OFIC global trade policy and politics panel - initial notes

At MOSTA's OFIC Module 2, we just had a great line-up of speakers and a good panel session.

Photo: Mr Syahril at the rostrum by Khor Yu Leng

Ms Sanya Reid Smith of Third World Network drew our attention to domestic agriculture subsidies remaining in places like the US and EU within the trade agreement contexts, Malaysia's bounded export duty (up to 8.5% on CPO)exemption under TPPA (and RCEP leaked documents showing Japan and South Korea asking for zero), that IP extensions may reduce availability of non-patent agricultural chemicals (that often result in prices being 3x higher), and TPPA's potential impact on procurement by federal government entities and large SOEs, ILO labour standards becoming enforceable, and question whether palm oil milling is a service and therefore subject to liberalisation. The USA certification process for TPPA may add more requirements (beyond the text, with topics as yet unknown), and that many countries wait until the USA proceeds before making changes to domestic laws and regulations. She offered a thorough applied analysis of TPPA on palm oil that has not featured in previous public for a.

Dr Joe Feyertag of LMC International Ltd explained a profound shift in grain and vegetable oil production post 2002 with large production and acreage growth amidst the biofuels boom, rapid meat consumption transitions, oil palm expansion less than a quarter of maize and soy acreage expansion, the 2010s being the end of the biofuels decade and rise of the protein decade, future growth scenarios showing a hypothetical moratorium on palm oil volume resulting in even larger increase in soy acreage likely in the Amazon Basin, a look at US biodiesel market volume, potential volume return from Argentina and Indonesia and EU biofuels policy news of no more public support for food-based feedstocks from 2020. He concluded that environmental aspirations need to take a more nuanced consideration of how demand drives expansion across the vegetable oil complex (palm, soy, rape/canola and sun), and for GMO products.

Mr James Caffyn of Gira Strategy Consultants provided major insights into vegetable oils usage in the dairy sector - specifically analog cheese, fat-filled milk powders, growing-up milk and infant formula - with great data on dairy-veg oils price arbitrage of over 4.5x, market size and growth, vegetable oil inclusion ratios and palm oil tonnage indicators (over 1.5 million tonnes in FFMP and GUM-infant formula). What came strongly across for palm oil was the fast growth potential of this segment (especially in Asia), its technical proficiency, compelling price arbitrage, market perception, regulatory concerns and food safety.

Mr Syahril Syazli Ghazali of Ministry of International Trade and Industry (MITI) of Malaysia offered wonderful insights into TPPA, as Lead Negotiator for the Market Access Chapter. 20% of Malaysia palm products go to TPPA countries and a focus was on Canada and Mexico on duty removals, Malaysia's ability to carve out export duties (bounded basis), and the need to comply to international standards will be a cost to Malaysia industry and government but it is the way forward.

In our panel discussion, we fielded a question on EFSA's 3MCPDE issue - the greater volume concern would arise if it also affects China dairy sector demand. As for biodiesel prospects, these are quite limited to Southeast Asia. Moreover sludge oil has been removed from double-counting and is unlikely to come back soon. From the floor, we heard from MR Chandran on the problem of definitions of by-products versus waste products, and that freedom of association for labour will be an issue especially since 30-35% of production cost is labour (Sanya mentioned PWC's report finding that one week stoppage could impact 2% of revenue). On my question about a pathway for palm to USA biofuels (beyond a handful of grandfathered facilities), Joe said that GHG emissions reductions is an official problem and Syahril clarified that USA biofuels access negotiation was tried but remains on the table without a solution via TPPA. To MR Chandran's added question on USA (California) market potential (this being a growth market versus EU not being seen as having much potential), I highlighted the change in the US Customs Border and Protection (CBP) rule against forced-labour imports in force since March 2016 and that it has already disrupted cargoes of tea and sweeteners; and  it is notable that California leads in lawsuits on child labour allegedly in the cocoa supply-chain of large brand name companies. Sanya notes that the US CBP rule reinforces TPPA requirements and that complaints can be made against products and producers.

In conclusion, we covered the development and prospects for important fast-growing end-uses for vegetable oils and focussed on issues for Malaysia palm oil. Palm oil has a complex processing chain and a big range of applications. It has tremendous technical proficiency and price advantage in food uses, but if needs policy support in biofuel applications. Success in market share penetration is mediated by trade policy and new breed trade agreements (require upgrade to international standards in production and more). This affects relative price-cost and some non-price/non-tariff issues may also affect price-cost.

Conference season (update 6): downstream merchandising for sustainable palm oil

6 December 2014: downstream merchandising issues for sustainable palm oil

On Wednesday morning I had a long 1 hour session to present on "Downstream merchandising of palm oil - adjusting for sustainability" with a Q&A after. Thanks to Trueventus for inviting LMC International. 

I presented on various key statistics for downstream example the oddity of number of trademarks on sustainable palm oil versus number of products being launched with the troubling "palm oil free" label. 

One palm oil merchandiser (some months ago) pointed out to me that certification to use a trademark to highlight the presence of palm oil is not what many manufacturers want to do. They would rather remain silent on the issue. This may explain the above factoid. Because of this apparent shyness, the logic is that a (presumably cheaper) traceability program that is more inclusive of the supply chain is a good alternative as it may be that the need is for a sort of insurance on the supply chain and not marketing publicity. Let's see how the marketing on sustainability / traceability evolves on this.

Downstream players also need to pay attention to their upstream sourcing strategies as traceability both within and outside certification points to a palm oil mill risk rating system.

29 November 2014: checking out Indonesia snack foods and sauces (post GAPKI)

Post conference, I hit the super market next to the conference venue and stocked up on Indonesia snack foods (instant noodles with a wonderful range of local regional tastes; flavoured chips / crisps from tapioca - spicy ones with lime / lime leaves especially caught the eye e.g. keripik singkong balado dengan daun jeruk) and ready mix sauces for Indonesia favourites like soto ayam, sop buntut, opor ayam and more. Indonesia domestic consumption of palm oil is very big, given the country's large population. However, I agree with a friend that the supermarket aisles in Thailand may have an even larger range of domestic processed and ready foods.

Shopping basket of Indonesia processed snacks and sauces

29 November 2014: Day 2 at GAPKI conference, Bandung

Day 2, I was the first presentation of the day at the morning session in the technology grouping. However, while sustainability may be a technical and/or CSR issue, I focused on the commercial and strategic business issues relating to it.

At technology session

Price outlook speech

This website was pointed out to be for Indonesia palm oil information:

28 November 2014: At GAPKI conference, Bandung

Day 1 was busy with meetings. President Jokowi unable to attend after all. It's a huge crowd here. Good to see industry friends and meet more.
I was here two years ago (venue was Bali), speaking on sustainability and I'm speaking on the same topic early this morning, with some nice data courtesy of work at LMC International. It's a big crowd here and its one of the must-go events of the palm oil calendar (with the highest production values and effort).

At GAPKI's Bandung conference this afternoon, Dr James Fry of LMC International (yes, where I work) will be talking about the energy sector prices in relation to palm oil prices. Energy sector cost of production indicators will also be referred to. That will be worth checking out.
Oil price news (update 5): OPEC keeps production up and oil prices drop, /khorreports-palmoil/2014/10/oil-price-news-its-fallen-from-105-110.html

at the GAPKI gala dinner

at the GAPKI opening on Day 1

View of Bandung
26 November 2014: Post RSPO RT 12 and ICIS Asian Surfactants

These were two useful events. Papers not freely downloadable though.

Our summary of RSPO RT12 here:
/khorreports-palmoil/2014/11/rspo-roundtable-rt12-2014-is-around.html and also search "RT12" in this site.

12 November 2014: MPOC POTS KL 2014 download link

Palm Oil Trade Fair and Seminar (POTS) Kuala Lumpur 2014 - Download Presentation

5 November 2014: At OFIC KL 2014 conference.

MOSTA is the key organiser.  OFI Congress Programme - organised by MOSTA; Awaiting downloadable presentation.
This is AOCS speaker on consumer attitudes and a nice infographic on GMO.

Research highlights by MOSTA for OFIC KL 2014

Tan Sri Augustine Ong of MOSTA highlights the following new research featured at OFIC KL 2014:
  • Palm oil mill with zero effluent. Think of palm oil fruit as pulp processing.
  • Obesity and the impact chain length and fatty acid position on health outcomes which places palm oil in good status akin to olive oil.
  • Genome guided breeding.
  • A Melbourne expert presents on mega sonics in palm oil milling.
  • Biodiesel substitute, B100. A two year field trial with engine dissection shows better state than petrodiesel use.

Sunny Verghese of Olam on structural trends

No slides during his talk but slide deck will be given later. Olam has stopped powerpoints for the last two years to improve communications. Previously, analysts will know Sunny Varghese was famed for big powerpoints.
He's now talking about FAO food index, previoys price declines and inflection to price rise in last decade plus. China inflation largely due to food prices. He expects higher food prices to stay with us.
Demand drivers. Population: 9 billion plus people by 2050 and many most populous countries will be in Africa. Per capita income: rising faster than in past on larger populations, notably China and India doubling in 12 and 16 years. Income and middle class size as low/mid/high income consume 2600/3000/3600 calories respectively.
Another game changer is urbanisation. Urbanites consume 2.5X dairy, 3.5X meat than rural. West consumes over 130kg per capita and it's not just culture as HK and Taiwan consume over 100kg meat.
Supply is "shot in foot" by biofuels. FAO blames 2008 price crisis in most part to misguided policy on biofuels. Plus there's loss of farm land over time. Supply affected by declining productivity growth that has halved more recently and is now below population growth. Expansion car usage means there's set aside 0.74 ha for each new China car and take away farm land.
Water tables are receding in large zones. Olam is the world's largest corporate farmer and knows that wells now cost $0.5 million, going to depth. Wars might come about over food and water if it can happen over oil. 1300 liters of water for a big breakfast. One calorie needs one liter if water. 55 liters for personal need and 1-2 liter for drinking. China imports water by importing soybeans.
Climate change. Evidence is there from extreme weather events.
We need lot more investment on agricultural research. So much spent on defense but hard to find sufficient spend on food. Also to reduce 40 percent wastage. 
Can companies create value without destroying the environment. Nature does not issue invoices. Olam buys 2 billion bees a year for its almonds estates for $80 million.
Can we have inclusive growth? 400 people have more money than 4 billion. Such massive inequality usually addressed by revolution. Politicians are not working on this.

Indonesia palm oil: 2025 outlook from PT SMART

Pak Daud of PT Smart speaks at OFIC KL 2014. This is the 166th year of palm oil in Indonesia.

2025 Indonesia palm oil consumption expected to be about half for food and oleo and half for biodiesel (under the 2014 energy decree). Mielke notes that this suggests no increase in Indonesia palm oil exports which will not serve global consumer needs. 

What is the 2015 biodiesel implementation expectation versus 2014 (10-20 percent transport-power under target)? With lifting of subsidy there can be extra funds for cash subsidy to the poor. The fossil fuel and palm oil price will be better balanced to improve prospects. Improved logistics is also needed and a policy priority.

Pak Daud expects new areas 350,000 ha per year expansion in 2015, falling to 150,000 ha by 2025. 

One land map is a challenge. Spatial mapping should be done by Ministry of Public Works. Forestry has its map for it's 110 million hectare area. This map should be done a day this will clarify land that can be cultivated and for other uses. This should be finalised in 2015.

Foreign ownership limit will be delegated and set by government regulation which is not known yet.