An interview with Teresa Kok- Malaysia's Primary Industries Minister 'Biodiesel to act as a mechanism for palm oil price balancing'

In what has become an insightful annual event on edible oil, the fifth Pakistan Edible Oil Conference was held earlier this month in Karachi. Gracing the occasion was Malaysia’s Primary Industries minister, Madam Teresa Kok, who took out time for a quick interview with BR Research at the sidelines of the conference.

Accompanied by Ikram Muhammad, Malaysia’s High Commissioner to Pakistan, Dr Datuk Kalyana, CEO of Malaysian Palm Oil Council (MPOC), Ahmed Perveez Director General of Malaysian Palm Oil Board (MPOB) and other delegates, Madam Teresa shed light on a host of topical affairs relating to global palm oil trends and the commodity’s consumption trends in Pakistan. Below are edited excerpts from that sitdown.

BR Research: Malaysia’s share in Pakistan palm oil imports has dropped over the last few years. Is reversing that trend on your agenda? What do you plan to do about it?  

Teresa Kok: During this visit, I have had the opportunity to listen to the suggestions of your oil industry players and importers, and we will go back and see what we can do to change this dynamic. It was Malaysia that opened up the market in Pakistan, and even some industry players whom I spoke to, said they prefer Malaysian palm oil.

The top leaders of both our countries are expected to meet soon, which will encourage the business community to invest and increase trade between the two countries. Both countries are supposed to review our FTA as well, and with your prime minister Imran Khan due to arrive in Malaysia soon, we hope to speed up the process.

BRR: What are those suggestions proposed by the industry?

TK: They are looking for more CPO, which is the crude palm oil. There are already some refineries in Pakistan which are joint ventures of Malaysian and Pakistani companies. They have requested me to see whether I can facilitate to allow them to import more CPO from Malaysia, because otherwise we encourage downstream industry in my country. Our focus is on exporting refined palm oil, biodiesel and other products, and not so much on exporting the CPO.

We produce about 20 million tons of palm oil per annum, on average. Most of it is refined and processed on shore in Malaysia. And on average, only about 2 million tons, or about 10 percent, of our total palm oil export to the world is in crude form.

BRR: What are the differences in quality and nature of Malaysian, Indonesian and other producers’ palm oil? And is it mostly because of the quality of crop?

TK: We were the pioneers of the industry. And all the end users of the world have benchmarked their palm oil on the quality standards set by the Malaysian palm oil industry. The crop in Malaysia is identical to that in other palm oil exporting countries. But it’s the refining technology, and the consistency of delivering a quality assured product that sets us apart.

Our MPOB department is constantly monitoring the industry, and if anyone does anything wrong, they risk losing the refining licence. We have 60 laws and regulations governing the palm oil industry from upstream to downstream sector.

BRR: What is your demand assessment of Pakistani palm oil market?

TK: At the end of 2019, oil and fats consumption in Pakistan was estimated at around 5.3 million metric tons, of which palm oil consumption was about 3.12 million tons. This has been consistently growing due to increase in disposal income, changing lifestyle, urbanisation and growing population.

Given Pakistan’s population growth rate, you are adding at least 5.4 million babies to your population every year, so it means palm oil demand for food consumption will continue to grow in Pakistan, because population growth must be matched by provision of food for the masses. Fat, including palm oil, is part of the macro nutrients that must be supplied.

If you look at current per capita consumption for fat in Pakistan, it is below the WHO recommendation of 18-19 kilogram per year, especially in the rural areas. Factoring all this, we see that the growth potential of edible oil is about 3 percent every year, and palm imports will also grow by about 3 percent every year. If the buying power of your country jumps, then per capita consumption will increase and that will further increase your demand. We also produce speciality fats with palm oil, and since Pakistan has a palate for pastry and other such food items, speciality fats could be very useful for your bakeries, cakes, restaurants and other value-added food industry.

BRR: Do you think the recent issue of trans-fatty acids and saturated fats is a threat to demand for palm oil in Pakistan?

TK: The Vanaspati consumed in Pakistan is made through a process called partial hydrogenation, during which trans-fatty acids are introduced. Over the past 30 years or more, there is accumulated scientific evidence that shows that trans-fatty acids are harmful to health as they cause cardiovascular risks, diabetes, obesity, and a number of other things. It’s all very well recorded.

A few years ago, when the Punjab health authority took to progressively move out vanaspati, it also ventured further to completely eliminate saturated fat content in the diet. In our view, that is not possible. Any oil that anyone consumes will have some level of saturated fats. We were asked by the edible oil associations here to provide technical assistance to the government of Punjab and we did provide that. So the debate has now actually toned down.

In other parts of the world, in lieu of trans-fatty acids, we have been teaching the industry how to formulate like products without the need for hydrogenation. So, if tomorrow, Pakistan decided to do non-hydrogenated vanaspati, then that can be made from palm oil and we have the technology, formulation, etc to do that. We have done this kind of exercise so far in the United States. In the US, for example, the solution to the trans-fat issue in food industry is to incorporate palm oil into margarine, bakery fats, etc, akin to vanaspati. So our offer is on the table to the industry here.

BRR: Soybean oil is only second to palm oil in global edible oil consumption. In Pakistan, soybean oil consumption is far less than palm oil, but it has grown substantially over the last 4-5 years. And in the wake of growing demand for soybean meal, especially if our livestock industry is developed, or if Pakistan becomes a small hub for soybean meal exports, then do you see soybean oil as a potential threat to palm oil demand in Pakistan?  

TK: Pakistan’s present demand is more for oil than for meal, whereas soybean is being imported not for oil but for meal. To become an export hub for soybean meal or to provide soybean meal to your livestock, you must have a robust horticulture and animal husbandry industry in the country. It’s not happening yet in Pakistan.

The push and the wish list to develop livestock industry are there, but whether it will be realised, and when, is another thing. Until Pakistan develops these industries, we don’t see demand for soybean oil growing in a rapid sequence. If you put development plans into operation, it will take many years to work it out, and until then the country is going to need crude or refined edible oil, particularly palm oil. May I remind that China, the biggest consumer of soybean meal in the region, imports soybean seeds and processes it on its own to meet its demand for soybean oil and soybean meal.

You also have to consider that soybean oil is traditionally more expensive than palm oil, and in international trade, the premium can be as high as 150 US dollars, although right now the premium is narrow. For a country which is stressed for foreign exchange, it is not financially feasible to move towards soybean oil because it will be 20-30 percent more expensive compared to palm oil.

As the supply of soybean oil increased in Pakistan market due to increase in the poultry sector’s demand for soybean meal, it cannibalised canola oil rather than palm oil. Palm oil consumption continued to grow, and we don’t expect that even a 20-30 percent increase in soybean oil supply in Pakistan is going to cannibalise palm oil consumption. Palm oil has certain applications in Pakistan and those industries are very much dependent on it, whereas soybean is a soft oil.

BRR: What’s the share of food in global palm oil consumption? And with Indonesia eyeing B40 biodiesel, do you think the share of biodiesel in palm oil consumption will increase over time? Also, what are Malaysia’s plans for biodiesel?   

TK: Globally, palm oil is still a food commodity; about 80 percent is used for food. And then you have oleo chemicals that are derived from fats for your soaps, cosmetics, detergents, etc. The third usage is for biodiesel, but its share is expected to increase over the next decade.

The whole world is talking about climate change and environment. Biodiesel can reduce the carbon footprint of each car, and the use of palm oil can contribute to that. Even in the airline industry, the International Civil Aviation Organisation has decided that by 2024 all the members of the ICAO have to use 2 percent of bio jet fuel, failing which the airline will have to pay carbon tax.

Indonesia has already implemented B30 and is looking to implement B40 by 2021-2022. In Malaysia, this year we are going to implement B20 biodiesel, which means 20 percent of auto fuel will be palm oil. But if the price is too high, we won’t be able to implement it because then our government will have to subsidise too much for palm oil usage in biodiesel.

But we are still looking at this model and preparing for even up to B30, while upgrading the value chain and distribution networks to prepare for B20. If the price is too low, we will push towards higher blend of biodiesel, which will act as a mechanism for price balancing of palm oil.

BRR: Do we have enough land available in Malaysia and in the world to increase palm production to account for biodiesel consumption?

TK: In Malaysia, we have decided to cap oil palm plantation expansion for now. Western countries accuse palm oil for causing deforestation. But if there is no palm oil, which is the most productive oil seed, then you will have to clear more amazon forests to grow soybean. Wouldn’t that lead to more deforestation?

We are going to cap palm plantation at 6.5 million hectares. But we are asking our famers to grow special oil palm seeds, which will double the crop’s oil yield. The current yield is 4 tons of oil per hectare per year; we are already moving toward 6 tons per hectare and eventually going up to 8 tons of oil per hectare.

Every year we replant only about 4-5 percent of the trees, because the economic life of palm is 5 years, which means it takes about 25 years to replace the entire plantation area.  Palm is the only oilseed crop that is GMO free. We have GMO capabilities, but we want to keep it GMO free as long as possible. We are using gnome technology where we select the particular high-yielding DNA.

BRR: At one time, there were talks in Pakistan that palm could be grown in our coastal areas. As a country which has expertise on palm, what’s your assessment on it?     

TK: The Malaysian Palm Oil Board, which is the pioneer for most of the global palm industry, did some research in this context and it found out that one of the major reasons why Pakistan cannot grow palm is shortage of water. You may still be able to grow it, but it may not be economical due to low oil yield, or it may even just be an ornamental palm which will not be giving fruits.

The general understanding is that palm is best suited for tropical climate, 10 degrees north and south of the equator. This is a very narrow boundary. If you come to Pakistan, you are already on a monsoonal climate, and the kind of dry and wet spells you typically experience in a monsoonal weather is not suitable for palm. Yields will be lower, and the cost of cultivation will be very high, so it doesn’t make sense for you cultivate it.