KUALA LUMPUR (March 23): This year could be even an even more volatile one for the palm oil industry, according to Sime Darby Oils managing director (MD) Mohd Haris Mohd Arshad.
“These high prices may be sustained, but we can’t overlook that it remains volatile and that palm continues to face many challenges,” he said at the Bursa Malaysia Derivatives’ Palm and Lauric Oils Price Outlook Conference (Virtual POC 2021).
He noted that the palm oil industry faces three key challenges, namely labour, the quality of palm oil, and sustainability issues.
The Sime Darby Oils MD noted that in Malaysia alone, 77% of the total plantation industry workforce are foreign nationals, with the bulk of these workers coming from Indonesia.
With the onset of the Covid-19 pandemic and the resulting movement restrictions, the industry in Malaysia is unable to both bring in new foreign workers or facilitate the return of existing workers to their countries of origin, resulting in a massive shortage of labour that has impacted productivity, he said.
Labour shortages aside, oil palm, in general, has seen declining productivity vis-a-vis other oils, he added.
Citing a study by LMC International, Mohd Haris said soybean has overtaken oil palm in terms of productivity, and this is something the industry needs to address in order to become competitive.
He also noted that there is a pressing need for automation, with the current low levels of automation and high reliance on foreign labour returning to haunt the industry.
In terms of food security, Mohd Haris added that the industry must address issues surrounding pollutants in the production of palm oil such as 3-monochloropropane diol (3MCPD), glycidyl esters (GE), mineral oil hydrocarbons (MOSH and MOAH), with markets such as the European Union (EU) placing more stringent regulations and greater scrutiny on these pollutants.
As far as sustainability is concerned, Mohd Haris viewed onboarding of more smallholders within the sector as necessary, since they account for 40% of global palm oil production.
Meanwhile, he highlighted there are opportunities in developing highly differentiated, sustainable and traceable products. According to him, products in this category, especially in downstream operations, could result in profit margins increasing to double-digit figures from single digits.
He added that there is also an opportunity in talking about the health benefits of palm oil, given its high nutritional content.
“How do we then market these properties to the customers and consumers. There has to be a dedicated business to look at bringing this out, whether in the pharmaceutical industry, as well as in the health and wellness industry.
“So all of these things need to be focused if you want to move away from a commoditised business into high-value products,” the MD said.
Besides food, the palm oil industry should also look into opportunities in the non-food space that go beyond just biodiesel, he added.
Shares in Sime Darby OIls’ parent company Sime Darby Plantation Bhd closed unchanged at RM4.85 per share today, valuing it at RM33.90 billion. It saw 2.66 million shares done.
Source : The Edge Markets