9.3 Various Factors in the Development
9.3.2 Technological Requirements for Palm Oil
Malaysia’s breakthrough as the world’s largest palm oil producer cannot be simply attributable to its being blessed with the natural conditions for palm oil tree cultivation. Th is understanding may be superfi cial. If it were the case, then the various tropical countries situated near the equator would be able to enter palm oil production in the same way. For Malaysia to continue palm oil production and increase its global share of exports, it had to continue improving the productivity of its palm oil–related indus- tries and increasing its international competitiveness. Further, Malaysia has actively taken up the downstream sector of the palm oil value chain and proceeded with product optimization. Moreover, FELDA and local companies such as IOI have played a signifi cant role. Local companies have become major players in the innovation of technology in Malaysia’s palm oil–related industries.
Th e fi rst stage of palm oil production begins with the cultivation of oil palms in plantations. Labor-saving technologies such as cultivar and soil improvement, as well as mechanization, have been important for improv- ing productivity at the planting stage. In recent years, the labor force in Malaysia has become smaller and the wage levels have increased. 5 Th is led to an urgent need for the development of eff ective labor-saving technology.
Th e diff erence in production per area between plantation companies is
5 As a result, Malaysian palm oil farming increasingly depends on foreign workers, particularly those coming from Indonesia.
quite large, with IOI said to be the plantation company with the highest productivity; its plantations produce 1.2–1.5 times Malaysia’s average production (Teoh 2002 ). Individual plantation companies compete in technology innovation, which means that, as a result, the oil palm cultiva- tion technology frontier in Malaysia is expanding.
Th e second stage of palm oil production is the extraction process. Due to the biological constraints on the palm fruits, oil mills must be located close to palm plantations. As oil extraction technology is now matured, no dramatic increase in extraction rates is expected. Research and devel- opment is taking place to improve and further develop existing plants by taking measures to reduce energy consumption and pollution, switching to biomass material, and adding waste-recycling systems. Th ere is further room to improve productivity in terms of transit time and cost savings by developing road networks used for transporting palm fruits and CPO.
Th e third stage is the refi ning process, which removes any impurities from the CPO and extracts the oil itself. Refi ning uses a chemical reac- tion. PPO obtained in this way is subjected to chemical changes such as esterifi cation or hydrogenation and then divided into ingredients used in frying oils or shortenings, cocoa butter, and so on. Fatty acid alcohols and fatty acids can be obtained by hydrolysis or transesterifi cation of PPO, but these are used as oleochemicals in nonfood products such as soaps, detergents, and surfactants.
Th e basic principle of palm oil processing has many elements in common with chemical reactions that occur when processing other vegetable fats, such as soybean oils or rapeseed oil. Even with respect to oleochemicals, the technical process is similar to utilizing synthetic materials as raw mate- rials for petroleum chemical products, and with European and American companies that have accumulated advanced technologies in these fi elds, it creates strong international competitiveness. Malaysian companies do not have much technical experience in the area of chemical processing, and it is extremely diffi cult for them to compete with Western companies in the refi ning process technology. However, it may be said safely that Malaysia’s technological backwardness has not been a major obstacle in developing its palm oil industry, as technology for the refi ning process was ‘available by purchase’. Since oil-refi ning technology is such a matured technology that has remained stable for a long time, it is nearly embodied in large
plants. Orders for the construction of refi nery plants are mainly given to Western companies with proven track records, such as the German com- pany Lurgi and the Belgian company De Smet. Once a plant has been built, a high level of technology is not needed for its operation, and the larger the scale of production, the better is the quality of the processed oil that is produced. 6 Since the 1990s plantation companies have all entered the downstream refi ning business, but they have remained competitive because of the technological components embodied in plants. It can be said that the benefi t of such backwardness has been maximized to its fullest, and a typical sector is the refi ning business.
Lastly, the product development stage of consumer goods at the very end of the downstream sector should be touched upon. Consumer goods made from palm oil as a raw material are edible products such as fry- ing oils, margarine, shortening, and cocoa butter substitutes, as well as toiletries such as soaps, detergents, and cosmetics, along with products for industrial applications. At the present time, Malaysian companies are unable to penetrate these areas except with respect to domestic consump- tion. Th ese goods for fi nal consumption can be diff erentiated from other products and are expected to have a higher value than CPO and PPO that are nearly commoditized. Further, if the use of palm oil–related goods for fi nal consumption increases, this will lead to growth in the demand for palm oil. In anticipation of this, MPOB and University Pertanian Malaysia have been actively pursuing the R&D of new products that use palm oil as a raw material (MPOB 2010 ).
However, there have been no noteworthy results from the R&D in this area. A major reason for this is the distance of the fi nal product mar- kets. To understand accurately consumer needs in developed countries and stimulate new demand requires the ability to collect information, to develop products, and to market products. However, Malaysia is not in an advantageous position to do this. In the area of daily necessities and toi- letries, competition by companies from advanced countries is intense and disruptive, and there is little room for Malaysian companies to enter the market. As mentioned earlier, the competition for markets in advanced countries is so intense that major global consumer goods manufacturers,
6 Based on my interview with a Japanese health-care company on 4 January 2013.
such as Unilever and P&G, prefer to withdraw from the refi ning business to focus their management resources more on developing and marketing products downstream in the value chain.