ISN, Switzerland
009-29-06
SE Asia looks to palm oil for energy answers
Indonesia and Malaysia are the latest countries to invest in the biofuel trend by
increasing palm oil production, but some experts believe ramping up crop output
is not an acceptable means to an end.
Editor's note: This is the third in a three-part series by ISN Security Watch's
Carmen Gentile on biofuels.
By Carmen Gentile for ISN Security Watch (29/09/06)
Southeast Asian nations are working to capitalize on the global biofuel bonanza
that has already gripped Latin American countries like Brazil and sparked US
agricultural and energy companies' interest in fast-tracking their own ambitions to
create a viable corn-based ethanol industry.
Indonesia and Malaysia, in particular, are increasing their production of palm oil traditionally used in food, hair and other products, it can also fuel vehicles and
generators - in hopes that world demand for renewable fuel sources will continue
growing despite a recent dip in oil prices to around US$60 a barrel. Myanmar, the
Philippines and Thailand are also reportedly keen on entering the market and are
planning to create new biofuel plantations in the coming years.
"If oil prices remain high, palm oil could be a big break out export for both
countries," Edward Yu, an international oil seed analyst at the Food and
Agricultural Policy Research Institute (FAPRI) at Iowa State University, told
ISN Security Watch.
Banking on continued high oil prices, Indonesian and Malaysian leaders are
taking the most aggressive approach among their Southeast Asian counterparts,
inaugurating ambitious new plans for augmenting their respective palm oil
outputs.
Last month, Indonesian President Susilo Bambang Yudhoyono pledged US$110
million to his country's farmers to assist them in the planting of palm trees and
other biofuel crops. Indonesia's Research and Technology Minister Kusmayanto
Kadiman also recently announced that his ministry was planning to build four
biodiesel plants at a total cost of US$33 million and increase crop development
to a half million hectares per year.
Kadiman said the government was prepared to spend a total of US$1 billion to
achieve its goal.
Meanwhile, Malaysia has already approved the construction of 52 new biofuel
processing plants, and starting next month, will begin mixing five per cent
biofuels with its diesel. Leaders there say that amount will eventually be
increased to 20 percent.
The mixture initiative is part of a larger Malaysian proposal to reduce the
country's dependence on fossil fuel and increase the competitiveness of its own
palm oil sector.
A helping hand from price fixing
Due to price fixing at government-owned gas stations, Indonesia's own biofuels
are currently slightly cheaper than fossil fuel diesel. Without government
intervention, biofuels and blends containing renewable energy sources and
petroleum would actually cost consumers more at this stage of the industry's
infancy.
"The biggest impediment of biofuel popularization is its higher price than
conventional fuel," wrote Tomohide Sugino, a project leader for the UN Center for
Alleviation of Poverty through Secondary Crops' Development in Asia and the
Pacific, in a Jakarta Post newspaper commentary published earlier this year.
"Roughly speaking, the production cost of biofuel is twice as much as gasoline
[...] the forerunners who have successfully increased biofuel consumption have
provided tax exemptions or subsidies to their biofuel producers."
Much like when Brazil subsidized its then-nascent ethanol industry in the 1970s,
Indonesia is hopeful that a dose of federal assistance will get the sector up and
running. Then, with time and a growing worldwide demand for alternatives to oil,
the biofuel industry will be ready to stand on its own two feet.
Their collective fuel ambition has already gotten a boost from the palm oil food
product industry, which in recent years has grown by more than 25 percent.
Malaysia has increased palm oil yield from 11.8 million metric tons in 2001, to a
projected 15.9 million metric tons this year. During the same period, Indonesia
has experienced even greater growth, surpassing Malaysia, which was once the
regional leader in the sector. In 2001, Indonesia produced 9.2 million metric tons
of the oil, with a projected yield increase to 16.3 million metric tons by the end of
this year.
Though both countries continue to increase their palm output, they do differ in
their ratio of usage. Malaysia, for example, cultivates 70 percent of its crop for
industrial uses, including household products as well as fuel, while the remainder
goes into food products. As for Indonesia, the reverse is true, with 30 percent
used for fuels and other industrial products.
Palm oil production: a disaster in the works?
While Southeast Asian leaders and growers hail palm oil and other biofuel crops
as economic saviors, some are convinced the industry will eventually open a
Pandora's box of starvation, animal extinction and other environmental disasters.
Indonesia and Malaysia argue that expanding palm oil production means planting
more crops, which in turn could add a million more jobs. Critics counter that by
increasing palm oil acreage, other crops like cocoa and rubber must be reduced,
costing jobs in those respective sectors, and thereby shifting the work force from
one crop to another without real change to the employment rate.
Another criticism of the palm oil boom stems from its recent price hike due to
rising fuel demand. This has made it prohibitively expensive for the poorer
segments of the population, who rely on palm oil for cooking and as a component
to many basic food items sold in supermarkets.
Dennis Avery, a senior fellow at the Washington, DC-based Hudson Institute and
director for the Center for Global Food Issues, is an ardent critic of the palm oil
aspirations of Indonesia and Malaysia and other efforts to supplant fossil fuels
with biofuels.
Corruption among officials in those countries intent on expanding the biofuel
sector - and willing to give companies the green light to clear large tracks of land
to do it - is another concern expressed by biofuel critics.
"The land cost is massive and people don't realize that land is the world's
scarcest resource," Avery told ISN Security Watch.
He noted that increasing soil erosion and the clear-cutting of tropical forests to
make room for additional crops are among the industry's other sins, adding that
palm oil production was also a direct threat to numerous species of rare and
endangered animals in the region.
Avery blamed environmentalists in part for propagating biofuel as an eco-friendly
alternative to fossil fuels and for damaging the reputation of other energy sources
like nuclear power and coal.
"The environmental movement is now risking the very wildlife they claim to want
to protect and backed the world into a ridiculous corner," Avery said.
"How can these people say: 'let's take a huge chunk of land and use it to produce
automotive fuels' and still consider themselves protectors of the environment?"
he asked.