Stagnant Oil Extraction Rate (OER)

Concern over stagnant oil extraction rate Commodities Talk - By Hanim Adnan LOCAL palm oil production is looking strong, but the stagnant oil-extraction rate (OER) of palm oil, especially in Peninsular Malaysia that is below 20% for the past 20 years, has been a major concern. In times of low crude palm oil (CPO) prices and low yields, producers are normally challenged to improve their OER performance. OER can be used as a management tool in assessing the performance of a mill or plantation, as profitability to a great extent is influenced by the amount of oil realised per hectare of land under cultivation. Thanks to Sarawak and Sabah oil palm planters’ high OER of above 20%, the national OER average touched 20.21% in 2008.

However, this is not good enough as the Government strives for the national OER to hit 25% by 2020. It is also targeting a national fresh fruit bunches (FFB) rate of 35 tonnes and palm-oil yield at 8 tonnes per ha per year. A straight forward answer to the stagnant OER in the peninsula can be due to the third or fourth generation “recycled” soil used to plant oil palm back in 1960s, which was previously planted with rubber trees, and also with tapioca and gambir trees during the Second World War in the 1940s. 

Those oil palm trees in Sabah and Sarawak were planted in new agriculture soil, previously rainforest jungles, therefore guaranteeing higher yield and OER. the government is targeting a national FFB of 35 tonnes per ha per year Many also failed to realise that 21% of the oil palm trees in Peninsular Malaysia are 19 to 25 years old, leading to diminishing FFB yield by 1% to 2% per year as well as poor OER. 

However, the overall stagnation in OER does not really reflect the credible OER and yield performance among efficient plantation groups like United Plantations Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd and Sime Darby Bhd. These planters mostly achieved OER of 21%, CPO of five to six tonnes and FFB of over 28 tonnes per ha per year. Many are pointing their fingers at the poor performance of the smallholders sector, which has resulted in the stagnation in OER and yield in the country. 

Smallholders, which contribute about 45% to the total palm oil production nationwide, were somewhat reluctant to undertake replanting activities when CPO was trading above RM3,000 per tonne. It is believed that smallholders’ OER now stands at only about 18%, CPO yield below 3 tonnes while FFB at 15 tonnes per ha per year. Therefore, it was indeed a good move by the Government since late 2008 to allocate several incentives and funds to encourage more aggressive replanting of unproductive oil palm trees with superior clones among smallholders. 

There is also talk that the Government will divide smallholders into clusters to expedite more structured replanting activities in the future. Another effort to help improve the national OER is to upgrade the existing palm oil mills, which were set up back in the 1960s. There are a number of mills still operating with an OER of below 18%. These mills will need to improve their OER through stringent FFB grading, rejecting unripe fruits and adopting new technology. The oil palm industry needs to make concerted efforts, including improving agricultural practices, to push yields and productivity to new heights. 

Hanim Adnan is assistant news editor at The Star. She feels that the Government must find a fast solution to help outdated palm oil mills improved on their OERs.

Ref ; The Star 14th April 2009