MPOC: Championing the Malaysian Palm Oil Brand
Petroleum is not the only oil price sinking this year. The downturn of the crude palm oil (CPO) price, coupled with the erratic climate, has forced Malaysian producers to reexamine their cost-competitiveness.
As one of Malaysia’s National Key Economic Areas (NKEAs), palm oil accounts for more than 5% of the country’s annual exports. With the support of the government, palm oil is aiming to generate RM 178 billion in gross national income by 2020.
Through the strategic approach of the Malaysian Palm Oil Council (MPOC) to enhance market demand and sustain sufficient price levels, however, CEO Tan Sri Datuk Dr. Yusof Basiron believes, government intervention is not required.
“The palm oil industry is based on supply and demand,” he says. “We try to create and sustain the demand in order to ensure the market price is high enough and therefore apt for the producers and the small farmers. In that sense, our current efforts eliminate the need for direct subsidies, which exist in the rubber sector, for example.”
MPOC is the market development and promotional arm of the Malaysian palm oil industry, functioning to help develop new markets, improve the understanding of palm oil, and create the global acceptance of palm oil products.
Managing perceptions and allegations also falls within Dr. Yusof’s jurisdiction, but he brushes off European anti-palmoil campaigns, such as the “No Palm Oil” labels, as remnants of the protectionist policies prevailing in the EU.
“Where were these NGOs 20 years ago, when we were developing our country to supply the global market with the commodity that feeds the world now?” he asks. “They were not there and we put in all the hard work.”
In fact, the debate is close to being over, as the new EU Food Information for Consumers Regulation (FIC), which came into effect late last year, ruled the labels illegal. Certain companies, however, have yet to conform.
“It doesn’t affect our industry in terms of demand, but it does affect the image,” says Dr. Yusof. “They cannot stop us from capturing new markets because we are known to be genuinely and naturally sustainable, competitive, and cost-effective.
This is what makes palm oil so attractive and why it will be dominating the supply for the world markets.” And dominate it will: Palm oil consumption is set to more than double by 2050, from 52 million tonnes in 2012 to over 100 million tonnes. That is according to the Roundtable on Sustainable Palm Oil, a global multi-stakeholder association aiming to make sustainable palm oil the global standard.
If this trajectory holds up, Malaysia will be supplying much of the demand, as it currently accounts for 39% of world palm oil production and 44% of world exports. Together with Indonesia, the two countries produce more than 80% of the world’s palm oil. Now, on the brink of ASEAN economic integration next year, the market of more than 600 million people will in and of itself create the base for marketing local products.
“No longer will we be dealing only with individual small countries, but a regional group that will have substantial opportunities for two-way trade flows,” Dr. Yusof explains. “With some of the world’s largest palm oil consumers situated in Asia, such as China, India, and Pakistan, there is already a viable supply-demand market phenomenon.”
To tap into the opportunities, he advises investors to participate in palm oil futures. Malaysia is a hub for futures trading in the palm oil market thanks to Bursa Malaysia’s partnership with the Chicago Mercantile Exchange (CME), which contributes to the overall growth of the Malaysian capital markets by improving global access to the Malaysian derivatives market.
The joint venture with CME already raised participation from foreign Crude Palm Oil Futures traders to 40% of the volume.
“For physical investments,” says Dr. Yusof, “the tendency has been geared toward relocating companies’ new manufacturing processes to Malaysia because of the close proximity to the large base of raw materials, from aviation fuel to building materials, plastics, and more.”
The palm oil industry continues to climb the value chain and introduce premium palm products, mainly in the food and health-based segments. It is also increasingly being recognized as a source of renewable raw material that can substitute for petroleum-based products in the long term.
Given the global shift from oil to gas, and taking into account that gas production is still costly due to the multiple processing steps necessary to produce the derivatives, Dr. Yusof emphasizes that palm oil can compete effectively in this space.
This article was published in FORTUNE magazine