Monday, 15 March 2010

"Green" palm oil output may double as prices rise

"Green" palm oil output may double as prices rise

Niluksi Koswanage

Mon Mar 15, 2010 6:52am EDT

(Reuters) - Palm oil output that does not cut down forests and harm wildlife may double to 3 million tonnes by the end of this year as benchmark Malaysian prices steadily rise, an industry official said on Monday.

The bulk of it will come from Malaysia as big planters come closer to ensuring their estates, mills and processors comply with commitments set by the industry-driven Roundtable on Sustainable Palm Oil (RSPO).

The grouping's secretary general Vengeta Rao said planters like Sime Darby (SIME.KL), IOI Corp (IOIB.KL) and Kuala Lumpur Kepong (KLKK.KL) will have a comprehensive supply chain for green palm oil within two years and higher prices encourage this.

"I would estimate that to-date production of 1.5 million tonnes of certified green palm oil will double at the end of this year," Rao said at the Reuters Food and Agriculture Summit.

"Higher palm oil prices will encourage companies to be more sustainable and as more supply comes in, the green palm oil's premium goes down, encouraging more consumers to go green."

Malaysia's crude palm oil is the best performing vegetable oil so far this year on expectations that a recovery in the global economy will boost demand. The vegetable oil is used in products ranging from soap and margarines to biofuels.

Green palm oil's premiums now stand at $10 over current cash price of $780 a tonne free-on-board (FOB), from $50 at end 2008.

Planters have complained that the lower premiums will not encourage the production of sustainably produced palm oil -- a point Rao does not agree with.
"If the offtake rises and we have seen that happening with the last two months, it goes a long way in reducing the industry's carbon footprint and shedding the negative publicity," he said.

"And it's a contrast from what happened during the financial crisis when European consumers stayed away from certified green palm oil. There is more money and people are less likely to be price conscious or cut costs in the case of companies."

Green groups have said expansion of oil palm estates to feed growing food and fuel demand fuels rainforest destruction in top producers Indonesia and Malaysia and speeds up climate change as powerful greenhouse gases get released.

But planters say that oil palm estates can act as a carbon sink and that a major CO2 savings can come from capturing methane, a powerful gas emitted during processing.
This contention has caused rifts with the RSPO, which groups planters, consumer goods firms and some environmentalists like WWF.

It became worse after Anglo-Dutch food giant Unilever (UNc.AS) (ULVR.L) suspended contracts with Indonesia's SMART TBK (SMAR.JK) and stopped trading with Duta Palma over concerns that the two were felling rainforests to expand oil palm acreage.
The move has spurred Indonesian planters to question the effectiveness of RPSO, formed in 2004 to form an ethical certification system that includes commitments to preserve rainforests and protect indigenous communities.

"We cannot question the commercial decisions of our members but we have asked them for clarification on this matter (of Unilever, SMART and Duta Palma)," Rao said.
"I don't think this will affect the good work we have been doing so far. In fact, there is a greater degree of openness."

(Editing by Ed Lane)