Here is a new expected million tonne user of palm oil: Indonesia state-owned electricity firm PT Perusahaan Listrik Negara (PLN). http://www.thejakartapost.com/news/2014/01/21/pln-increase-palm-oil-use.html
Khor Reports comment: At a pre-Xmas PO corporate event I attended last month, we were ruminating over one of the host's worries that the long term risk of the anti-PO campaigning is this: it could push PO more and more to non-food uses. That is if the PO industry doesn't do a good job negotiating market access with NGOs. On a positive demand note, Indonesia policy augurs new major demand. But how will the procurement policies of key processing intermediaries impact? All eyes on Wilmar and big producers who are most avidly pushing high-end procurement policies. They have a large share of Indonesia biodiesel capacity. The changes over the next 24 months will bear watching. PLN will be in the size category of the likes of Neste Oil, Unilever etc.
This blog highlights news and views on markets, marketing, sustainability and political-economics of palm oil. Any views belong to the respective authors and do not represent that of any particular organization. I update this in my spare time. Since mid-2016, the more "comprehensive" news is available on customized request. Market news and big news continue to be updated. Thank you for reader interest that has generated over 130,000 page views in 2016.
Sunday, January 26, 2014
Monday, January 13, 2014
Landmark Indonesia ruling on peat infractions
The Indonesia palm oil sector is eyeing a recent court ruling as a land mark case on infractions in a peat area with illegal land clearance and illegal burning of vegetation. The case was brought by the Ministry of Environment against a company developing 1,000 hectares in Acheh. The fines include a payment for "losses to the state" of about USD 9.4 million, while a larger fine was for rehabilitating the land destroyed. Assuming the full 1,000 hectares was destroyed, the rehabilitation fine is equivalent to some USD20,707 per hectare.
Plantation operators will need to look at this in context, plus compare and contrast this to the RSPO HCV Compensation Procedure which has gone rapidly from proposal to "phased implementation" in 4Q2013 with targeted approval for implementation in Nov 2014. With the RSPO General Assembly membership numbers well known, any vote on the matter is considered a "done deal" i.e. there has been a consistent pattern of voting on initiatives that are "contrary" to the growers position. It is estimated that growers are about 15% of the RSPO membership.
In the RSPO HCV Compensation, the cost of peat land rehabilitation is put at some USD11,000 (based on one study, and with partial costing for a short duration i.e. not for the full cycle of oil palm which is the timing used by the RSPO). The basis / parameters of the RSPO and Indonesia MOE are little known, and they should be studied and compared on an "apple to apple" basis.
A crucial difference is that the Indonesia court ruling is on infractions, while the RSPO HCV Compensation is on entire new land concession areas which lack the appropriate HCV assessment documents i.e. there may not have been any other "infractions." The catch-all RSPO approach also requires growers to pay HCV Compensation on any future merger and acquisition deal involving land without acceptable HCV assessment documents. For the RSPO, the compensation fee will be calculated against the November 2005 status of the land. The Indonesia MOE basis needs to be understood too.
Plantation operators will need to look at this in context, plus compare and contrast this to the RSPO HCV Compensation Procedure which has gone rapidly from proposal to "phased implementation" in 4Q2013 with targeted approval for implementation in Nov 2014. With the RSPO General Assembly membership numbers well known, any vote on the matter is considered a "done deal" i.e. there has been a consistent pattern of voting on initiatives that are "contrary" to the growers position. It is estimated that growers are about 15% of the RSPO membership.
In the RSPO HCV Compensation, the cost of peat land rehabilitation is put at some USD11,000 (based on one study, and with partial costing for a short duration i.e. not for the full cycle of oil palm which is the timing used by the RSPO). The basis / parameters of the RSPO and Indonesia MOE are little known, and they should be studied and compared on an "apple to apple" basis.
A crucial difference is that the Indonesia court ruling is on infractions, while the RSPO HCV Compensation is on entire new land concession areas which lack the appropriate HCV assessment documents i.e. there may not have been any other "infractions." The catch-all RSPO approach also requires growers to pay HCV Compensation on any future merger and acquisition deal involving land without acceptable HCV assessment documents. For the RSPO, the compensation fee will be calculated against the November 2005 status of the land. The Indonesia MOE basis needs to be understood too.
Sunday, January 12, 2014
"RSPO+9", new TFT / Climate Advisers-led policies for Wilmar
New The Forest Trust or TFT / Climate Advisers-led policies for Wilmar include these nine (9) substantive policies, which adds on to existing RSPO commitments, hence we can call it "RSPO+9" for now:
(i) non-use of peat land of any depth;
(ii) likely 35 tonnes carbon per hectare ceiling for land development;
(iii) progressive GHG reductions;
(iv) restoration and enrichment of forest and peatlands (similar to RSPO HCV compensation?);
(v) no forced labour,
(vi) 60-hour work week with 1 day off inclusive of overtime,
(vii) 3.8 square meters / 32 square feet of individual living space,
(viii) trade unions and collective bargaining;
(ix) grievance procedure where advisers and stakeholders have a say in banning suppliers.
Khor Reports blog exclusive comment: The independent advisers to Wilmar are TFT of Switzerland and Climate Advisers of the USA. TFT-Greenpeace was instrumental in putting forth the high carbon stocks ceiling principle for Golden-Agri / Sinar Mas which ran into severe NGO campaigning. This resulted in various global buyers suspending palm oil purchases from the large Singapore-based Indonesian conglomerate. Wilmar did not run into such market problems, although it was obviously facing increasingly negative comments about its "problematic" third-party purchases and land deals in the international news and NGO websites. It is notable and interesting that Wilmar also chooses to be led by the strong principles of TFT-Greenpeace. Presumably, Wilmar (also Singapore-based but with operations globally; and large plantation area in Sarawak and Indonesia and a very big refinery market share in China) expects good outcomes from adopting the approach of Golden-Agri and doing much more to boot. Climate Advisers is a relative newcomer to setting market access policy for palm oil. Palm oil companies, mostly owned by Southeast Asian entrepreneurs, have been quite readily accepting NGO-led standards on a voluntary basis. Palm oil is one of the 15 global (mostly tropical) commodities targeted by the WWF, which focuses on the very largest companies to push for more rapid change. However, WWF's Roundtable on Sustainable Palm Oil (RSPO), now finds itself superseded by the new RSPO+9 effort led by TFT-Greenpeace principles.
Look out of Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014 for more! This is a sneak preview of our review of Wilmar's bold move. Many ask how they will implement this while NGOs say that this is "just the beginning..."
(i) non-use of peat land of any depth;
(ii) likely 35 tonnes carbon per hectare ceiling for land development;
(iii) progressive GHG reductions;
(iv) restoration and enrichment of forest and peatlands (similar to RSPO HCV compensation?);
(v) no forced labour,
(vi) 60-hour work week with 1 day off inclusive of overtime,
(vii) 3.8 square meters / 32 square feet of individual living space,
(viii) trade unions and collective bargaining;
(ix) grievance procedure where advisers and stakeholders have a say in banning suppliers.
Khor Reports blog exclusive comment: The independent advisers to Wilmar are TFT of Switzerland and Climate Advisers of the USA. TFT-Greenpeace was instrumental in putting forth the high carbon stocks ceiling principle for Golden-Agri / Sinar Mas which ran into severe NGO campaigning. This resulted in various global buyers suspending palm oil purchases from the large Singapore-based Indonesian conglomerate. Wilmar did not run into such market problems, although it was obviously facing increasingly negative comments about its "problematic" third-party purchases and land deals in the international news and NGO websites. It is notable and interesting that Wilmar also chooses to be led by the strong principles of TFT-Greenpeace. Presumably, Wilmar (also Singapore-based but with operations globally; and large plantation area in Sarawak and Indonesia and a very big refinery market share in China) expects good outcomes from adopting the approach of Golden-Agri and doing much more to boot. Climate Advisers is a relative newcomer to setting market access policy for palm oil. Palm oil companies, mostly owned by Southeast Asian entrepreneurs, have been quite readily accepting NGO-led standards on a voluntary basis. Palm oil is one of the 15 global (mostly tropical) commodities targeted by the WWF, which focuses on the very largest companies to push for more rapid change. However, WWF's Roundtable on Sustainable Palm Oil (RSPO), now finds itself superseded by the new RSPO+9 effort led by TFT-Greenpeace principles.
Look out of Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014 for more! This is a sneak preview of our review of Wilmar's bold move. Many ask how they will implement this while NGOs say that this is "just the beginning..."
US transfats demise
Palm oil sits about mid-point in fatty acid composition; it is semi-solid or half solid and half liquid. 1 in 6 food products it but Dr Kalyana Sundram of the Malaysia Palm Oil Council (PIPOC presentation, 22 Nov 2013) notes a surfeit of emotion in calling palm oil bad for health. Food labelling requirements are on the rise while campaigners “re-invent” the association of palm oil with health issues (several large medical studies find no / no significant association; other studies find palm olein reduces cholesterol as effectively as olive and canola / rapeseed oils). This is sometimes done in combination with sustainability issues; to significant effect in the Francophone world.
Hydrogenation takes a liquid oil, including soybean, to make it solid, creating transfats in the process. Post-World War Two, Unilever incorporated it into margarine. In the 1980s, food industries reformulated to avoid palm oil and the USA and Europe were awash with transfats. Mensink & Katan (New England Journal of Medicine, 1990) showed that margarines were not healthy as transfats increase the risk of heart disease. Harvard Medical School work also challenged hydrogenated oils in the 1990s and the US Food and Drug Administration (FDA) concurred. Manufacturers reformulated to reduce transfats. The FDA sought evidence for the promotion of palm oil on no-transfats grounds. Sundram’s 2001 study showed that it is safer to eat saturated fats than transfats. US palm oil use boomed, exceeding 1.2 million tonnes. The only reliable commodity substitute was (still is) palm oil.
In November 2013, challenged by a legal suit the US FDA removed its “generally regarded as safe” / GRAS status for transfats. In a single serving food manufacturers were allowed 0.49 grams of transfats (serving sizes were cut to comply). Transfats is now regarded as an additive and not a food ingredient. This is expected to boost palm oil demand in the US market by another 150,000 tonnes in 2014. When will others move on transfats?
Look out for Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014! This article is a sneak preview article from this issue.
Hydrogenation takes a liquid oil, including soybean, to make it solid, creating transfats in the process. Post-World War Two, Unilever incorporated it into margarine. In the 1980s, food industries reformulated to avoid palm oil and the USA and Europe were awash with transfats. Mensink & Katan (New England Journal of Medicine, 1990) showed that margarines were not healthy as transfats increase the risk of heart disease. Harvard Medical School work also challenged hydrogenated oils in the 1990s and the US Food and Drug Administration (FDA) concurred. Manufacturers reformulated to reduce transfats. The FDA sought evidence for the promotion of palm oil on no-transfats grounds. Sundram’s 2001 study showed that it is safer to eat saturated fats than transfats. US palm oil use boomed, exceeding 1.2 million tonnes. The only reliable commodity substitute was (still is) palm oil.
In November 2013, challenged by a legal suit the US FDA removed its “generally regarded as safe” / GRAS status for transfats. In a single serving food manufacturers were allowed 0.49 grams of transfats (serving sizes were cut to comply). Transfats is now regarded as an additive and not a food ingredient. This is expected to boost palm oil demand in the US market by another 150,000 tonnes in 2014. When will others move on transfats?
Look out for Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014! This article is a sneak preview article from this issue.
Friday, January 10, 2014
India increases import duty on refined palm oil from 7.5% to 10%
India finally increases its import duty after months of lobbying by India refiners. Tax differential between crude and refined increases from 5% to 7.5%.
News and view from AmResearch 10 Jan 2014: Bloomberg reported that India has increased the import duty on refined palm oil from 7.5% to 10%. We are not surprised by this development as palm refiners in India have been lobbying for a higher import duty since mid-2013. At that time, the refiners had proposed an import duty of 12.5% on refined palm oil. The Indian Government has given in to the proposal of a higher import duty but at a rate of 10%. Due to the low tax differential between crude and refined palm oil, buyers in India had preferred to import refined palm oil directly instead of buying them from the refiners. It was reported that palm refiners in India were operating at low utilisation rates of only 30%. Companies operating palm refineries in India include Wilmar Adani and Ruchi Soya Industries. We believe that the increase in import duty would not significantly affect the demand for palm oil. India would still be buying palm oil from Indonesia or Malaysia except that there could be some switching from refined palm oil to palm oil in crude form. Currently, the import duty on crude palm oil is 2.5%. The tax differential between crude and refined palm oil would increase to 7.5 percentage points due to the higher import duty on refined palm oil versus 5 percentage points previously.
News and view from AmResearch 10 Jan 2014: Bloomberg reported that India has increased the import duty on refined palm oil from 7.5% to 10%. We are not surprised by this development as palm refiners in India have been lobbying for a higher import duty since mid-2013. At that time, the refiners had proposed an import duty of 12.5% on refined palm oil. The Indian Government has given in to the proposal of a higher import duty but at a rate of 10%. Due to the low tax differential between crude and refined palm oil, buyers in India had preferred to import refined palm oil directly instead of buying them from the refiners. It was reported that palm refiners in India were operating at low utilisation rates of only 30%. Companies operating palm refineries in India include Wilmar Adani and Ruchi Soya Industries. We believe that the increase in import duty would not significantly affect the demand for palm oil. India would still be buying palm oil from Indonesia or Malaysia except that there could be some switching from refined palm oil to palm oil in crude form. Currently, the import duty on crude palm oil is 2.5%. The tax differential between crude and refined palm oil would increase to 7.5 percentage points due to the higher import duty on refined palm oil versus 5 percentage points previously.
Wednesday, January 8, 2014
"Ice cream" treats & Magnum
Ice cream is a big business for Unilever. “With almost USD13 billion in sales across brands such as (Magnum), Cornetto, Breyers, Klondike, and Ben & Jerry’s, ice cream is Unilever’s single biggest category, accounting for about 15% of total revenue, according to researcher Euromonitor. London and Rotterdam-based Unilever is also the world’s biggest maker of ice cream, with about 20% of the USD85 billion market, ahead of Vevey, Switzerland-based Nestle... Magnum’s sales, which have doubled since 2006, top EUR 1 billion (USD1.24 billion) worldwide this year, making ice cream a standout in Unilever’s sluggish food unit. Sold in 50 countries, Magnum is Europe’s top ice cream brand” (Bloomberg.com, 5 Aug 2012).
The key markets differ. Parthenon research says that “The USD12 billion US ice cream market is unique because more than half of total sales come from packaged tubs sold in supermarkets and eaten at home… In Europe, more consumption takes place outside the home in single-serve, more-profitable portions… (not surprisingly) major players.. “are increasingly shifting their focus to so-called frozen novelties -- single-serve treats on sticks or in cones… (which) command 21.2% of the US market” How is Magnum positioned in Asian emerging markets? “Magnum costs about three times as much as locally produced ice cream bars, lending it cachet among the emerging middle class, a group projected to increase from 500 million people to more than 3 billion across Asia by 2030” (Bloomberg.com, 5 Aug 2012).
In India, the biggest dairy producer is losing ground in the booming frozen treats market. Gujarat Co-Operative Milk Marketing Federation Ltd advertises that real ice cream contains milk, in a campaign seeking to highlight the lack of the ingredient in most of its global rival’s Indian products: cream, or any other dairy fat… “One reason producers have developed recipes without cream is that milk fat is about five times as expensive as fats derived from palm oil and coconut oil… Another advantage is that dairy-based frozen desserts tend to melt faster than those made from plant oils, according to Doug Goff, food scientist at the University of Guelph. That’s important in a country as hot as India…. (its) consumers have decided they’re happy with frozen desserts using cheaper fats such as palm oil. In the five years to 2012, Gujarat Co-operative’s share of the market for frozen treats fell to 31% from 35% while Unilever’s rose to 21% from 17%, according to researcher Euromonitor…. Indians eat an average of 200 milliliters of ice cream each year, versus 14 liters in the US and 2.2 liters in China” (bloomberg.com, 26 Sep 2013). In 2010, world consumption was 2.4 liters/head (data includes both dairy- and non-dairy-fat based products).
Khor Reports Blog only supplementary info: Doug Goff, reports “on the use of non-dairy fats in frozen desserts. A blend of 75% of either fractionated palm kernel oil or coconut oil and 25% of an unsaturated oil, like high oleic sunflower oil, was shown to produce optimal levels of fat destabilization, meltdown and flavour, although coconut oil may take longer to crystallize during aging. Blends of 50% milkfat, 37.5% fractionated palm kernel or coconut oil, and 12.5% high oleic sunflower oil were also shown to be very acceptable” (uoguelph.ca, accessed 1 Dec 2013)
Look out for Khor Reports' Oil Palm Newsletter #6 Jan/Feb 2014!
The key markets differ. Parthenon research says that “The USD12 billion US ice cream market is unique because more than half of total sales come from packaged tubs sold in supermarkets and eaten at home… In Europe, more consumption takes place outside the home in single-serve, more-profitable portions… (not surprisingly) major players.. “are increasingly shifting their focus to so-called frozen novelties -- single-serve treats on sticks or in cones… (which) command 21.2% of the US market” How is Magnum positioned in Asian emerging markets? “Magnum costs about three times as much as locally produced ice cream bars, lending it cachet among the emerging middle class, a group projected to increase from 500 million people to more than 3 billion across Asia by 2030” (Bloomberg.com, 5 Aug 2012).
In India, the biggest dairy producer is losing ground in the booming frozen treats market. Gujarat Co-Operative Milk Marketing Federation Ltd advertises that real ice cream contains milk, in a campaign seeking to highlight the lack of the ingredient in most of its global rival’s Indian products: cream, or any other dairy fat… “One reason producers have developed recipes without cream is that milk fat is about five times as expensive as fats derived from palm oil and coconut oil… Another advantage is that dairy-based frozen desserts tend to melt faster than those made from plant oils, according to Doug Goff, food scientist at the University of Guelph. That’s important in a country as hot as India…. (its) consumers have decided they’re happy with frozen desserts using cheaper fats such as palm oil. In the five years to 2012, Gujarat Co-operative’s share of the market for frozen treats fell to 31% from 35% while Unilever’s rose to 21% from 17%, according to researcher Euromonitor…. Indians eat an average of 200 milliliters of ice cream each year, versus 14 liters in the US and 2.2 liters in China” (bloomberg.com, 26 Sep 2013). In 2010, world consumption was 2.4 liters/head (data includes both dairy- and non-dairy-fat based products).
Khor Reports Blog only supplementary info: Doug Goff, reports “on the use of non-dairy fats in frozen desserts. A blend of 75% of either fractionated palm kernel oil or coconut oil and 25% of an unsaturated oil, like high oleic sunflower oil, was shown to produce optimal levels of fat destabilization, meltdown and flavour, although coconut oil may take longer to crystallize during aging. Blends of 50% milkfat, 37.5% fractionated palm kernel or coconut oil, and 12.5% high oleic sunflower oil were also shown to be very acceptable” (uoguelph.ca, accessed 1 Dec 2013)
Look out for Khor Reports' Oil Palm Newsletter #6 Jan/Feb 2014!
Welcome back and Happy 2014
Happy New Year to all. Khor Report was away on our holiday and newsletter #6 is in its final preparation now. As a teaser, we offer you some articles while awaiting our Jan/Feb issue release.
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