable oils

• Showcasing oil palm as the right crop in 21st century for thedeveloping countriesdeveloping countries

• Conclusions

Food Security in the Modern Context Food Security in the Modern Context

• Food security was defined in the World Food Summit 1996 as existing “when all people at all times have access toas existing when all people at all times have access to sufficient, safe, nutritious food to maintain a healthy and active life”

• According the the World Health Organisation (WHO), food security is built on these three pillars:- food availabilityy- food access- food useA i l hi h i h l l i• Agriculture, which is the largest employment in most developing countries are vital to a country’s food security

• The Malaysian palm oil industry ensures food security y p y ylocally and globally as it is the world’s largest exporter of palm oil – especially in the food vs fuel debate

What is Sustainability? What is Sustainability?

• Bruntland Report (1987)- Today’s needs should not compromise ability

of future generations to meet their needs- Direct link exists between economy and

environment - Needs of poor must be met- To protect environment, economic conditions

f ld’ t b tof world’s poor must be met- We must consider impact on future

ti i ll tigenerations in all our actions

Holistic approach to sustainability Holistic approach to sustainability

• Most approaches are one sided eg environmental concern only

• Bruntland’s approach is holistic and adopted for use in Rio Summit

• People, Planet, Profit (3Ps) and Right to D l tDevelopment

• Oil palm industry’s approach is holistic

Malaysian Palm Oil and the 3Ps:Malaysian Palm Oil and the 3Ps:People (1)People (1)

• The Malaysian palm oil industry is a major employer:

People (1) People (1)

- provides direct employment to 570,000 people, excluding other multiplying effects and spin-off activitiesactivities

• Eradicated poverty • Retarded migration of labor force to urban areasg• Built rural townships where workers have good

quality of lifeC t ib t d t i l it d i M l i• Contributed to social security and peace in Malaysia

• Indigenous people’s land are protected by laws

Survey results of FELDA settler’s quality of lifeSurvey results of FELDA settler’s quality of life

Components Survey ratingIncomeWorking lifeTransport and communication

Very satisfiedVery satisfiedSatisfiedTransport and communication

HealthEducationH i

SatisfiedVery satisfiedVery satisfiedV ti fi dHousing

EnvironmentFamily life

Very satisfiedVery satisfiedVery satisfied

Social participationPublic safety

Very satisfiedSatisfied

Key : 4 survey ratings :very satisfied, satisfied, unsatisfied, very unsatisfied

Malaysian Palm Oil and the 3Ps:Malaysian Palm Oil and the 3Ps:Planet (2)Planet (2)

• Oil palm cultivation is planet friendly:

Planet (2)Planet (2)

- it is grown on legitimate agricultural land- permanent forests form 56% of total land p

devoted to wildlife habitat & biodiversity conservation

- oil palm cultivation therefore does not cause deforestation or loss of wildlife and habitat

- practises responsible agricultural and land management practices

- minimises generation of wastes or pollutants

Oil Palm Cultivation Conserves Natural Oil Palm Cultivation Conserves Natural ResourcesResourcesResourcesResources

L iZero burning Leguminous cover crops

Good Agricultural ManagementGood Agricultural Management

• Many:• Good water management• Avoid soil compactionp• Management of pruned fronds and empty fruit

bunches• Maintain soil fertility• Correct use of fertilizers• Maintain riparian reserves• Integrated pest managementIntegrated pest management

Example of Good Agricultural ManagementExample of Good Agricultural Management

Integrated Pest Management (IPM) using biological control isIntegrated Pest Management (IPM) using biological control is increasingly practised in the plantations

Minimization of Wastes in the IndustryMinimization of Wastes in the Industry

Minimize wastes by reusing them eg as mulchMinimize wastes by reusing them eg as mulch

HighlyHighly--Regulated IndustryRegulated Industry

1) National Land Code 19652) Land Acquisition Act 19603) Protection of Wildlife Act 19724) Environmental Land Conservation Act 1960 revised in 19895) Quality Act 1974 (Environmental Quality) (Prescribed

P i ) (C d P l Oil) R l ti 1977Premises) (Crude Palm Oil) Regulation 19776) Environmental Quality (Clean Air) Regulation 19787) Labor Law8) Workers’ Minimum Standard of Housing & Amenities Act

19909) Occupational Safety & Health Act 197710) P ti id A t 1974 (P ti id R i t ti ) R l 198810) Pesticides Act 1974 (Pesticides Registration) Rules 198811) Pesticides (Licensing for sale & storage) Rules 198812) Pesticides (Labeling) Regulations 198413) E i t l Q lit (P ib d A ti iti ) (E i t l13) Environmental Quality (Prescribed Activities) (Environmental

Impact Assessment) Order 198714) Factories & Machinery (Noise Exposure) Regulations 1989

Malaysian Palm Oil and the 3Ps:Malaysian Palm Oil and the 3Ps:Profit (3)Profit (3)

• Significant foreign exchange earner:

Profit (3)Profit (3)

contributed RM 65.2 billion in 2008• Profit at farm level:

Felda settler’s income in 2008

National poverty line in 2008

RM 3,865 RM 753

Export Growth of Malaysian Palm Oil Export Growth of Malaysian Palm Oil

16

18

10

12

14

Tonn

es

6

8

10

Mill

ion

T

2

4

0

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

NonNon--subsidized form of agriculturesubsidized form of agriculture

• Common in other parts of world to subsidize agriculture

• Importance of agriculture for food• Common Agricultural Policy (CAP) is a

system of EU agricultural subsidies (47% b d )budget)

• Oil palm is not subsidized unlike rapeseed ( l j il )(also a major oil crop)

• Oil palm contributes to cooking oil subsidy O• Oil palm pays cess

• Yet it is profitable

Commitment to Corporate Social Responsibility Commitment to Corporate Social Responsibility & Wildlife Protection& Wildlife Protection

• At farm level, good infrastructure and amenities (rural township)township)

• At national level, levy collection to subsidize cooking oil price, food security

• Malaysian Palm Oil Wildlife Conservation Fund (MPOWCF)managed by MPOC- managed by MPOC

- many projects including Jungle Patrol to protect wildlife surrounding oil palm plantationsg p p

- survey of orang utan population in Sabah- establish Orang Utan Island infant care centre

AsaSustainability Certification Sustainability Certification -- RSPORSPO

• Roundtable on Sustainable Palm Oil (RSPO) • Good agricultural practices used by Malaysian oil• Good agricultural practices used by Malaysian oil

palm companies form part of principles and criteria of RSPOFi M l i i h l d b i d• Five Malaysian companies have already obtained RSPO certification for their estates/mills: - United Plantations Bhd - Sime Darby Plantation Sdn Bhd- PBB Oil Palms Bhd

K li (M) Bhd- Kulim (M) Bhd- IOI Corporation Bhd

• Many more Malaysian companies lining upMany more Malaysian companies lining up

Sustainability Certification Sustainability Certification -- Certificate of Assurance (COA)Certificate of Assurance (COA)

• COA will be launched by MPOC in near future

Certificate of Assurance (COA)Certificate of Assurance (COA)

future• Complementary scheme to RSPO for oil

palm growers, millers, refiners and traders of M l i l ilMalaysian palm oil

• This scheme provides them the opportunity to assure buyers that:

- their palm oil is obtained from oil palms cultivated on legal agricultural land

- using responsible agricultural andusing responsible agricultural and management practices evolved over many decadesth t il l i ibl lti t d- that oil palm is as responsibly cultivated similar to other oil seed crops eg rapeseed and soyabean

Palm Oil’s Contribution to the World’s Palm Oil’s Contribution to the World’s Production of Vegetable OilsProduction of Vegetable OilsProduction of Vegetable OilsProduction of Vegetable Oils

Soybean28%

Others18.6%

Sunflower7.8% Palm

31.2%31.2%

Rapeseed14.4%

Total Production: 136.75 mil tonnes

Source: Oil World

Total Exports 2008 = 60.7 mil tonnesTotal Exports 2008 = 60.7 mil tonnes

Soybean oil17%17%

Others

Palm oil54%

4%

Laurics8%

Animal Fats7%7%

Rapeseed oilSunflower oil

6%4%

Source: Oil World

Need to Use Land WiselyNeed to Use Land Wisely

YearYear World’s World’s Arable land per Arable land per Arable land per Arable land per populationpopulation

(bil)(bil)

ppcapitacapita

(x10(x10--33kmkm22))

ppcapitacapita(ha)(ha)

1922197520052030

2.04.06.68 0

7.503.752.271 88

0.750.380.230 192030

20428.09.0

1.881.67

0.190.17

Source: Freeworld Academy & University of Michigan

• World’s populations increasingLi it d l d d i• Limited land resource decreasing

0.440.44

How Malaysian Palm Oil Provides Food Security: How Malaysian Palm Oil Provides Food Security: High Productivity of Oil PalmHigh Productivity of Oil Palm

4

4.5

3

3.5

4

a)

3.68

0.44

2

2.5

3

ield

(t/h

a

1

1.5

2

Oil Y

i

0

0.5

10.36

0.42 0.49

0

Soyabean Sunflow er Rapeseed Oil Palm*Source: Oil World Note: * for both palm oil (3.68 t/ha) and palm kernel oil (0.44 t/ha)

Comparison of Harvested Area Comparison of Harvested Area of Major Oil Crops in 2008of Major Oil Crops in 2008 (mil ha)(mil ha)

100

120

of Major Oil Crops in 2008 of Major Oil Crops in 2008 (mil ha)(mil ha)

80

100Total Harvested Area: 176.8 mil ha

60mil

ha

20

40

0

oil palm soyabean rapeseed sunflowerp y p

Oil palm occupies < 7% of harvested area and < 1% of Oil palm occupies < 7% of harvested area and < 1% of world’s agricultural land area world’s agricultural land area

Source: Oil World

Cultivated Area of World’s Oilseeds Cultivated Area of World’s Oilseeds

Land use typeLand use type Total area As % of totalTotal area As % of totalLand use typeLand use type Total area As % of total Total area As % of total (million ha) area(million ha) area

Total agricultural land*Oil seeds **

4967 100%233 4 69%Oil seeds **

Oil palm**Soyabean**Rapeseed**

233 4.69%11 0.22%***92 1.85%30 0.60%

Sunflower**Coconut**Other oil seeds**Malaysian oil palm

23 0.46%9 0.18%

68 1.37%4 3 0 09%Malaysian oil palm 4.3 0.09%

*** oil palm cultivation comprises of 4.7% of total land area planted with oil seeds & 0.22%

Source: * FAO , ** Oil World

of world’s agricultural land

Efficient Use of LandEfficient Use of Land

• Current total land area to produce 4 major vegetable oils is 176 8 mil hais 176.8 mil ha

• Hypothetically, if oil palm, being the most efficient oil crop, given the role to produce vegetable oil for the world, it only needs 30.3 mil ha

• Making available 146.5 mil ha or 6 times the size of UK for other land use

• If all 176.8 mil ha planted with oil palms, 651 mil tonnes of oil can be produced; equivalent to 5 times the present demanddemand

• Rest of the oil can be used for other purposes e.g. biofuels

• This is more than enough to meet world’s demand for food & biofuel of 263 mil tonnes by 2030

Net Importing & Exporting Countries Net Importing & Exporting Countries for Oils & Fatsfor Oils & Fatsfor Oils & Fatsfor Oils & Fats

Main exporters of oils & fats are palm oil producing countries.Main exporters of oils & fats are palm oil producing countries.Oil palm producers avoid deforestation in importing countriesOil palm producers avoid deforestation in importing countriesOil Oil palm producers accused of deforestation while helping palm producers accused of deforestation while helping importing countries not importing countries not to deforest.to deforest.

Canada

>

Ukraine

Canada

MalaysiaB il

Philippines

IndonesiaBrazil

Argentina

“Avoided Deforestation” Effect in Importing “Avoided Deforestation” Effect in Importing Countries if Palm Oil Chosen as Food & BiofuelsCountries if Palm Oil Chosen as Food & Biofuels

ParameterParameter AmountAmount

Cou es O C ose s ood & o ue sCou es O C ose s ood & o ue s

Avoided deforestation when oil palm substitutes

• Rapeseed cultivation• Soyabean cultivation

53 million ha87 million ha

Avoided carbon stock loss in this

• Rapeseed area 4 billion tonnes of Carbonp• Soyabean area 6.7 billion tonnes of Carbon

Source: MPOCSource: MPOC

Indirect Effect of Land Use ChangeIndirect Effect of Land Use Change

• Direct land use change results e.g. by Fargione et al(2008) stated that palm oil production from clearing forested land gives palm oil a carbon debt lasting 86forested land gives palm oil a carbon debt lasting 86-840 years

• Indirect land use change effect of oil palm• Indirect land use change effect of oil palm substituting (or avoiding) rapeseed & soyabean from being cultivated not considered

• Palm oil production has a carbon credit (not a carbon debt) if this is considered

Palm Oil Substitution Carbon Credit Palm Oil Substitution Carbon Credit (POSCC)(POSCC)

D fi d b f d d i d ti f

(POSCC)(POSCC)

• Defined as number of years needed in production of palm oil to produce the same amount of CO2 emitted by substitution oil crops during land clearingy g g

• If oil palm substitutes rapeseed, POSCC is 324 years (if oil palm cultivated on degraded tropical forest) and 472 years (oil palm to oil palm replant)

• If oil palm substitutes soyabean, POSCC is 1,395-1,543 years

• Oil palm cultivation results in a carbon credit (not )carbon debt)

Sources of GHG Emissions Sources of GHG Emissions (CO(CO22 equivalent)equivalent)

8% 1%

14%

57%

3%

57%

17%

Fossil fuel Deforest Others CH4 N2O F-gasesSource: IPCC

Largest amount of GHG from fossil fuel use makes biofuel use a good option to arrest climate change

Mileage per ha per year: Mileage per ha per year: Based on a VW PoloBased on a VW Polo

Soy Biodiesel 440 litre8,000 km

Based on a VW PoloBased on a VW Polo

Rapeseed Biodiesel 1,300 litre23,660 km

Jatropha Biodiesel

Bioethanol 2,500 litre

Yield per hectare

33,000 km

45 500 km 2,500 litre

Sundiesel (BtL)

p

4,050 litre

p45,500 km 2,500 litre

75,330 km

Biomethane 4,980 litre99,600 km

Palm Biodiesel 6,000 litre

Source: “Biofuels”, Fachagentur Nachwachsende Rohstoffe e.V. (FNR), 2006 and own data

109,000 km

LCA GHG Emissions of Palm BiodieselLCA GHG Emissions of Palm BiodieselEmission SourceEmission Source Quantity (kg COQuantity (kg CO22/tonne biodiesel)/tonne biodiesel)

• Nitrous oxide emitted 185 (11.5%)• Use of pesticides• Transportation & machinery

useMilling & refining of palm oil

( )130 (8.1%)

34 (2.1%) 89 (5.6%)19 (1 2%)• Milling & refining of palm oil

• Empty Fruit Bunches (EFBs)• Effluent ponds• Transportation to mills,

19 (1.2%)87 (5.4%)

824 (51.5%)36 (2.3%)

refineries• Biodiesel refining

Total10 Production & use of fossil fuel

( )197 (12.3%)

1,601 (100%)

4 22810. Production & use of fossil fuel11. Palm biodiesel savings12. GHG emission savings relative

to fossil diesel

4,2282,627

62%

GHG emission savings exceed 35% threshold value of EU Directive

Source: Van Zutphen (2007)

Oil Palm is a Net Carbon SequesterOil Palm is a Net Carbon Sequester

Parameter Parameter Practice if methane not Practice if methane not trapped in effluent trapped in effluent

Practice if methane Practice if methane trapped in effluent trapped in effluent

pondsponds(kg CO(kg CO22--e/tonne CPO)e/tonne CPO)

pondsponds(kg CO(kg CO22--e/tonne CPO)e/tonne CPO)

1) LCA CO2-e emitted -1,601 -1,601) 2

2) LCA CO2-e emittedafter allocation to co-products

-1,143 -512

3) CO2-e sequestered

4) Avoided deforestation

+870

+8,266

+870

+8,266Net CO e emitted ( ) or +7 993 +8 624Net CO2-e emitted (-) orSequestered (+)

+7,993 +8,624

1) GHG i i ll t d t CPO l k l il l k l kSource: MPOC

1) GHG emission allocated to CPO, palm kernel oil, palm kernel cake and EFB based on weight

2) Life cycle of oil palm is 25 years

Lower Carbon Footprint for Biofuel Lower Carbon Footprint for Biofuel ProductionProductionProductionProduction

42884500

50004288

3500

4000

4500

2500

3000

3500

O2/t

onne

156213871500

2000

2500

KgC

O

835

500

1000

0Palm Oil So ya C ano la D iesel

Source: Van Zutphen (2007)

Global Market Share of Industries Global Market Share of Industries for Oils & Fatsfor Oils & Fatsfor Oils & Fatsfor Oils & Fats

%79%

5%

10%6%

Oleochemicals Biofuels Food Animal Farm

Source: Sauthoff (2008)

Correlation between Correlation between CPO and Crude Oil PricesCPO and Crude Oil Prices

CPO, fob M'sia vs Crude Oil, Brent (1998 - Jan 2009)

4 500 160

CPO and Crude Oil PricesCPO and Crude Oil Prices

3 500

4,000

4,500

140

160

CPO Europe Brent

2,500

3,000

3,500

M/to

nne)

100

120

US$

/bar

rel)

p

1,500

2,000

CPO

(RM

60

80

rude

, Bre

nt (U

500

1,000

20

40 Cr

0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080

Source: MPOB

Oil Palm is the Right Crop for DevelopingOil Palm is the Right Crop for DevelopingCountriesCountries

• Oil palm is a suitable crop for tropical developing countries• Palm oil is a major revenue earner for Malaysia (10% of total export

CountriesCountries

earnings for country)

Others15%

Natural Rubber1%

P l Oil &Oth Palm Oil & Palm Oil Based

Product10%

Other Manufactured

Goods13%

Petroleum Products

17%Electrical & Electronic Products

39%

Articles of Apparel & Clothing

Accessories2%

• Poverty eradication in Malaysia with income of FELDA settlers

Timber & Timber Based Product

3%Source: Department of Statistics, Malaysia (2009)

• Poverty eradication in Malaysia with income of FELDA settlers significantly higher than national rural poverty line

• This is possible by respecting 3Ps principles of sustainability

Oil Palm is the Right Crop for DevelopingOil Palm is the Right Crop for DevelopingCountriesCountries

• Malaysia as an example

Countries Countries

Malaysia as an example• Oil palm is grown on legal agricultural land in Malaysia• Adopts responsible practices just like rapeseed and

soyabean• Adopts good agricultural & management practices e.g.

‘Zero’ burning integrated pest management trappingZero burning, integrated pest management, trapping methane

• RSPO (proof of sustainable production)

Forest Land Use in Malaysia (mil haForest Land Use in Malaysia (mil ha)

Total Area of ForestsTotal Area of Forests18.31 (18.31 (56% 56% total land area)total land area)

NATIONALPARKS/WILDLIFE NATIONALPARKS/WILDLIFE & BIRD SANCTUARIES& BIRD SANCTUARIES

(13 3%)(13 3%)

PERMANENT RESERVEDPERMANENT RESERVEDFORESTSFORESTS

(83 4%)(83 4%)

STATE LAND/STATE LAND/ALIENATED LANDALIENATED LAND

0.570.57 15.3015.30 2.442.44

(13.3%)(13.3%)(83.4%)(83.4%)(3.3%)(3.3%)

PRODUCTIONPRODUCTION(SFM)(SFM)

TOTALLY TOTALLY TOTALLYTOTALLY PROTECTEDPROTECTEDPRODUCTIONPRODUCTION(CONVERSION)(CONVERSION)

0.570.57 2.442.44(SFM)(SFM) PROTECTEDPROTECTED

3.113.1112.1912.19

30.3%30.3%69.7%69.7%

(CONVERSION)(CONVERSION)

5.555.55

30.3%30.3%

12.7612.76

69.7%69.7%

Source: Thang C.H.

Forest Cover Change in Malaysia Forest Cover Change in Malaysia from 1995 from 1995 –– 2005 (mil ha)2005 (mil ha)( )( )

Forest Cover TypeForest Cover Type 19951995 20002000 20052005Permanent Reserved Forest (PRF) Protected

3.43 3.84 3.11(PRF) – ProtectedPRF– Sustainable Forest Management

10.85 10.60 12.19

National Parks Wildlife & Bird 2 12 1 87 2 44National Parks, Wildlife & Bird Sanctuaries and Nature Reserves – Totally Protected

2.12 1.87 2.44

Stateland/Alienated LandStateland/Alienated Land 4.194.19 3.933.93 0.570.57Stateland/Alienated Land Stateland/Alienated Land Forest Forest –– Conversion ForestConversion Forest

4.194.19 3.933.93 0.570.57

TOTALTOTAL 20.5920.59 20.24 20.24 ((--1.7%)1.7%) 18.31 18.31 ((--9.5%)9.5%)Source: FAO, 7th, 8th and 9th Malaysian Plans, Forestry Department of Malaysia, Ministry of Plantation Industries & Commodities, Satoshi Tachibana,S. Sothi Rachagan, and Thang H.C.

• Deforestation mainly occurs in the stateland/alienated land which has been earmarked for economic development

• Changes in the hectarage of PRFs and national parks wildlife & bird• Changes in the hectarage of PRFs and national parks, wildlife & bird sanctuaries and nature reserves are due to reclassification

• Malaysia adopts Sustainable Forest Management since early 1990s

Conclusions Conclusions

• Palm oil is leading source of oils and fats in world• Yet oil palm occupies the least land area among major

oil crops (highest land use efficiency) • It occupies only 0.22% of total agricultural land • Palm oil biofuel is ‘green’ biofuel and LCA GHG• Palm oil biofuel is green biofuel and LCA GHG

emission savings definitely exceeds 35% threshold value of the EU DirectiveA th ld’ l t t f l il M l i i• As the world’s largest exporter of palm oil, Malaysia is able to provide food security to the world through its sustainable production, adhering to the 3Ps

• Its current practices and policies ensures that the Malaysian palm oil is well ahead in sustainability indicators