United Press International
12-19-06
Analysis: SE Asia eyes palm oil
BANGKOK, Dec. 19 (UPI) -- Southeast Asian nations are working to capitalize on
the global biofuel bonanza that has already gripped Latin American countries like
Brazil and sparked the interest of U.S. agricultural and energy companies 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 to grow despite recent dips in oil prices.
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 at Iowa State University, told United
Press International.
Banking on continued oil price inflation, 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.
Earlier this year, Indonesian President Susilo Bambang Yudhoyono pledged
$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 recently announced that his ministry was planning to build
four biodiesel plants at a total cost of $33 million and increase crop development
to a half million hectares per year.
Kadiman said the government was prepared to spend a total of $1 billion to
achieve its goal.
Due to government intervention at state-owned gas stations, Indonesia's own
biofuels are slightly cheaper than fossil fuel diesel. Without the government's
hand, 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 U.N. 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 feet.
Meanwhile, Malaysia has already approved the construction of 52 new biofuel
processing plants, and starting next month, will begin mixing 5 percent 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.
Both nations' collective fuel ambition has already received 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 experienced even greater growth. 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.
Not everyone, however, is as keen on palm oil production as the Southeast
Asians.
While regional 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.
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 critics.
"The land cost is massive and people don't realize that land is the world's
scarcest resource," Dennis Avery, a senior fellow at the Washington-based
Hudson Institute and director for the Center for Global Food Issues, told UPI.
"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?"