Introduction to the Palm Oil Industry

1.1 Historical Background.

The oil palm, Elaeis guineensis Jacq. is indigenous to West Africa where the main palm belt ran from Sierra Leone, Liberia, the Ivory Coast, Ghana and Cameroon to the equatorial regions of the Republics of Congo and Zaire. (Hartley, 1988). The development of oil palm as a plantation crop started in the South East Asia; the first introduction of the African oil palm was four seedlings from Mauritius and Amsterdam that were planted in the Botanic Gardens in Bogor in 1848. The first commercial oil palm plantation was established in Sumatra, Indonesia by M. Adrien Hallet, a Belgian agronomist with interests in the Belgian Congo (Zaire). The development of the industry in Malaysia is attributed to Frenchman, Henri Fauconnier and his association with Hallet. In 1911, Fauconnier visited Hallet’s oil palm development in Sumatra and had purchased some oil palm seeds and these were planted at his Rantau Panjang Estate in Selangor. He returned to Sumatra the following year to obtain seeds that he had selected together Hallet from Tanjong Morawa Kiri Estate for further planting. With seedlings obtained from the 1911 and 1912 importation, Fauconnier established the first commercial oil palm planting at Tennamaram Estate, to replace an unsuccessful planting of coffee bushes (Tate, 1996).

In their analyses of the palm oil industry in Malaysia, Gray (1969) and Harcharan Singh (1976) classified the development of the industry in Peninsular Malaysia into three distinct phases, starting with the experimental phase from the late 1800s early 1900 to 1916 while the plantation development phase commenced in 1917 with Tennamaram Estate until about 1960. The expansion phase from the 1960s was the response to the Government’s diversification policy to reduce the dependence of the national economy on natural rubber, which had faced declining prices and competition from synthetic rubber. Following the recommendation of the World Bank Mission in 1955, the Government decided to promote the planting of oil palm. A key driver for this effort was the Federal Land Development Authority (Felda) which was established in 1956 with the socio-economic responsibility of developing plantation land for the rural poor and landless.

The palm oil industry has since undergone two further phases, from 1970 with the expansion of large scale planting in Sabah and Sarawak and from around 1995 when Malaysian extended their upstream operations off-shore, particularly to Indonesia where is there is adequate supply of workers and availability of land for plantation development and cost of production is lower than in Malaysia. 

1.2 The Oil Palm

Elaeis guineensis Jacq. which is commonly known as the oil palm is the most important species in the genus Elaeis which belongs to the family Palmae. The second species is Elaeis oleifera (H.B.K) Cortes which is found in South and Central America and is known as the American oil palm. Although significantly lower in oil-to-bunch content than its African counterpart, E. oleifera has a higher level of unsaturated fatty acids and has been used for production of interspecfic hybrids with E. guineensis. The oil palm is an erect monoecious plant that produces separate male and female inflorescences. Oil palm is cross-pollinated and the key pollinating agent is the weevil,

Elaeidobius kamerunicus Faust. In the past, oil palm was thought to be wind pollination and owing to the low level of natural pollination, assisted pollination is a standard management practice in plantations. However, this practice was discontinued following the discovery that oil palm was insect pollinated and the introduction of E. kamerunicus from the Cameroons, West Africa in 1982 (Syed et al, 1982). Harvesting commences about 24 to 30 months after planting and each palm can produce between eight to 15 fresh fruit bunches (FFB) per year weighing about 15 to 25 kg each, depending on the planting material and age of the palm (Plate 1). Each FFB contains about 1000 to 1300 fruitlets; each fruitlet consists of a fibrous meoscarp layer, the endocarp (shell) which contains the kernel (Plate 2). Present day planting materials are capable of producing 39 tonnes of FFB per ha and 8.6 tonnes of palm oil and actual yields from good commercial plantings are about 30 tonnes FFB per ha with 5.0 to 6.0 tonnes oil (Henson. 1990). At the national level, the average FFB yield in 2001 was 19.14 tonnes while palm oil productivity was 3.66 tonnes per ha.

Cultivars or races of E. guineensis can be differentiated by their fruit pigmentation and characteristics; the most common cultivars being the Dura, Tenera and Pisifera which are classified according to endocarp or shell thickness and mesocarp content. Dura palms have 2-8mm thick endocarp and medium mesocarp content (35%-55% of fruit weight), the tenera race has 0.5-3mm thick endocarp and high mesocarp content of 60%-95% and the pisifera palms have not endocarp and about 95% mesocarp (Latiff, 2000).

The four palms that were planted in the Botanic Gardens in Bogor in 1848 were duras; their seeds were the origin of the famous Deli dura palms that were established in Deli district in Sumatra in 1881 (Hartley,1988). The Deli duras provided the foundation for development of planting materials used by the industry in Malaysia and other oil palm growing countries. As pisifera palms are predominantly female sterile, they cannot be exploited for commercial planting. They are instead used for crossing with the dura palm to produce the tenera (DxP) hybrid (Plate 3) after M. Beirnaert discovered the single gene inheritance of shell thickness in 1939 in the then Belgian Congo (Zaire) (Hartley, 1988). This discovery was the cornerstone for the industry and it paved the way for breeding and selection and production of high yielding DxP planting materials. 

Plate 1: Fresh fruit bunches (FFB)

Plate 2: Cross section of a fruitlet

Plate 3: Production of tenera (DxP) planting material

Traditionally, breeding of oil palm has focused on yield improvement, in terms of FFB and oil content, slow height increment, oil quality and disease tolerance. Currently, the industry is has placed emphasis on the production of the following types of planting materials to meet industry and market needs (Rajanaidu et al, 2000):

 ·         Development of dwarf palms (PSI type) – to reduce the palm height increment and significantly extend the economic cropping cycle.

·         Breeding for high unsaturated oil (High iodine value) (PS2 type) – to produce materials with higher proportions of unsaturated fatty acids by crosses with high iodine value Nigerian duras and E guineensis x E. oleifera hybrids.

·         Breeding for high lauric oil (PS3 type) – using high yielding Nigerian dura palms with high kernel contents

·         Breeding for high carotenoid content (PS4 type) – using selected Nigerian duras and pisiferas as well as hybridisation with E. oleifera.

As current DxP planting materials derived from seeds have a high level of variation, several companies undertook research on production of clonal palms in the 1980s. This research was based on the premise that yields can be increased by about 30% with clones derived from elite palms in a DxP population (Hardon et al, 1987). However, commercial production of clones was hampered by the discovery of abnormal flowering behaviour (Corley et al, 1986) and the research effort was diverted to overcoming the occurrence of abnormalities in palm clones. A few companies have planted clonal palms on a commercial and one of them, PPB Oil Palms Berhad had obtained very encouraging results. Their earliest clonal planting had produced a 31% increase in FFB per ha and 54% improvement in oil yield compared to conventional DxP materials during the initial seven years of production (Siburat et al, 2002).

The palm oil industry has also embarked on genetic engineering work; the primary strategy of the Malaysian Palm Oil Board (MPOB) is to produce transgenic oil palm with high oleic oil content (Cheah, 2000, Yusof, 2001). Although MPOB has made significant progress in this endeavour, it many take many years before genetically-modified (GM) palms become available for commercial planting. Estimates for commercialisation ranged from 15 years (Corley, 1999) to 30-40 years (Pushparajah, 2001). The latest projection indicates that transgenic high oleic acid palms could be available for field testing from 2007-2010 and commercial planting could commence around 2015 (Ravigadevi et. al., 2002).

1.3 Characteristics of palm oil

The oil palm produces two types of oils, palm oil from the fibrous mesocarp and lauric oil from the palm  kernel. In  the conventional milling process, the fresh fruit bunches are sterilised and stripped of the fruitlets which are then digested and pressed to extract the crude palm oil (CPO). The nuts are separated from fibre in the press cake and cracked to obtain palm kernels which are crushed in another plant to obtain crude palm kernel oil (CPKO) and a by-product, palm kernel cake which is used as an animal feed. Fractionation of CPO and CPKO in the refinery produces the liquid stearin fraction and a solid stearin component. The fatty acid compositions the palm oil products, compared with coconut oil and soyoil are presented in Table 1. Palm oil has a balanced ratio of saturated and unsaturated fatty acids while palm kernel oil has mainly saturated fatty acids which is broadly similar to the composition of coconut oil. Compared to soyoil, palm oil has a higher amount of saturated fatty acids but this makes it more stable and less prone to oxidation at high temperatures

Table 1: Fatty Acid Compositions of Palm Oil Products, Soy Oil and Coconut Oil

Fatty Acids	Weight Percentage
	Palm Oil	Palm Olein	Palm Stearin	Palm Kernel Oil	Palm Kernel Olein	Coconut Oil	Soy Oil
C6:0				0.3	0.4	0.2
C8:0				4.4	5.4	8.0
C10:0				3.7	3.9	7.0
C12:0	0.2	0.2	0.3	48.3	41.5	48.2
C14:0	1.1	1.0	1.3	15.6	11.8	18.0
C16:0	44.0	39.8	55.0	7.8	8.4	8.5	6.5
C18:0	4.5	4.4	5.1	2.0	2.4	2.3	4.2
C18:1	39.2	42.5	29.5	15.1	22.8	5.7	28.0
C18:2	10.1	11.2	7.4	2.7	3.3	2.1	52.6
Others	0.8	0.9	0.7	0.1	0.1		8.0
Iodine Value	53.3	58.4	35.5	17.8	25.5	9.5	133.0

Source: Salmiah Ahmad, 2000

1.4 Food and non-food uses of palm oil

Palm oil and palm kernel oil have a wide range of applications, about 80% are used of food applications while the rest is feedstock for a number of non-food applications (Salmiah. 2000). Among the food uses, refined, bleached and deodorised (RBD) olein is used mainly as cooking and frying oils, shortenings and margarine while RBD stearin is used for the production of shortenings and margarine. RBD palm oil (i.e. unfractionated palm oil) is used for producing margarine, shortenings, vanaspati (vegetable ghee), frying fats and ice cream. Several blends have been developed to produce solid fats with a zero content of trans-fatty acids (Berger, 1996). (Trans-fatty acids, which may have an adverse effect on health, are produced when unsaturated fats are partially hydrogenated to obtain solid fat products such as margarine.). In the production of ice cream, milk fats are replaced by a combination of palm oil and palm kernel oil. A blend of palm oil, palm kernel oil and other fats replaces milk fat for the production of non-diary creamers or whiteners. Plate 4 provides examples of a number of palm-based food applications.

Plate 4: Variety of palm oil-based food products

A relatively new product is the Red Palm Olein which is refined under a special mild process to retain most the natural carotenes - precursors of Vitamin A (Berger, 1996). Palm oil and palm kernel oil are also ingredients for production specialty fats which include cocoa butter equivalents (CBE) and Cocoa Bitter Substitutes (CBS) and general purpose coating fats. CBE and CBS have physical properties that are similar to cocoa butter (De Man and de Man, 1994) and are widely used for production of chocolate confectioneries (Plate 5). The suitability of various palm oil products for a range of food applications is given in Table 2.

Plate 5: Confectionery products containing                                                                               8

palm-based cocoa butter substitutes

Table 2: Food Uses of Palm Oil Products

Product	Palm Oil	Palm Olein	Stearin (Soft)	Palm Stearin (Hard)	Hardene d Palm Oil	Double Fraction ated Palm Oil	Palm Mid Fraction	Palm Kernel Oil
Shortenings	***	***	***	**	***	´	*	*
Vanaspati	***	***	***	*	***	´	*	´
Margarines	***	***	***	*	***	´	*	***
Frying Fats	***	***	**	´	**	***	*	´
Cooking Oil (Hot Climate)	´	***	´	´	´	***	´	´
Specialty Fats for Coatings	´	´	***	´	´	´	*	***
Ice Cream	***	´	´	´	**	´	´	***
Cookies	***	´	**	*	**	´	´	´
Crackers	***	*	**	*	*	´	´	***
Cake Mixes	***	´	**	*	*	´	´	´
Icing	**	´	*	´	*	´	**	´
Instant Noodles	***	***	**	´	***	´	´	´
Non-Dairy Creamer	*	´	*	´	*	´	´	***
Biscuits	***	*	**	*	**	´	´	***
Dough Fat	***	´	***	***	***	´	´	´

*** Highly suitable               **Suitable              * Minor application only     ´ Not  suitable Source: MPOPC, 1996

Non-food uses of palm oil and palm kernel oil are produced either directly or through the oleochemical route. Direct applications include the use of CPO as a diesel fuel substitute, drilling mud, soaps and epoxidised palm oil products (EPOP), polyols, polyurethanes and polyacrylates (Salmiah, 2000). Research results have shown that crude palm oil can be used directly as a fuel for cars with suitably modified engines. In drilling for oil, palm oil has been found to be a non-toxic alternative to diesel as a base for drilling mud.

Oleochemicals are produced by the hydrolysis or alcoholysis of oils and fats; the traditional raw materials being tallow and coconut oil to produce C16 - C18 and C12 - C14 chain lengths oleochemicals respectively. From the 1980s, palm products, particularly palm kernel oil have become major feedstocks for the oleochemical industry. The production of palm- based basic oleochemiclas by Malaysia in year 2000 was 1.2 million tonnes which was equivalent to 19.7% of the total production in the world. The basic oleochemicals are fatty acids, esters, alcohols, nitorgen compounds and glycerol; their major applications are summarised below (Salmiah, 2000).

·         Fatty acids

-          Medium chain triglycerides for use in the flavour and fragrance industries

-          Processing aids for rubber products, for softening and plasticising effect

-          Production of candles

-          Manufacture of cosmetic products from myristic, palmitic and stearic acids

-          Production of soaps via a neutralisation process

-          Production of non-metallic or non-sodium soaps

·         Fatty esters

-          Production of pure soap – better quality than soaps from fatty acids

-          Alfa-sulphonated methyl esters           as active ingredients for washing and cleaning products (anionic surfactants)

-          Palm-based methyl esters as a substitute for diesel fuel for vehicles and engines

·         Fatty alcohols

-          

Fatty alcohol sulphates (anionic surfactants)                 Production of

-          Fatty alcohol ethoxylates (nonionic surfactants)            washing and

-          Fatty alcohol ether sulphates (anionic surfactants)       cleaning products

·         Fatty nitrogen compounds

-          Imidazolines with good surface active properties (rust prevention)

-          Esterquats as softeners

·         Glycerol (Monoglycerides and Diglycerides)

-          Wide range of applications such as a solvent for pharmaceutical products, humectant in cosmetics and tobacco, stabilisers, lubricants, antifreeze, etc

1.5  World production of palm oil

In 2001, the world’s production of palm oil was 23.18 million tonnes or 19.8% of the total production of 17 oils and fats, making it the second most important oil after soyoil. Palm oil has achieved impressive growth in production and exports in the last few decades; production had doubled from 1990 to 2001 (Table 3). In terms of exports, palm oil is the most widely traded oil, accounting for 45.6% of the world’s exports of 17 oils and fats in 2001 (www.mpob.gov.my/). Malaysia is the largest producer of palm oil, contributing about 11.80 million tonnes or 50.9% of total production, while Indonesia produced about 7.5 million tonnes or 32.3%. Malaysia is also the world’s largest exporter of palm oil, accounting for about 61.1% or 10.62 million tonnes of the total exports of 17.37 million tonnes in 2001 (Table 4).

Table 3: World Production of Palm Oil ( '000 tonnes)

Country of Origin	1990	1995	1999	2000	2001
Malaysia	6,095	7,811	10,554	10,800	11,804
Indonesia	2,413	4,480	6,250	6,900	7,480
Nigeria	580	660	720	740	750
Colombia	226	387	500	516	547
Cote d'Ivoire	270	285	282	290	275
Thailand	232	354	475	510	535
Ecuador	120	180	230	215	240
Papua New Guinea	145	223	260	281	325
Others	786	1,097	1,339	1,699	1,226
Total	10,867	15,477	20,610	21,951	23,182

Source: Oil World and MPOB (cited in www.mpob.gov.my)

Table 4: World Major Exporters of Palm Oil ('000 tonnes)

Country	1990	1995	1999	2000	2001
Malaysia	5,727	5,613	8,914	9,056	10,618
Indonesia	1,163	1,856	3,319	4,140	4,800
Papua New Guinea	143	220	254	282	320
Cote d’Ivoire	156	120	105	110	124
Singapore	679	399	292	293	259
Hong Kong	51	275	94	132	187
Others	276	790	837	909	1,063
Total	8,195	10,173	13,815	14,922	17,371

Source: Oil World (cited in www.mpob.gov.my)

World production of palm oil was projected to double from 2000 to 2020 with a total production exceeding 40 million tonnes (Table 5). The main growth is expected from Indonesia, which could become the world’s leading producer by 2015. However, in view of the political and socio-economic turmoil that followed the Asian financial crisis, it is uncertain if the projected targets could be achieved

Table 5: Projected Production of Palm Oil (2000–2020) (million tonnes)

Year	Malaysia	Indonesia	World Total
Annual Production
2000	10,100 (49.3%)	6,700 (32.7%)	20,495
2001	10,700 (48.1%)	7,720 (34.7%)	22,253
2002	10,980 (48.4%)	7,815 (34.5%)	22,682
2003	11,050 (47.7%)	8,000 (34.6%)	23,149
2004	10,900 (45.6%)	8,700 (36.4%)	23,901
2005	11,700 (45.6%)	9,400 (36.6%)	25,666
Five-year Averages
1996–2000	9,022 (50.3%)	5,445 (30.4%)	17,932
2001–2005	11,066 (47.0%)	8,327 (35.4%)	23,530
2006–2010	12,700 (43.4%)	11,400 (39.0%)	29,210
2011–2015	14,100 (40.2%)	14,800 (42.2%)	35,064
2016–2020	15,400 (37.7%)	18,000 (44.1%)	40,800

Source: Oil World 2020                                                                                                          ( % ) = % of world total

Table 6 lists the major importing countries of palm oil, the largest importer is India which accounted for 20.2% of the world’s imports in 2001. Other major importers are China PRC and Pakistan; collectively China and countries in the Indian sub-continent account for more than 40% of the world’s imports of palm oil. Countries in the European Union were buyers for 17.2% of the world’s imports in 2001. In terms of production, the EU used about 12.9% of the world’s production of palm oil last year. The consumption of palm oil by non-European

OECD countries had been relatively insignificant; USA import’s was about 1% and                  Japan’s share was 2.2% of total imports in 2001.

Table 6: Major Importers of Palm Oil (‘000 tonnes)

Country	1990	1995	1999	2000	2001
China	1,133	1,595	1,373	1,764	2,049
EU	1,556	1,738	2,059	2,414	2,985
Pakistan	683	1,122	1,114	1,107	1,229
Egypt	NA	353	373	524	564
India	668	863	1,672	3,677	3,507
Japan	276	351	357	373	376
Malaysia	NA	38	86	57	116
Turkey	182	201	166	204	257
South Korea	217	156	151	200	220
Myanmar	134	305	249	202	227
USA	130	102	116	165	171
Bangladesh	82	53	93	226	320
Indonesia	27	55	25	7	7
South Africa	NA	128	160	195	290
Saudi Arabia	128	169	178	206	244
Kenya	158	177	178	213	218
Ex-USSR	202	57	68	142	202
Other Countries	3,052	2,882	2,451	3,576	4,386
Total	8,628	10,345	10,869	15,252	17,368

Source: Oil World (cited in www.mpob.gov.my)

1.6 Palm Oil Production in Malaysia

1.6.1 Planted Area under Oil Palm

Although commercial planting of oil palm in Malaysia began in 1917, large-scale cultivation did not take off until the 1960s following the Government’s crop diversification thrust strategy to reduce the country’s dependence on rubber, which hitherto had been one of the two pillars of the Malaysian economy. The growth of the industry, in terms of planted area since then has been very rapid as seen in Figure 1 and Table 7. In 2001, the total area planted with oil palm was 3,499,012 hectares, 59.9% or 2,096,856 hectares being in Peninsular Malaysia, 29.4% or 1,027,329 hectares in Sabah and 10.7% or 374,828 hectares in Sarawak. The last decade had seen rapid expansion in the cultivated area in Sabah and Sarawak; while planting in Peninsular Malaysia had slowed down because of diminishing availability of new land for the crop.

Table 7: Growth in Area Planted with Oil Palm in Malaysia

Year	Total Planted Area (ha)	Growth Rate (%)
1960	54,638	478% (1960/70)
1970	261,199
1980	1,023,306	392% (1970/80)
1990	2,029,464	198% (1980/90)
2000	3,376,664	166% (1990/00)

 The geographical distribution of oil planting is given in Table 8, in 2001, the largest oil palm growing states were Sabah, Johor and Pahang, accounting for about 63% of the total planted area. The rate of planting in Sabah has been impressive, considering that commercial planting in the state only commenced in 1970. In view of the limited availability of new areas for plantation agriculture in Peninsular Malaysia, future expansion of oil palm would be mainly in Sabah and Sarawak., It has been forecast that oil palm area in Sarawak would increase to one million hectares by the year 2010 (Abang Helmi, 1998).

1.6.2 Production

With the rapid expansion in the planted area, the annual production of palm in Malaysia had increased significantly in Malaysia; the crude palm oil (CPO) produced in 2001 was 11.8 million tonnes which was 4.6 times the volume produced in 1980 (Table 9). The increase in production in Sabah was particularly impressive, reflecting the aggressive planting policy in the state and it became the largest CPO producer in 1999. In 2001, Sabah accounted for 31.5% of the national production. Other major CPO producing states are Johore, Pahang and Perak in Peninsular Malaysia. (Figure 2)

Table 9: Production of Crude Palm Oil in Malaysia (Tonnes)

Region	1980	1990	1995	1999	2000	2001
P. Malaysia	2,394,324	6,094,622	6,094,560	7,427,838	7,221,539	7,477,338
Sabah	156,471	678,995	1,493,623	2,664,516	3,110,320	3,716,168
Sarawak	22,378	107,651	222,363	461,564	520,236	610,282
Total	2,573,173	6,881,268	7,810,546	10,553,918	10,852,095	11,803,788

 Source: MPOB (cited in www.mpob.gov.my)