PALM KERNEL SUPPLY AND PRODUCT MARKETS Development of the Palm oil Sector Oil Palm Production Areas:

WORLWIDE

Figure 1: Map Showing the extent of oil palm cultivation in 43 oil palm-producing countries in 2006 (Teoh 2010)

Today, oil palm is cultivated in about 43 countries in the world (Figure 1) from only three countries (Congo, Malaysia and Indonesia) in the 1960s. The growth of the industries in the last four decades, in terms of the planted area and production are presented in Figure 2 and Table 1.while global plantings of oil palm grew eight-fold in the past four decades to over 12 million hectares in 2009, the area under cultivation in Malaysia increased by 5 times and in Indonesia by a phenomenal 23 times over the same period. Expansion of oil palm plantations in Indonesia has been particularly rapid since 200, with the area covered by mature oil palm increasing to 5.35 million hectares in 2009. In terms of annual growth of planted areas, the 1980s saw an annual planting of about 100,000 hectares which increased to about 200,000 hectares per year in the 1980s. From 1999 to 2003, the estimated rate of planting was about 500,000 hectares per year. (Chandran, 2010b.)

Of the total global production of about 133 million tonnes of vegetable oils in 2009, the palm oil sector produced about 45 million tonnes of palm oil (34 percent of the worlds
Figure 2: World Areas of Mature Oil Palm (million hectares)

total) and more than 5 million tonnes of palm kernel oil as a valuable by-product for industrial and food uses (4 percent). In comparison, production of soybean oil and rapeseed oil totalled about 36 and 22 million tonnes, respectively. The growth of the palm oil sector in the past three decades has been phenomenal, with the planted area for the crop increasing from about 1.55 million hectares in 1980 to about 12.2 million hectares in 2009, nearly an eightfold increase. During that period, production increased 10-fold, from 4.5 million tonnes in 1980 to about 45 million tonnes in 2009. Among the major vegetables, palm oil is the most widely traded globally; the volume of palm oil exported has increased from 3.8 million tonnes in 1980 to 36.2 million tonnes in 2009, representing almost a 10-fold increase. Indonesia and Malaysia are the worlds largest exporters of palm oil, accounting for nearly 90 percent in 2009. Almost three-fourths of the 45 million tonnes of global production is traded. The largest importers of palm oil are India, China, and the EU-27, accounting for 18.8 percent (6.8 million tonnes), 18.2 percent (6.6 million tonnes), and 16 percent (5.8 million tonnes) of global imports, respectively.The dependence on imported vegetable oils among the major consumers has continued to surge and a linear trend in imports of palm oil is seen in EU-27, India, and China as well as in Russia and Ukraine in the last 10 years.
Table 1: World Production of Palm Oil ('000 Tonnes)
1

Country Indonesia Malaysia Nigeria Colombia Cote dIvoire Thailand Ecuador Papua New Guinea Others Total

1980 691 2,576 433 74 182 13 37 35 768 4,809

1990 2,413 6,095 580 226 270 232 120 145 786 10,867

2000 6,900 10,800 740 516 290 510 215 281 1,699 21,951

2009 20,900 17,566 870 794 n.a. 1,310 436 470 3,236 45,111

Palm oil development is dominated by the private sector in the main producing countries. Expansion was driven initially by European companies, particularly those from the UK that had established rubber, tea, and coffee plantations in the late 1800s and early 1900s in Asia. Following sustained declines in rubber prices in the 1960s, these companies started to diversify into palm oil. Latterly, the exponential development seen has been driven largely by locally-based companies. Currently, the top 10 plantation companies have a combined market capitalization of US$79.1 billion (31 Mar 2010) and own about 2.3 million hectares of plantations producing 9.7 million tonnes (Bloomberg, 31 Mar 2010). This is equivalent to about 22% of the worlds palm oil production. Recent mergers and acquisitions have resulted in the emergence of several mega plantation companies.

Oil World (various years)

The development of the palm oil industry in other producing countries has also been driven by the private sector. For example, New Britain Palm Oil Ltd. established the first plantations in Papua New Guinea in the mid-1960s (NBPOL, 2007) while in Brazil Agropalma is the leading player with more than 39,000 hectares of oil palm plantations, making it the largest in Latin America (Brito and Baiao, 2009). Multinational Unilever NV also had plantation interests in Malaysia, Africa, Colombia and Thailand but has been divesting these upstream investments since 1990. In Malaysia, of the total area of 4.49 million hectares planted under oil palms in 2008, about 30% was under scheme or organized smallholders. Smallholders in Indonesia stared cultivating oil palm in 1975, and in 2009 it was estimated that both scheme and independent smallholders collectively account for 43.8% of the national total area planted under the oil palm. In Thailand, about 76% of the total mature oil palm area was under smallholdings in 2009 (Dallinger, 2010, pers com.) In Papua New Guinea, smallholders account for about 42% of the total planted oil palm area of 134,000 hectares and about 35% of the national palm oil production of 2.1 million tonnes in 2008 (Orwell, 2009.) A study in 2006 (Vermuelen and Goad, 2006) showed that in Nigeria, more than 80% of the national production is produced from semi-wild or intercropped holdings covering 1.6 million hectares. Palm Oil and Palm Kernel Oil in the global oils and fats industry The edible oils and fats market has expanded with world population growth increased per capita consumption, and the desire to replace animal fats in the human diet. Overall production of vegetable oil has increased by 335% since 1980 (Table 2). Among the major vegetable oils, the growth in the production of palm oil has been phenomenal, truly an emerging market success story, with a ten-fold increase from 1980 to 2009 while its major competitor, soybean oil, increased by 2.7 times during the same period. Palm Kernel oil has also been performing increasing worthy. With a nine-fold increase from 0.6% to 5.2% from 1980 to 2009, the demand pays very well in the market. Palm oil exceeded soybean oil in the global production in 2005. By 2009, palm oil production of 45.1 million tonnes was equivalent to 34% while the market share for soybean oil, rapeseed oil and sunflower oil were 27%, 16.2% and 9.8% respectively.
Table 2: World Production of Vegetable Oils 1980-2009 (million tonnes)

Type of Vegetable Oil Soybean Oil Palm Oil Rapeseed Oil Sunflower Oil Palm Kernel Oil Other Vegetable Oils Total

1980 13.4 4.5 3.5 5.0 0.6 12.8 39.8

1990 16.1 11.0 8.2 7.9 1.5 16.1 60.8

2000 25.6. 21.9 14.5 9.7 2.7 18.1 92.5

2009 35.9 45.1 21.5 13.0 5.2 12.0 132.82

Source: Oil World (various years)

The significant growth in production, consumption and market share of palm oil is to a large extent due to its cost competitiveness regarding other vegetable oils and animal fats. Palm oil, the cheapest oil among soybean oil rapeseed, oil, and sunflower seed oil, has been able to capture new markets and make inroads into markets that have traditionally preferred other oils. Palm oil is also very versatile in many processing applications. Concerns over the health hazards associated with trans-fatty acids (TFA) and genetically modified organisms (GMO) have also raised the demand for palm oil. Palm oil, which requires little or no hydrogenation for production of margarine, bakery shortenings and confectionery fats is an accepted substitute compared to vegetable oils which need hydrogenation to produce these products. Palm oil is not derived from a GMO. Another key reason for palm oils dominance in the vegetable oil market is its essential crop productivity compared to oil seeds. The average oil yield of palm oil is 3.80 tonnes per hectare which is 9.3, 7.6 and 5.8 times higher than soybean oil, rapeseed oil and sunflower oil, respectively (Oil World 2008). In terms of land utilization, palm oil is required about 11.2 million hectares of land for its production in 2008 while soybean oil required 91.32 million hectares. Global Oils and Fats Scenario

World's Oils and Fats Production

others sunflower 9% animal fats 7% 15% laurics 5% rapeseed 14% Soybean 23% palm 27%

Oil palm cultivation and industry occupies only 4.7% (equivalent to 11.3 million hectares of the total land area planted with oilseeds (232 million hectares) or 0.23% of the world agricultural land (4884 million hectares). Malaysian Oil Palm Fields
Figure 3: Palm Oil Production Trends (Million Tonnes)

In the early development stages, Malaysia focused on increasing palm oil output by rapidly increasing the land area under oil palm cultivation. Research, technological innovation and sustainable palm oil

production was initiated to ensure increased productivity and better plantation practices in order to provide high quality oil at lower costs. The advancement of oil palm plantations in Malaysia is made possible with commitment from the Malaysian Government and the industry and thus, making Malaysia the worlds largest production palm oil accounting for 40% of the global production of palm oil.
Table 3: Planted Area of Oil Palm in Malaysia (Asrafudeen 2010)
3

Oil Palm: Planted Area (mil ha)

4.85 5 4 3 2 1 0 Planted Area 0.64 1.02 1.48 2.54 2.03 3.37 4.05

1975 0.64

1980 1.02

1985 1.48

1990 2.03

1995 2.54

2000 3.37

2005 4.05

2910 4.85

Malaysian Palm Oil Area, Yield and Production4 2007 3.74 4.23 15.82 2008 3.90 4.55 17.73 2009 4.02 4.39 17.56 2010 4.10 4.14 16.99 2011F 4.2 4.38 18.4

Mature Area (Mn Ha) Yields (T/Ha) Production (MnT)

2010 Review for Malaysian Palm Oil Exports of palm oil for 2010 were 16.659 million MT, an increase of 5.2% compared to 2009. Last year, the largest importers were China (3.48 million MT), Pakistan (2.13 million

Capacity Growth in Malaysia

Capacity (Thd MT) 3000 2000 1000 2002 Capacity (Thousand 1895 Metric Tons) 0 2004 1962 2006 2467 2008 2599 2010 2658

3 4

(Asrafudeen 2010) (Asrafudeen 2010)

MT), European Union (2.06 million MT) and India (1.17 million MT). Americas, Middle East and the African Regions registered more than 20% of increase in imports of Malaysian Palm Oil. Global Oils and Fats Scenario: 2011 Palm oil to play a crucial role in the supply of oils and fats Consumption growth of oils and fats projected to be between 3-5%. Total volume of consumption is expected to be 100 million MT. Demand for oils and fats to increase from India, China, Europe and USA. Crude Palm Oil price is influenced by Crude Oil prices. Based on these factors, price of Crude Palm Oil is forecasted to be an average of RM 3,300 or PhP 45385.80 per metric ton in 2011.

Oils and Fats Global Supply and Demand Scenario In the past 10 years, production has exceeded consumption. However, in 2010, consumption exceeded production There is population increase, Gross Domestic Product improvement but there is also lack of new planted areas and new uses have increased consumption. There may still be a surplus in production but by 2014, consumption will outstrip production. The shortage gap would widen unless new areas are planted or more efficient methods to extract oil are employed.

Global Supply and Demand Situation

10

Metric Tons

8 6 4 2 0
2 2.7 3.5 3.5 4.3 5.1 5.8 6.6

7.3

8.8

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
World population increase by 70-80M/year Demand for oils and fats expand by 4-5M tons/year World arable land stagnant due to population growth Ratio of arable land to support supply of Soybean oil versus palm 10:1 ha

Export trends of major oils

40000 35000 30000 25000 20000 15000 10000 5000 0

'000/tons

Sunflower Canola

Soybean
Palm

Dramatic increase in palm oil export is due to the following: growth of population from major oils consumer like Asia, Oceania and Americas Backdrop of arable land from competing soft oils Increased application in production of food and non-food (oleo-chemical/biodiesel) especially in China, India, Middle East and America Future of Palm Oil is driven by growth in demand for food, oleo chemicals and bio fuel due to population and economic growth Top 10 major importers of Palm Based Oils in 2010 Number 1 2 3 4 5 6 7 8 9 10 Country China Pakistan Europe India U.S.A. Egypt Japan U.A.E Singapore Benin Total 3,484 2,135 2,061 1,170 1,028 939 552 448 401 377

Demand for oils and fats expands by 4-5 M tons/year

THE PRODUCT
5

Palm oil is the most traded oil in the world. In order to add more value, extensive milling, crushing and refining facilities are required to make it fit for human consumption and serve the growing demand for oils. It is commercially traded in various forms such as crude palm oil, refined beached deodorized (RBD) palm oil, RBD palm olein, and palm stearin and palm kernel oil.

Import Data for Palm Oil

PALM OIL IMPORTS TOTAL IMPORTS

236426 Axis Title

237860

123283 208039 48258 31407 2001 61748 42842 2002 56761 33522 2003 2004 2005 2006 98026 197477 67187 35580 2007 24109 9510 2008 34471 20485 2009 31519 15380 2010p

*p- Preliminary, January to October Year Total Imports Palm Oil Imports (In MT) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 p 48,258 61,748 56,761 123,283 236,426 237,860 67,187 24,109 34,471 31,519 31,407 42,842 33,522 98,026 208,039 197,477 35,580 9,510 20,485 15,380

Source of Basic Data: UCAP, Customs Basic Monitor

Oil Palm bunches commences 30 months after planting reaches its maturity in three years, and has an economic life of about 25 years. It gives the highest yield of oil per hectare of any crop. CRUDE PALM OIL is derived from milling the mesocarp which produces 49% of oil CRUDE PALM KERNEL OIL AND PALM KERNEL CAKE is derived from crushing the kernel which produces 50% of palm kernel oil RBD PALM OIL Is derived from refining crude palm oil (CPO) the identity characteristics of processed palm oil do not differ significantly from those of CPO with the exception of carotenoids which are destroyed during refining. Suitable material for margarine, shortening, vanaspati, frying fats and ice cream
RBD PALM OLEIN the liquid fraction obtained by fractionation of palm oil after crytallization at controlled temperatures. It is fully liquid in warm climates, has narrower range of glycerides, and blends perfectly with any seed oil. It is widely used as frying, cooking shortening and margarine. 2 types of RBD Palm Olein: a. Standard Grade min. 56IV b. Super Olein min. 60IV with lower cloud point min 7 PALM STEARIN The more solid fraction obtained by fractionation of palm after crystallization at controlled temperature. It is thus the co-product of palm olein. It is a very useful source of fully natural hard fat component for products such as shortenings, pastry margarine, vanaspati etc., good alternative to tallow for animal feeds and olechemicals and as partial replacement of tallow in soap PALM KERNEL OIL Is obtained from the kernel of the oil palm fruit. The oil composition is very different from that of palm oil. It resembles coconut oil in composition and characteristics, suitable for both edible and inedible applications. The sharp melting point renders PKO suitable for confectionery applications. PALM KERNEL OLEIN is the liquid component of palm kernel oil obtained from fractionation suitable for table margarines PALM KERNEL STEARIN is the more solid fraction of palm kernel oil obtained from fractionation suitable for confectionery fats

Philippine Palm Oil Market

in Million tons
250000 200000 150000 100000 50000
53996 204731

in Million tons

0
Palm Based Oils

4828

8189

Oleo-chemicals PKO/confectionery finished Products fats

2010 Import Data for Oils

Malaysia Indonesia 1% 10% Others

89%

Market Segment DISTRIBUTION OF PALM OIL USAGE (From Imported and Local Supply in MT)
Industrial Institutional Consumer

Industrial End-Users
Snacks 20% Instant Noodle Makers 21% Dairy products 11% Confection ery 15%

Bakery 33%

35% 25%

40%

2007: 97.429 M. T.
Source of Basic Data: Industry Reports to UCAP Research, Business Statistics Monitor
Consumer Market Position

Consumer Market 18,893MT/month combined CNO and Palm

Branded, 2,748 15%

Unbranded

Branded

Unbranded , 16,145 85%

Oil Palm Plantation Areas in the Philippines, 2003

Region VII Central Visayas X Northern Mindanao XI Southern Mindanao XII SOCSARGEN XIII CARAGA XIV ARMM Total Number of Hectares 3,994.15 190.00 217.38 6,766.81 13,478,22 596.89 25,243.45 % of total area 16% 1% 1% 27% 53% 2% 100%

FFBs are processed by the two oil mills in the region, FFPI and Agumil, into two by-products, crude palm oil (CPO) from the mesocarp and palm kernel (PK) from the kernel. These products are transported and sold to Manila-based companies, most of which are industrial companies and food processors such as RFM Corp., Asian Plantations Phils Inc., Ricor Mills Corp., Mina Oil Mill Corp., Olea Fats, Inc, among others. Volume of Production of Oil Palm By-products, in metric ton Agumil6 Year Crude Palm Oil Palm Kernel Crude Palm Oil 2003 25,216 2002 23,111 2001 21,359 2000 20,381 1999 25,490

FPPI Palm Kernel 6,975 6,457 6,404 6,396 7,450

Economic Importance of the Industry Fresh fruit bunches (FFBs) harvested from the oil palm trees are processed in the mill to produce crude palm oil (CPO) and palm kernel oil (PKO). The former is extracted from the mesocarp of the fruits while the latter is obtained from the kernel. Though the existing mills in the province are capable of producing CPO and PKO, the present practice is to sell the palm kernel rather than to process it locally. Crude palm oil is also called palmetic oil with a high content (40%) of palmetic fatty acid. It undergoes refining to be edible, thereby producing two products, palm olein and palm stearin. Palm olein, which is a liquid fraction of the oil comprising about 70% of the CPO, is mainly used for cooking. On the other hand, the remaining solid fraction (palm stearin) is typically used for industrial purposes. Palm kernel oil can be used in ice cream and chocolate fats. It is also a close substitute for coconut oil in the so-called lauric oils complex. It has a fatty acid composition of 46-49% in the C12 range. This technical characteristic is an important factor in the vegetable oil market.

No available data

Palm oil is used in food preparation as household cooking oil, industrial frying, margarine, shortening, vegetable ghee, ice cream, confectionery and non-dairy creamers. It has protein, fat, carbohydrate, Vitamin E (tocotrienols and tocopherols) and Vitamin A (betacarotene). It is most preferred for food uses because it is cholesterol-free, rich in natural vitamins and has a high oxidation level, therefore resistant to discoloration, smell and has a long shelf life even after reuse. Palm oil is also used as material for soaps and detergents, surfactants, oleochemicals and cosmetics. Empty bunches fiber and shell as mill by-products are used in the field for mulching, saving the growers of up to 20% in farm inputs. The fiber and shell are also used for fuel for the boilers. Trunks and fronds are made into panels by enterprising dependents of the plantation workers. Palm oil production contributes to food security by allowing farmers to integrate it with rice, soybean, pineapple and banana at least during the first three years and raise animals like chicken. Palm oil is good for the environment. It absorbs more carbon and assimilates more dry matter. It also requires less fertilizers, pesticides and fuel energy, thus, fewer pollutants. Over the years, oil palm production technology has been much improved to help conserve and enhance soil and water quality. With its 3,200-kilo of oil per hectare yield, palm trees produce 10 times more oil per hectare than most other oil crops. Rapeseed is a poor second with 2400 kilos per hectare, sunflower 504 kilos; palm kernel oil 454 kilos; groundnut 384 kilos; and copra, which only yields 356 kilos of oil per hectare. Philippine Oil Palm Production Production decreased from 54,000 tons crude palm oil (CPO) in 1994 to about 49,000 tons in 1998. Production data from 1994 to 1998 were derived from the Millennium Edition of Food and Agribusiness Yearbook. Oil Palm Domestic Production, 1994-1998 Palm Kernel Year 1994 15,000 1995 15,000 1996 14,500 1997 14,000 1998 14,000

Palm Kernel Oil 6,600 6,300 6,400 6,200 6,000

Crude Palm Oil 54,000 53,000 52,000 50,000 49,000