A STRATEGIC PAPER FOR THAILAND OIL PALM DEVELOPMENT

ISSUES AND CHALLENGES WITH OIL PALM CULTIVATION AND DEVELOPMENT FOR

THAILAND SMALL HOLDERS

ASIAN PALM OIL CONFERENCE 2015SURAT THANI 20TH – 21ST AUGUST

CONTENTS

1. DEMOGRAPHICS OF THE THAILAND OIL PALM INDUSTRY

2. POLICY FOR OIL PALM DEVELOPMENT

3. CURRENT STATUS OF OIL PALM DEVELOPMENT

4. ISSUES AND CHALLENGES CONFRONTING THE INDUSTRY

5. MOVING FORWARD – PRIVATE SECTOR INITIATIVE

6. CONCLUSION

1. INDUSTRY BACKGROUND

There were 3 groups of growers in Thailand oil palm industry

i. Small holders and independent growers – individually owned between 10 to 20 rai

ii. Cooperatives and self help land settlement growers – mostly own about 30 rai.

iii. Private sector plantations – operated bigger areas than the above

Third biggest world producer

i. Increasing demand for bio diesel – industry is aggressively promoting oil palm cultivation – energy security for economic development

ii. Domestic consumption – to reduce importation of palm oil

Yield performance

i. Disparity in milling capacities – inconsistent FFB supply due to distance, pricing and logistics

ii. Low FFB yield performance – avg. 16 to 17 t/ha

iii. Low OER from processing – avg. 16% to 17%

WORLD PALM OIL PRODUCERS

Mature areas 4.3M rai (688,000 ha)

11.3 M tons FFB

Third World’s Producer

KEY STATISTICS

Top 5 Palm Oil Producers (96% of Global) (2012)Indonesia(53%); Malaysia (36%); Thailand (3%): Columbia (2%): Nigeria (2%)

Top 5 Standard Compliant Palm Oil Producers (99% of Global) (2012)

Indonesia (49%); Malaysia (42%); Papua New Guinea (5%); Brazil (2%); Columbia (1%)

Top 5 Palm Oil Exporters (93% of Global) (2013)Indonesia (44%); Malaysia (29%); Ghana (18%); Guatemala (1%); Thailand (1%)

Top 5 Palm Oil Importers (65% of Global) (2012)India (21%); China (16%); Netherlands (16%); Germany (6%); Malaysia(6%)

Global Palm Oil Production (2012) 53.8 Million metric tons

Global Palm Oil Exports (2012) 41.2 Million metric tons (77% of production)

Global Harvested Area (2012) 16.4 Million Hectares

Total number of oil palm farmers 3 Million smallholders and farmers

Standard-Compliant Palm Oil Production (2012) 8.2 Million metric tons (15% of Global Production)

Sources: Top 5 producers, global production, global exports, Index Mundi 2013; Top 2 Standard-Compliant Producers:I ISD, H. Wiler, FiBL,personal communication, Aug. 26,2013; S.Yaacob, RSPO, personal communication, April 15, 2013; Top 5 exporters: International Trade Center2013, Index Mundi 2013; Global area harvested: FAO, 2013; Standard-compliant production (2012 RSPO data and 2011 Organic data): IISD, H.Wiler, FiBL, personal communication, Aug. 26, 2013; S. Yaacob, RSPO, personal communication, April 15, 2013

RSPO PRODUCTION VOLUMES AND AREA HARVESTED 2012

7th8th 9th

LEADING PRODUCERS OF SUSTAINABLE PALM OIL BY STANDARD, 2011/2012

Thailand’s Production Negligible

RSPO

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OIL

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IG D

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……

.….IS A HUGE OPPORTUNITY FOR THAILAND

OIL PALM PLANTATION AREAS BY REGIONS IN THAILAND

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

Southern Central North eastern Northern

3535642

446532

75032

19677

3580909

490816

78396

25445

36

66

13

3

517496

102778

29318

Are

a in R

ai

Region

Oil Palm Planted Areas

2010 2011 2012

Total 2012: 4,315,725 rai (690,516 Ha)

Total 2011: 4,175,566 rai (668,090 Ha)

Total 2010: 4,076,883 rai (652,301 Ha)

COMPARISON ON PRODUCTION, HOUSEHOLD PLANTED AREA

36.1

0%

44.1

0%

19.3

6%

0.3

0%

0.2

0%7.7

0%

23

.20

%

38.4

0%

3.7

0%

26.9

0%

5.8

0%

22%

41.8

0%

4.0

0%

26.4

0%

< 1.6 ha 1.6 to <8 ha 8 to <48 ha 48 to <160 ha >160 ha

Estimated share of FFB production, no. of household and planted area by land size in oil

palm farming

No. of households Planted Area (ha) FFB Production (mt)

• Thailand has a higher proportion of small holders than Indonesia and Malaysia. the average size of landholding in Thailand of large scale and smallholder in 2007 was 796 ha (4,975 rai) and 3.89 ha (24.31 rai) respectively.

2. POLICY ON OIL PALM

Renewable energy policy and targets

i. By 2021, production target policy set at 5.97 milliliter per day

ii. Energy demand for economic development – in tandem with Alternative EnergyDevelopment Plan (2012 – 2021): 25% in 10 years

iii. Alternative sources of bio diesel stock and security – reduce dependency onfossil fuel and imports – low carbon emission targets

Renewable And Alternative Energy Development Plan (AEDP 2012 – 2021)

2. POLICY ON OIL PALM

Incentives and subsidies for voluntary conversion to oil palm

i. Objective to increase oil palm area and production trends – in 2013 plantationarea had increased to approximately 4.5 million Rai (720,000 ha)

ii. In 2011 - Average OER targets of 18.5% and FFB yield of 21 t/ha (3.36 t/rai)

iii. Subsidies distribution must reached the target group with proper regulatorymechanisms to ensure proper replanting are carried out

Due to the high demand of palm oil, some changes in land uselegislations for large scale cultivation is necessary

i. Replanting programs – with quality seeds from approved sources and scheduledreplants – data and info acquired from local land development authority withcooperation from farmers association and cooperatives.

ii. Ensuring palm age profile to be developed and sustaining long term FFBproduction for the industry – to stay globally competitive

iii. Smallholders still play a fundamental role in the strategic goals for socialinclusion and income distribution with intensified dissemination of informationnation wide across the industry.

Why the drop in area increment?

TOTAL OIL PALM PLANTATION AREAS

Most of the new areas are located at the Southern Province

especially in Krabi and Surat Thani

2. POLICY ON OIL PALM

Incentives and subsidies to replant old oil palm areas

ii. Domestic demand for palm oil and export – a driving factor for intensifyingcultivation

iii. Food security for domestic consumption – considerations of policy change forlarge scale cultivation by private sector cooperation with Farmers CooperativesSmallholders Association, etc

iv. Community wealth development via government subsidy for targeted smallholders to improve household income through good agricultural practices

YearBeginning Stock

(1)Production

(2)Import

(3)TOTAL

(4)EXPORT

(5)

Domestic Consumption (6) Ending Stock

(7)

Consumption Biodiesel

2008 88,916 1,543,761 28,385 1,661,062 288,054 989,061 276,000 107,947

2009 107,947 1,387,604 1,495,551 67,292 910,700 380,000 137,559

2010 137,559 1,287,509 1,425,068 65,942 911,339 380,000 67,787

2011 67,787 1,832,151 59,793 1,959,731 388,939 896,464 376,742 297,586

2012* 297,586 1,925,532 40,056 2,263,174 300,000 1,000,000 607,111 356,063

2013* 356,063 2,042,698 2,398,761 300,000 1,000,000 610,000 488,761

Remark: * Amount of CPO in 2012 & 2013 are estimates from the Office of Agriculture Economics

Data Source: (1), (2), (6),(7) from Department Of Internal Trade

(3), (5) from Customs Department

(5) Adjustment to balance

Source: Office Of Agriculture Economics (2013)

3. CURRENT STATUS ON OIL PALM

At the same period, a trend of oil extraction rates (OER) in Thailand has been declining.

The average OER in the period from 2005 to 2009 was only 16.6%. If the average OER

of 18.8% from 1990 to 1994 had been achieved in 2009, an additional 146,923 tons ofCPO would have been produced.

The value is THB3,366 million or USD102 million. Potential OER rely on goodmanagement practices. Malaysia and Indonesia achieve OER of up to 25% underoptimum conditions.

Various factors such as palms from low quality planting material (seeds), FFB delivery,and the utilization oil mill capacity are the cause of the lower potential OER

FFB Production (t/ha)OER%Linear (FFB production t/ha)Linear (OER%)

If yield were to increase by 2.5 t/ha, an additional FFB production of 1,276 million tons and CPO production of 217,016 tons would have been produced with a value of THB 4,972 million or USD151 million

4. ISSUES AND CHALLENGES

Smallholders Income

i. New planting and quality seedlings – nursery development – quality seeds

ii. Seedlings supply from nursery operators without quality assurance – defective seedling – long term impact to smallholders

iii. Improvement in yield and OER – knowledge and understanding of crop quality

iv. Value added from replanting – rubber wood for biomass fuel stock

Smallholders Crop Sale And Delivery

i. Crops sold through intermediaries – with good bargaining positions and make decisions which mill to sell offering better price

ii. Crop quality not regulated – no differentiation between fresh crops under ripe and overripe crop

iii. Crop contaminations – purely up to intermediaries decision – affect smallholders income and adverse impact to the mill operations

Country Planted Area (ha)* GNP (USD) ** % of population below poverty

Malaysia 5,100,000 10,304 3.8

Thailand 890,000 5,678 7.2

Indonesia 10,500,000 3,592 13.2

Philippines 73,210 2,614 25

*Data by MPOB** Asean Elusive Integration: Philippine Daily Inquirer; 4May2014 p16

4. ISSUES AND CHALLENGES

Introduction of regulatory measures

i. Imperative to formulate regulation and guidelines for smallholders to comply the good agricultural practices (GAP) for getting high quality crop harrvestedand delivered to the oil mill.

ii. Crop purchase by intermediaries must be well regulated to prevent unfair pricing manipulations and fixations.

iii. Establishment of FFB crop quality standards and guidelines must be implemented and disseminated respectively to all stakeholders in the industry – through community leaders and district agricultural agencies

iv. Oil palm trees age profiles must be monitored for replanting programmes to ensure optimum FFB production.

Distribution of incentives and subsidies

i. Small holders within permitted zone for OP development and replanting programmes – to provide subsidies for seedlings and fertilizers from licensed importers, nursery operators and approved traders.

ii. Mechanism for effective distribution of subsidies – via current establishment

iii. Concerted effort and support from farmers council, cooperatives, district agricultural agencies and provincial administration – intensified cultivation areas

4. ISSUES AND CHALLENGES

Knowledge and training in oil palm cultivation

i. Generally, smallholders and farmers lack of knowledge – on cultivation, good agriculture practices, fertilizer recommendation, crop protection, water management – especially for new replanting zones

ii. Adoption of modern farming technology and mechanisation for productivity and efficiency – improve crop quality

iii. Insufficient - agronomy support from relevant extension services – internal such as agricultural agencies and external such as institutional and private agencies – farmers council; cooperatives

iv. Understanding and implementing sustainability practices – compliance with RSPO criteria to produce certified sustainable palm oil (CSPO) – for premium price

5. MOVING FORWARD WITH THH VENTURES

Our role and mission

A strategic private initiative with Thailand local business partner

Consortium of advisors and experts in oil palm cultivation and oil palm milling

Support authority with regulatory developments and industry legislation

Our approach to sustainable development

From seeds, nursery operation, cultivation and milling – compliance to RSPO

Malaysian expertise and advisory extension to support local OP industry – especially smallholders

Palm waste for renewable energy and fuel stocks to support alternative energy development.

RSPO compliance for the industry – future exports of palm oil

Supporting the needs of small holders

Skills training and providing knowledge to small holders community – all aspects of oil palm cultivation and related technology

Improvement on household income through sustainable agriculture good practices

5. MOVING FORWARD – A PRIVATE SECTOR INITIATIVE

Propose business model for small holders community

Licensed supplier of seeds from reputable origin are only allowed and permitted to supply to licensed nurseries – quality assurance system must be established

Establishment of proper nursery practices and management – meet established regulatory requirements - seedlings from nurseries must at least 10 months old

FFB crop sale only to licensed collection centres with knowledge and understanding of quality requirements and specification for mills

Crop will be processed by appointed mills which are set up to support the smallholders community within the area/zones

Mills are obligated to purchase FFB from smallholders through a mutual agreement prior to setting up of mill – with FFB price structure and pre-set quality incentives

Palm Oil Mill Development

Investment for the mill development – economics of scale within zone areas for better mill operational efficiency – contributing to better OER and FFB price.

Strategic locations for logistical advantage and FFB crop quality assurances.

Oil palm waste management – potential for biogas and EFB fuel pallets for power generation to support AEDP long term plan.

STRATEGIC DEVELOPMENT PLANS

SEED SUPPLY TO LICENSED NURSERY OPERATORS

Yield increase from 1.8 ton to 3 ton per rai

Oil Extraction Rate OER from 17% to 20%

Cooperatives Smallholders

Min nursery area = 12 raiSupply 20,000 seedlings

at 10 months old

Planting at least 18,750 rai need 420,000 seedlings

PROPOSE BUSINESS MODEL

• Farmers Cooperatives to engage and implement initiatives with government subsidy

• Replanting programmes

• Private investment in palm oil mills & buy FFB from smallholders with agreed price mechanisms

• Suitable locations

• Putrania import seeds , distribution and marketing

• Liaison with nursery operators on quality control

• THH export seeds and provide technical support and technical advisory which comprise of experience oil palm practitioners Quality Seeds

From Established Seeds Producers

in Malaysia

Appointed Licensed Nursery

Operators In Thailand

Smallholders Palm Oil Mill Operators

Contractual supply with agreed price

Compliance to quality standards

INTRODUCTION OF TECHNOLOGY FOR IMPROVEMENT IN PRODUCTIVITY

Improve smallholders livelihood with better income resulting from increase in palm productivity and oil extraction rate

Modern farming via mechanisation

PROPOSE IMPLEMENTATION PLAN

Subsidy allocation for conversion from rubber to oil palm within the

approved zone

GOVERNMENT AGENCIES, FARMERS

COUNCIL AND RELEVANT

COOPERATIVES

Engagement by Coop to identify farmers to plant oil palm and entitlement

for subsidy

Order required seedlings from appointed nursery operators

CONSULTANCY & ADVISORY

Training in Good Agricultural Practices

Adoption of Good Nursery Practices And

StandardsBetter Farmers Productivity & Income

Improved OER for mill

6. CONCLUSION

Imperative for various regulatory measures are established to drive the industry - generating

economic wealth for the smallholders and to sustain the energy and food security for the

nation’s economic development.

Extensive agronomic extension services particularly for oil palm to be widely reached out to

small holders – via provincial and government agencies – as well as knowledge sharing and

dissemination by relevant agencies..

FFB crop pricing based on quality criteria must be established and monitored by relevant

agencies or authorities in the industry – driven by established policy and set targets such as

by the Thai Oil Palm Board and Department Of Agriculture.

Palm oil millers and smallholders must be encouraged to have a supply and purchase

agreement through organisation such as Farmers Council and Cooperatives to safeguard

smallholders interest.

The Thai oil palm industry has a great potential to grow into a respected worldpalm oil producer provided that all the stakeholders play their role with therecommendations as follows:

rahmat@thhventures.com