Day: December 8, 2017

Oil Palm

Oil Palm

Land Use and the Oil Palm Industry in Malaysia Abridged report produced for the WWF Forest Information System Database LAND USE AND THE OIL PALM INDUSTRY IN MALAYSIA Abridged report produced for the WWF Forest Information System Database by Teoh Cheng Hai B-3-1 Tiara Tower, Mont’ Kiara Astana, Jalan 3/70C, 50480 Kuala Lumpur. E-mail: [email protected] net. my Report Produced Under Project MY 0057 ‘Policy Assessment of Malaysian Conservation Issues’ Project MYS 406/98 ‘WWF Partners for Wetlands, Malaysia: Kinabatangan Floodplain’ November 2000

This abridged report was originally produced for WWF Malaysia under the title “Land Use and the Oil Palm Industry in Malaysia” and has been adapted for the WWF International Forest Information System Database. This report is meant for reference purposes only. Any use of this report must receive the prior written permission of WWF Malaysia. LAND USE AND THE OIL PALM INDUSTRY IN MALAYSIA TABLE OF CONTENTS Page TABLE OF CONTENTS EXECUTIVE SUMMARY LIST OF TABLES LIST OF FIGURES LIST OF ABBREVIATIONS 1. INTRODUCTION 1. 1. 1. 2. 1. 3. 1. 4. 2.

Background Objectives Scope Approach i v vii ix x 1 1 1 1 2 5 5 5 13 16 16 17 21 22 23 23 25 30 THE OIL PALM INDUSTRY — FACTS & FIGURES 2. 1. Palm Oil in the Global Oils and Fats Scenario 2. 1. 1 Present Scenario 2. 1. 2 Future Scenario Oil Palm in Malaysia 2. 2. 1 Planted Area 2. 2. 2 Production & Productivity 2. 2. 3 Contribution to the Malaysian Economy 2. 2. 4 Challenges for the Oil Palm Industry Oil Palm and the Environment 2. 3. 1 2. 3. 2 2. 3. 3 Awareness and Concern of the Industry Impact of Oil Palm on the Environment Environmental Management in Plantations 2. 2 2. 3. i 3.

LAND USE BY OIL PALM 3. 1. 3. 2. 3. 3. Present Land Use Future Land Use for Oil Palm Land Use in Relation to Conservation Areas 3. 3. 1 Priority Areas 3. 3. 2 Priority Areas — Peninsular Malaysia 3. 3. 3 Priority Areas — Sabah 3. 3. 4 Lower Kinabatangan Floodplains Land Use Options 3. 4. 1 Issues and Questions 3. 4. 2 Enhancing Productivity 3. 4. 3 Alternative Plantation Crops 3. 4. 4 Plantation Forestry and Agroforestry 3. 4. 5 Monoculture vs. Mixed Culture 3. 4. 6 Forests in Plantations Best Practices for Sustainable Development in Oil Palm 3. 5. 1 Identification of Best Practices 3. . 2 Land Use Planning 3. 5. 3 Land Evaluation 3. 5. 4 Palm Oil Mill Effluent (POME) Treatment 3. 5. 5 Environmental Management System 33 33 41 44 44 49 50 51 55 55 55 58 60 63 65 67 67 70 71 73 74 75 75 77 77 78 79 80 81 81 82 83 84 85 85 85 ii 3. 4. 3. 5. 4. RECOMMENDATIONS FOR INTERVENTIONS BY WWF MALAYSIA 4. 1. 4. 2. Overview Partners for Wetlands — Kinabatangan Floodplains 4. 2. 1 Forging a Shared Vision 4. 2. 2 Flood Mitigation 4. 2. 3 Rehabilitation of Riparian Reserves 4. 2. 4 Minimising Water Pollution Promoting Conservation and Sustainable Land Use 4. 3. Putting Forward the Case for Conservation 4. 3. 2 Policy on Land Alienation 4. 3. 3 Land Use Planning 4. 3. 4 Monitoring of Land Use Charges 4. 3. 5 Promoting “Forests in Plantations” Promoting Sustainable Development Practices 4. 4. 1 Closing the Productivity Gap 4. 3. 4. 4. 4. 4. 2 4. 4. 3 4. 4. 4 4. 5. Encouraging Implementation of Environmental Management Systems Promoting Best Practices Promoting Agroforestry 86 87 87 88 88 89 90 91 93 93 95 Partners for WWF Malaysia 4. 5. 1 Plantation Industry Organisation 4. 5. 2 Plantation Companies 4. 5. 3 Research Organisations & Universities 4. . 4 Consultants 5. 6. 7. 8. CONCLUSION ACKNOWLEDGEMENTS REFERENCES APPENDICES Appendix II Appendix III Appendix IV : : : WWF Malaysia Land Use Survey Identifying Environmental Impacts and Assessment Matrix SES Advanced Integrated Wastewater Treatment System iii iv Executive Summary Driven by a strong global demand for oils and fats, the past few decades have seen a rapid growth of the oil palm industry in Malaysia. This has led to the conversion of large tracts of land for oil palm cultivation. The spread of oil palms has seen the clearing of many lowland forests, some of which re ecologically sensitive, such as the Lower Kinabatangan floodplains in Sabah. In view of concerns of the way future developments could affect the remaining forest areas in the country, WWF Malaysia commissioned this study on land use and the oil palm industry in Malaysia. The primary objective is to study the various impacts of oil palm conversion on land use, focusing on issues pertaining to current conversion of land for oil palm cultivation and the projected future demand for land to meet the projected growth of the industry.

In areas that have already been converted to oil palms, this study also examines best practices to ensure sustainable development and management of oil palms. Among the 17 major oils and fats, palm oil has made impressive and sustained growth in the global market over the past four decades. In 1999, palm oil accounted for 21% of world production of oils and fats; it is projected that palm oil will become the leading oil in the world around the year 2016. Malaysia is the world’s largest producer and exporter of palm oil; in 1999 it produced about 10. 5 million tonnes of palm oil, which is equivalent to 54% of world production. It is projected that average annual production of palm oil in the country will reach 15. 4 million tonnes in the period 2016–2020. Unless there is a very significant improvement in its productivity per hectare, it can be expected that the projected increase in national production of palm oil will inevitably have to be met by increasing the total planted area of oil palm. Currently, about 3. 1 million hectares of land are under oil palm cultivation in Malaysia ; 62% being located in Peninsular Malaysia while Sabah and Sarawak account for 28% and 10% of the total area respectively. In view of diminishing availability of suitable land in Peninsular Malaysia, the last decade has seen a rapid expansion of oil palm planting in Sabah and Sarawak and the trend is expected to continue for the foreseeable future. For instance, it has been projected that Sarawak will have about one million hectares of oil palm by the year 2010.

With the most suitable areas already converted to oil palms, new areas for expansion are likely to be in less ideal environments such as hilly to steep terrain or deep peat soils which would be far more challenging from the point of view of sustainable development. Various land use options were considered with the view to reducing the pressure to open up new land as well as to minimise the dependence on the monoculture of a single crop.

An effective approach towards meeting the increasing global demand for palm oil is to increase the productivity of existing oil palm areas. There is currently a wide gap between actual production per hectare and what is considered achievable yield. Assuming that the average national yield of 20 tonnes of fresh fruit bunches per hectare could be raised by 20%, the anticipated increase in production per annum would be equivalent to the output from more than 400,000 hectares of land.

As oil palm is essentially an export-oriented crop, the possibility of alternative or complementary crops that could generate similar economic returns was considered with due regard to the objectives and v rd strategic directions of the 3 National Agricultural Policy (NAP3). While a number of crops such as mangosteen and new products in the New Products and Future Industry Group of NAP3 are capable of generating attractive financial returns, considerable research and development, infrastructure support and market research would be required to support commercial development.

Based on economic analyses and experiences reported to date, forest plantations and possibly agroforestry are potential options for diversification. Between the two approaches, agroforestry would be a more sustainable approach as plantation forestry would still be a monoculture system, and besides, it could result in an increased demand for new land. In areas that are already converted to oil palms, the study considered ‘best practices’ that can support sustainable development and management in oil palm plantations.

Over the years, the oil palm industry has developed and implemented many sound practices that are consonant with sustainable development. However, there is still scope for improvement in some areas such as a systematic approach towards land use planning and implementation of environmental management systems. Specific actions for improving environmental performance have been given in this report.

Recommendations for interventions by WWF Malaysia with regard to policies on land use, promoting the conservation of areas under the threat of conversion and advocating sustainable development practices in existing oil palm areas are given in the last section of this report. Potential partners who could collaborate with WWF Malaysia in implementing these recommendations have also been identified. vi LIST OF TABLES

Page Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Table 11 Table 12 Table 13 : : : : : : : : : : : : : World Production of Oils and Fats (‘000 tonnes) Comparative Yields for Vegetable Oils and Oilseeds (1997/98) World Exports of Oils and Fats (‘000 tonnes) Per Capita Consumption of 17 Oils & Fats (1998) (kg) World Production of Palm Oil (‘000 tonnes) Major Exporters of Palm Oil (‘000 tonnes ) Palm Oil Production & Exports by Malaysia and Indonesia Major Importers of Palm Oil (‘000 tonnes) Growth in Area Planted with Oil Palm in Malaysia Projected Production of Palm Oil (2000–2020) (million tonnes) 17 Oils & Fats — World Disappearance Shares (%) Production of Crude Palm Oil in Malaysia (tonnes) 5-Year Average for FFB and CPO Yield/ha, OER and Immature Areas Export Value of Malaysian Primary Commodities (RM million) Editorials on Environment in The Planter Mean Runoff and Soil Loss under Different Covers Level of Utilization of Oil Palm Biomass Residues in Malaysia (1998) Input–output in Cultivating Oil Palm and Oil Seeds Public Complaints on Air and Water Pollution Total Forested Area and Area under Tree Crops Compared to Total Land Area in Malaysia (million hectares) 5 6 7 8 9 10 10 11 12 15 16 19 20 Table 14 Table 15 Table 16 Table 17 : : : : 21 24 27 29 Table 18 Table 19 Table 20 : : : 30 31 33 vii LIST OF TABLES Page Table 21 Table 22 Table 23 : : : Distribution of Oil Palm Area by State (hectares) Distribution of Oil Palm Area by Agencies (hectares) Replanting, Land Consolidation and Rehabilitation Programmes by Agency (1996–2000) “A” Priority Conservation Areas in Peninsular Malaysia 35 36 44 Table 24 Table 25 Table 26 Table 27 Table 28 : : 49 50 A” Priority Conservation Areas in Sabah : Oil Palm Yields and Yield Potential : OER Performance of Palm Oil Mills (1999) : Undeveloped Land Retained as Conservation Areas by Selected Companies Best Practices for Sustainable Development in Oil Palm Plantations Summary of Recommendations for Interventions by WWF Malaysia 66 57 55 Table 29 Table 30 : : 68 75 viii LIST OF FIGURES Page Figure 1 : World Production of Oils & Fats (1999) (Total Production: 108. 8 million tonnes) World Consumption of Oils & Fats (1999) Oil Palm Area (ha) in Indonesia 17 Oils & Fats — World Production 5-year Averages Oil Palm Area (ha) in Malaysia Annual Malaysian Production of Oil Palm

Products (tonnes) Yield of Fresh Fruit Bunches & Crude Palm Oil (tonnes/ha) and Oil Extraction Rate (%) Area Planted under Industrial Crops Existing and Potential New Oil Palm Areas in Sabah Existing and Potential New Oil Palm Areas and Peat Soil Areas in Sarawak Priority Areas for Conservation in Peninsular Malaysia Priority Areas for Conservation in Sabah Improvement in OER after Implementation of Quality Improvement Process (QIP) at Bukit Benut Oil Mill A Schematic Diagram Showing the Inter-relationship between the Factors and Criteria of Land Evaluation for Oil Palm 6 Figure 2 Figure 3 Figure 4 Figure 5 Figure 6 Figure 7 : : : : : : 8 12 15 17 18 20 Figure 8 Figure 9 Figure 10 : : : 34 39 40 Figure 11 Figure 12 Figure 13 : : : 47 48 58 Figure 14 : 72 ix LIST OF ABBREVIATIONS AAR BOD CAP COD CPO DID DOE EFB EIA EMPA FELCRA FELDA FFB GMO ICRAF IPM IRR ISP JKAS KER LCA MARDI MEOA MOPGC MoU MPOA MPOB NAP3 NCR NGO NREB OER Applied Agriculture Research Sdn. Bhd. io-chemical oxygen demand Common Agricultural Policy chemical oxygen demand crude palm oil Department of Irrigation and Drainage Department of Environment empty fruit bunches Environmental Impact Assessment East Ma laysia Planters Association Federal Land Consolidation & Rehabilitation Authority Federal Land Development Authority fresh fruit bunches genetically modified organism International Centre for Research on Agroforestry integrated pest management internal rates of return Incorporated Society of Planters Jabatan Konservasi Alam Sekitar kernel extraction rate Life Cycle Assessment Malaysian Agricultural Research and Development Institute Malaysian Estate Owners Association Malaysian Oil Palm Growers Council memorandum of understanding Malaysian Palm Oil Association Malaysian Palm Oil Board 3rd National Agricultural Policy Native Customary Rights non-governmental organisation Natural Resources and Environment Board oil extraction rate x

PfW PKO POME PORIM PORLA QAEC QIP RGA RISDA SAFODA SALB SALCRA SC SES SFI SLDB SSSB TQEM TQM UMS UPAM UPM WWFM Partners for Wetlands palm kernel oil palm oil mill effluent Palm Oil Research Institute of Malaysia Palm Oil Registration and Licensing Authority Quality and Environment Council Quality Improvement Process Rubber Growers’ Association Rubber Industry Smallholders Development Authority Sabah Forest Department Authority South American leaf blight Sarawak Land Rehabilitation and Consolidation Authority solid content Sustainable Environmental Solutions Sdn. Bhd. Sabah Forest Industries Sabah Land Development Board Sabah Softwoods Sdn. Bhd.

Total Quality and Environment Management total quality management Universiti Malaysia Sabah United Planting Association of Malaysia Universiti Putra Malaysia World Wide Fund for Nature Malaysia xi xii 1 Introduction 1. 1 Background The past few decades have seen the rapid growth of the oil palm industry in Malaysia, in terms of cultivated area and volume of production. Today, oil palm dominates the landscape throughout the country and the industry has become a major contributor to Malaysia’s export earnings, particularly during the 1997/98 Asian financial crisis. The increase in palm oil production has been driven by strong and increasing global demand for oils and fats.

This has led to the conversion of large tracts of land for oil palm cultivation, the expansion in recent years being more pronounced in East Malaysia as the availability of suitable land in Peninsular Malaysia diminished. The spread of oil palm has seen the clearing of many lowland forests, some of which are ecologically sensitive, such as the Lower Kinabatangan floodplains in Sabah. There are concerns over how future developments in this sector will affect the quality of the environment, especially of the remaining forest land in the country. It is in this context that WWF Malaysia commissioned this study on land use and the oil palm industry in Malaysia. This study is jointly funded by the Policy Assessment of Malaysian Conservation Issues (MY 0057) and the WWF Partners for Wetlands, Malaysia. (MYS 406/98). 1. 2 Objectives

The objectives of this study are assessing the impacts and implications of large-scale oil palm plantation conversion on land use. The study is focused on issues pertaining to current conversion of land for oil palm planting and the projected demand of land for expansion vis-avis the need for conservation of forest areas. It will gather information on land use types and options in order to make informed decisions on the need to convert natural forest or degraded land, rubber plantations, etc. into oil palm plantations. The study will also identify and recommend ‘best practices’ for the sustainable development of oil palm in existing areas already converted from forest and other crops. 1. 3 Scope

In line with its General Terms of Reference, the study covered the following main areas: • Facts and figures on the oil palm industry: -Palm oil and the global oils and fats scenario -Oil palm in Malaysia -Oil palm and the environment Land use by oil palm -Present land use 1 • -Future land use -Land use in relation to conservation areas -Land use options • • Best practices for sustainable development Recommendations for interventions by WWF Malaysia -Partners for Wetlands — Kinabatangan floodplains -Promoting conservation and sustainable land use -Promoting sustainable development practices -Partners for WWF Malaysia 1. 4 Approach The study took into consideration publications from various sources, including papers presented at the International Planters Conference 2000 on “Plantation Tree Crops in the New Millennium — The Way Ahead” that was held in Kuala Lumpur on 18–20 May 2000.

Some work done by WWF Malaysia on issues related to land conversion and oil palm plantations were also referred to. These references are listed in Section 7. Statistics on the oil palm industry were obtained mainly from various issues of the Palm Oil. Registration and Licensing Authority (PORLA) Palm Oil Statistics and Oil World Monthly (ISTA Mielke GmbH). Data on other crops were obtained from “Statistics on Commodities” by the Ministry of Primary Industries. Views of various stakeholders, particularly those from the plantation industry, were obtained through interviews, most of which were conducted during the International Planters Conference. The list of people interviewed/contacted is given in Appendix I.

A questionnaire survey was also conducted to obtain information on land use by plantation companies and the survey form is attached as Appendix II. Unfortunately, the survey did not obtain its expected results in terms of the level of returns and quality of responses. For instance, the survey did not obtain useful feedback on “Best Practices” — some respondents left the question unanswered while others provided non-committal remarks like “agronomic practice” or “follow general estate practice”. In view of this, the full results of the survey are not presented, but references have been made in this report to relevant information arising from the survey.

The study included a visit to Sabah by the consultant and Mr. Andrew Ng, Environmental Policy Analyst, WWF Malaysia, from 8–11 May 2000; with the view to seeing developments and problems in the Lower Kinabatangan floodplains. Areas visited included flood-affected oil palm areas, the pilot forest rehabilitation initiative between WWF Malaysia and Asiatic Development Berhad along the Tenegang Besar River and the proboscis monkey habitat along the Menanggul River. The visit also provided us with the opportunity to meet staff of the Partners for Wetlands Project, the Acting District Officer of Kinabatang District, representatives of the plantation 2 ndustry in Sandakan, including the Chairman of the East Malaysia Planters Association. In Kota Kinabalu, discussions were also held with senior management of Sawit Kinabalu Bhd. , the commercial entity of the Sabah Land Development Board as well as with a representative of the newly established Jabatan Konservasi Alam Sekitar (JKAS) in Sabah. In this report, “oil palm” refers to the palm Elaeis guineensis Jacq. , which produces two types of oil — “palm oil” from the fibrous mesocarp and “palm kernel oil”, a lauric oil from the palm kernel. Depending on the context, the industry has been called the “oil palm industry” or the “palm oil industry”.

As this study is focused on land use by the crop, the former term is used throughout this report. 3 4 2 The Oil Palm Industry – Facts and Figures 2. 1 Palm Oil in the Global Oils and Fats Scenario 2. 1. 1 Present Scenario Among the 17 oils and fats in the world market, palm oil has made impressive and sustained growth in the past four decades. In 1999, palm oil, together with palm kernel oil accounted for 20. 9% of the world’s production of oils and fats (Table 1 and Figure 1). During the 20-year period from 1980 to 1999, annual palm oil production increased about 4. 5 times from 4. 54 million tonnes to 20. 23 million tonnes compared with the 1. 9 times growth in soybean oil production over the same period.

Table 1: World Production of Oils and Fats (‘000 Tonnes) Commodity Soybean Oil Palm Oil Rapeseed Oil Sunflower Oil Groundnut Oil Cotton Oil Coconut Oil Olive Oil Palm Kernel Oil Corn Oil Linseed Oil Sesame Oil Castor Oil Total Vegetable Oils Tallow & Grease Butter Lard Fish Oil Total Animal Oils/Fats Grand Total 1980 13,382 4,543 3,474 5,024 2,864 2,992 2,716 1,701 571 866 764 502 349 39,748 6,283 5,746 4,691 1,214 17,934 57,682 1990 16,097 11,027 8,160 7,869 3,897 3,782 3,387 1,855 1,450 1,477 653 612 438 60,704 6,813 6,500 5,509 1,378 20,200 80,904 1995 20,426 15,477 10,952 8,572 4,397 3,901 3,350 1,888 1,948 1,851 701 587 483 74,535 7,510 5,717 8,689 1,318 20,234 94,769 1999 24,755 20,277 12,936 9,237 4,705 3,811 2,499 2,425 2,518 1,989 721 689 433 86,995 8,133 5,819 6,609 1,201 21,762 108,757 Source: Oil World PORLA Directorate General of Estate ( Min. of Agri.

Indonesia ), cited by PORLA 5 Figure 1: World Production of Oils & Fats (1999) (Total Production: 108. 8 million tonnes) Sunflower (8. 5%) Other Oils (15. 9%) Rapeseed (11. 9%) Palm & Palm Kernel Oil (20. 9%) Animal Oils & Fats (20. 0%) Soybean (22. 8%) The rapid rise in prominence of palm oil as a major vegetable oil is attributable to its high productivity coupled with the expansion in planted area. Oil palm is capable of producing more than three tonnes of oil per hectare, which is seven times higher than the productivity of soybeans. Compared to rapeseed and cotton seed, oil palm is respectively five and 16 times more productive (Table 2).

Table 2: Comparative Yields for Vegetable Oils and Oilseeds 1997/98 Average Oil Potential Content Oil Content (%) (%) 19. 1 43. 8 18. 5 47. 5 19. 0 42. 5 42. 5 66. 5 25 49 20 50 20 45 45 68 Average Yield (tonnes/ha) 15. 96 0. 84 2. 28 0. 94 1. 02 1. 42 1. 20 0. 54 Calculated Yield of Oil (tonnes/ha) 3. 05 0. 37 0. 42 0. 45 0. 19 0. 60 0. 51 0. 36 Crop Product Oil Palm* Oil Palm Soybean Groundnut Cotton Seed Rapeseed Sunflower Coconut Palm oil Palm kernel Seed Seed Seed Seed Seed Copra Source: PORLA PORIM Oil World Annual * Refers to Malaysia Hybrid DxP Variety 6 While palm oil is second to soybean in production, it is the world’s most widely traded oil, accounting for 13. 4 million tonnes or 39. 2% of the total volume of export of oils and fats in 1999 (Table 3). Table 3: World Exports of Oils and Fats (‘000 tonnes) Commodity Palm Oil Soybean Oil Sunflower Oil Rapeseed Oil Coconut Oil Palm Kernel Oil Olive Oil Corn Oil Groundnut Oil Cottonseed Oil Linseed Oil Castor Oil Sesame Oil Total Vegetable Oils Total Animal Oils/Fats Grand Total Source: Oil World PORLA 1990 8,195 3,294 2,126 1,614 1. 617 904 287 360 318 302 184 178 22 19,401 3,659 23,060 1995 10,173 5,691 2,962 1,898 1,704 793 385 598 266 272 188 302 22 25,254 4,201 29,455 1999 13,527 7,545 2,981 1,682 1,104 1,213 568 658 243 155 136 235 22 30,069 3,775 33,844

World consumption of oils and fats follows the pattern of production, with the highest consumption being for soybean oil (22. 8%) followed by palm oil and palm kernel oil (20. 4%) as shown in Figure 2. 7 Figure 2: World Consumption of Oils & Fats 1999 Animal Fats (20. 2%) Sunflower (8. 5%) Rapeseed (12. 0%) Palm/Palm Kernel (20. 4%) Others (16. 1%) Soybean (22. 8%) Source: Oil World The per capita consumption of oils and fats is generally related to the stage of national development; industrialised countries such as the USA, Canada and the European Union consumed more than 43. 0 kg of fats and oils per person during 1998 while the volume for lesser developed countries was generally below 16. 0 kg, the lowest consumption being recorded in Bangladesh (Table 4).

Table 4: Per Capita Consumption of 17 Oils & Fats (1998 Kg) Country Algeria Argentina Australia Bangladesh Brazil Cameroon Canada Chile China P. R. Colombia Costa Rica Cote d’Ivoire Cuba Ecuador Egypt Ex-USSR Per Capita Consumption 14. 9 23. 5 32. 6 5. 0 24. 1 13. 4 43. 0 23. 9 12. 0 18. 5 23. 2 19. 0 12. 6 24. 6 16. 6 13. 8 Country Kenya Korea, South Kuwait Malaysia Mexico Morocco Myanmar New Zealand Nigeria Pakistan Peru Philippines Saudi Arabia Senegal South Africa Sudan Per Capita Consumption 8. 5 17. 3 20. 0 22. 0 22. 3 16. 5 12. 4 27. 9 10. 6 16. 2 13. 8 7. 3 15. 3 22. 9 21. 2 7. 4 8 India Indonesia Iran Iraq Japan Jordan Source: Oil World PORLA 10. 0 16. 1 12. 6 14. 9 22. 0 20. 1 Syria Taiwan Tunisia Turkey USA Venezuela EU-15 17. 1 35. 6 28. 8 27. 7 47. 8 23. 3 44. 2

In 1999, the world production of palm oil was 20. 28 million tonnes with Malaysia, as its largest producer contributing about 10. 55 million tonnes or 52. 0% of total volume, while Indonesia produced about 6. 06 million tonnes or 29. 9% (Table 5). Malaysia is also the world’s largest exporter of palm oil, exporting about 8. 80 million tonnes or 65. 1% of the total volume in 1999 (Table 6). Table 5: World Production of Palm Oil (‘000 tonnes) Country of Origin Malaysia Indonesia Nigeria Colombia Cote d’Ivoire Thailand Ecuador Papua New Guinea Cameroon Honduras Ghana Brazil Costa Rica Others Grand Total 1990 6,095 2,413 580 226 270 232 120 145 140 78 85 66 62 355 10,867 1995 7,811 ,480 660 387 285 354 180 223 125 76 102 76 97 621 15,477 1999 10,554 6,060 720 424 282 410 220 270 140 75 112 90 105 815 20,277 Source: Oil World PORLA Min. of Agric. , Indonesia (cited by PORLA) 9 Table 6: World Major Exporters of Palm Oil ( ‘000 tonnes ) Country Malaysia Indonesia Papua New Guinea Cote d’Ivoire Singapore* Hong Kong* Others* Total Source: Oil World PORLA 1990 5,727 1,163 143 156 679 51 276 8,195 1995 6,513 1,856 220 120 399 275 790 10,173 Note: 1999 8,802 3,183 264 75 270 94 738 13,527 * includes re-exporting countries As Malaysia has a relatively small population, most of its palm oil is exported, while Indonesia which is the world’s fourth most populous country, has a big domestic market.

However, with the increase in production volume, Indonesia has been steadily increasing its share of world exports of palm oil, as shown in Table 7. Table 7: Palm Oil Production & Exports by Malaysia and Indonesia % Share 1990 Malaysia Palm Oil Production Palm Oil Export 56. 1 70. 0 Indonesia 22. 2 14. 2 1995 Malaysia 50. 5 64. 0 1999 Indonesia Malaysia Indonesia 28. 9 18. 2 52. 0 65. 1 29. 9 23. 5 Table 8 lists the major importers of palm oil in 1990, 1995 and 1998; the most important importers being the European Union, India, the People’s Republic of China and Pakistan. Collectively, they accounted for 57. 2% of the world’s imports in 1998. 10 Table 8: Major Importers of Palm Oil (‘000 tonnes) Country China, P. R.

EU Pakistan Egypt India Japan Malaysia Turkey South Korea Myanmar USA Bangladesh Indonesia South Africa Saudi Arabia Kenya Ex-USSR Other Countries Total Source: Oil World PORLA 1990 1,133 1,556 683 NA 668 276 NA 182 217 134 130 82 27 NA 128 158 202 3,052 8,736 1995 1,595 1,738 1,122 353 863 351 38 201 156 305 102 53 55 128 169 177 57 2,882 10,345 1998 1,373 2,059 1,114 373 1,672 357 86 166 151 249 116 93 25 160 178 178 68 2,451 10,869 Malaysia and Indonesia produced more than 80% of the world’s supply of palm oil in 1999; production had increased exponentially following the rapid expansion in planted area. The growth in the planted area in Indonesia is shown in Figure 3. 11 Figure 3: Oil Palm Area (ha) in Indonesia

Source: Directorate General of Estate (1966) Cited by Potter & Lee (1999) The estimated planted area of oil palm in Indonesia in 1998 was 2. 4 million hectares and the projected area for the year 2000 is between 2. 7 and 2. 9 million hectares (Potter and Lee, 1999). However, it is not certain if this target can be achieved in view of the continuing economic and political uncertainties in Indonesia. In Malaysia, the expansion in oil palm planting in Peninsular Malaysia commenced in the late 1950s/early 1960s while development of the oil palm industry in Sabah and Sarawak started in 1970. The growth in planted area during the past four decades is shown in Table 9.

Table 9: Growth in Area Planted with Oil Palm in Malaysia Year 1960 1970 1980 1990 1999 Total Planted Area (ha) 54,638 261,199 1,023,306 2,029,464 3,338,273 478% (1960/70) 392% (1970/80) 198% (1980/90) 165% (1990/99) Growth Rate (%) Land use and oil palm cultivation are discussed further in Section 3. 12 2. 1. 2 Future Scenario In developing their forecasts on the supply, demand and prices of the world’s oils and fats up to the year 2020, ISTA Mielke GmbH (1999) considered the following basic factors that will influence the growth of world agriculture and their impact on oils and fats. (i) (ii) (iii) (iv) (v) World population set to rise another 1. 5 billion people by 2020. World economy set to expand from 2000 onwards. Prices set to continue to fluctuate heavily, but 5-year averages to remain high.

Per capita and total consumption of oils and fats to keep rising sharply. Five-year average growth of livestock product demand and output are likely to slow again in the next two decades. Arable land and water resources are getting scarce. Politics and agricultural policies will play a decisive role for oilseed and grain plantings and yields. The 1999 Common Agricultural Policy (CAP) will set new cornerstones for EU oilseed and grain production. Improved technology will be decisive for higher yields; more frequent and more intense El Ninos and La Ninas will also affect yields. Different demand growths will determine production in oils and fats and livestock products (meals and grains). (vi) (vii) (viii) (ix) (x)

Among the foregoing factors, those that are likely to have significant impact on the future of the oils and fats industries in general and palm oil in particular are: (i) Although the overall popula tion rate in the world has been declining since 1998, this decline has been mainly in developed countries. For instance, even negative population growth rates were recorded in EU countries and Japan. However, the highest population growth is expected to come from the low and middle-income developing countries; it has been projected that these countries will collectively contribute 42% of the global population growth over the next two decades. This trend will have a positive impact on the oils and fats industries considering that • These developing countries are expected to achieve the highest income growth. 13 • (ii) Their per capita consumption of oils and fats is still low, as shown in Table 4.

The global economy will expand from the year 2000; the current economic recession is expected to be shortlived as the US economy has remained strong and the economies in East and South East Asia, particularly South Korea, Malaysia and Thailand are quickly recovering from the financial crisis of 1997/98. Considering that the projected increases in demand for oils and fats are unlikely to be met by increases in their productivity, there will be increasing pressure to expand the world planted area of oil seeds and grains. But there is a growing scarcity of suitable land as well as water resources globally. Furthermore, environmental pressures will lead to more efforts to conserve land in many countries such as the USA and EU members.

As such, the world is likely to depend on some exporting countries that still have adequate reserves of arable land, notably Brazil, Argentina, Malaysia, Indonesia, Australia and the former USSR. Changes in world weather patterns will have very significant impacts on the annual production of oil crops, as can be demonstrated from the effects of the 1996/97 El Nino which was largely responsible for the 6. 5% drop in world palm oil production in 1998. The ISTA Mielke Study (1999) assumed that the El Nino and La Nina occurrences would be more frequent and more intense in the next 20 years. On technology, the best prospect for increasing production is through improving the genetic potential of planting materials.

Biotechnology will play a big role in this direction and it is likely to have a greater immediate application in oil seeds such as soybean and rapeseed, despite current consumer and NGO resistance to genetically modified organisms (GMOs), particularly in Europe and the USA. (iii) (iv) (v) Taking the various factors that will shape the future into consideration, ISTA Mielke (1999) forecasts that the world production of the 17 oils and fats is likely to grow by 70% to 175. 8 million tonnes annually in 2016–20 compared with 1996–2000. World disappearance of these oils and fats will also increase at the same rate to reach 175. 3 million tonnes annually during 2016–20.

The composition of oils and fats production will also change significantly; palm oil is expected to become the world’s leading oil in the next decade (Figure 4). Malaysia and Indonesia will continue to dominate world production of palm oil; Malaysia will remain the biggest producer until around 2012 after which Indonesia could become the leading producer. During 2016–20, projected production by Indonesia is 18,000 million tonnes or 44% of world production of 40,800 million tonnes while Malaysia’s estimated output will be 15,400 million tonnes or 37. 7% (Table 10). 14 Figure 4 : 17 Oils & Fats – World Production 5-Year Averages Source: World Oil 2020

Table 10: Projected Production of Palm Oil (2000–2020) (million tonnes) Year Annual Production 2000 2001 2002 2003 2004 2005 Five-year Averages 1996–2000 2001–2005 2006–2010 2011–2015 2016–2020 Source: Oil World 2020 Malaysia Indonesia World Total 10,100 (49. 3%) 10,700 (48. 1%) 10,980 (48. 4%) 11,050 (47. 7%) 10,900 (45. 6%) 11,700 (45. 6%) 6,700 (32. 7%) 7,720 (34. 7%) 7,815 (34. 5%) 8,000 (34. 6%) 8,700 (36. 4%) 9,400 (36. 6%) 20,495 22,253 22,682 23,149 23,901 25,666 9,022 (50. 3%) 11,066 (47. 0%) 12,700 (43. 4%) 14,100 (40. 2%) 15,400 (37. 7%) 5,445 (30. 4%) 8,327 (35. 4%) 11,400 (39. 0%) 14,800 (42. 2%) 18,000 (44. 1%) 17,932 23,530 29,210 35,064 40,800 ( % ) = % of world total

In view of its high productivity and lower production costs, palm oil is highly competitive when compared to soybean oil. In her comparative analysis, Stringfellow (2000) stated that costs of 15 producing palm oil were significantly lower than those of soybean oil. Depending on the outcome of the next round of WTO talks this year, the competitiveness of palm oil could be enhanced if the USA is required to reduce the subsidies to soybean growers. Table 11: 17 Oils & Fats — World Disappearance Shares (%) 5-year averages (%) Major Oils/Groups 1976–1980 Palm Oil Soy Oil 9 other seed oils (a) 6 other oils & fats (b) (a) 1996–2000 17% 22% 36% 24% 2016–2020 23% 21% 36% 20% 7% 21% 34% 38% (b)

Palm kernel, cotton seed, groundnut, sunflower seed, rapeseed, coconut, castor, sesame, linseed oils Butter, lard, tallow, fish oil, olive and cotton oils Source: Oil World 2020 The composition of disappearance (consumption) of oils and fats will follow the trends for their projected production; the most impressive gain is expected for palm oil, rising from an average share of 7% during 1976–80 to 23% in 2016–20. While the share of world disappearance for soybean and other seed oils is likely to remain around 55%, the consumption of animal fats and oils, along with that of olive and cotton seed oils will account for only 25% share to total disappearance during 2016–20 (Table 11). 2. 2 Oil Palm in Malaysia 2. 2. 1 Planted Area

Although commercial planting of oil palm began in 1917 on Tennarmaram Estate, large-scale cultivation commenced only around the 1960s following the Government’s crop diversification programme to reduce the country’s dependence on rubber. Growth in planted area of oil palm is shown in Figure 5. In 1999, 3,313,393 hectares were planted with oil palm with 2,051,595 hectares (61. 9%) in Peninsular Malaysia, 941,322 hectares (28. 4%) in Sabah and 320,476 hectares (9. 7%) in Sarawak (See also Table 21). 16 Figure 5: Oil Palm Planted Area (Ha) in Malaysia 3,600 3,200 2,800 2,400 ‘000 Ha P. Malaysia 2,000 1,600 1,200 Sabah 800 400 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 Sarawak 1994 1996 1998 Total

Year Source: PORLA The last decade has seen rapid expansion in oil palm planting in Sabah and Sarawak while its development in Peninsular Malaysia slowed down on account of a shortage of suitable land and increasing shortage of manpower. Further development of new oil palm areas is expected to continue in East Malaysia, where there is greater land availability. Land use for oil palm is discussed further in Section 3. 2. 2. 2 Production & Productivity Following the rapid expansion in planted hectarage, the annual production of palm oil and palm kernel in Malaysia increased very significantly (Figure 6). In 1999, the total crude palm oil (CPO) production, at 10. 5 million tonnes, was ten times the volume produced in 1975. The marked decline in production in 1998 could be attributed to the effects of the prolonged El Nino conditions in 1996/97 as well as its natural decline during the biological cycle of the palm. 17 Figure 6: Annual Malaysian Production of Oil Palm Products (Tonnes) 12,000 10,000 8,000 6,000 4,000 CPO ‘000 Tonnes Palm Kernel 2,000 – PKO 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 Year PKO = Palm Kernel Oil Table 12 provides the production of CPO by the various states between 1980 and 1999; Sabah became the state with the highest CPO production in 1999, contributing 2. 67 million tonnes (25. 3%) of the total CPO production.

Johor, which hitherto was the leading producer, contributed the second highest volume at 2. 43 million tonnes (23. 0%) while Pahang produced 1. 87 million tonnes (17. 7%). In the last 20 years, Sarawak recorded the highest increase in CPO production, followed by Sabah. This trend is expected to continue as more planted areas reach maturity. 1999 18 Table 12: Production of Crude Palm Oil in Malaysia (tonnes) State Johor Pahang Perak Selangor N. Sembilan Terengganu Kelantan Kedah & Perlis P. Pinang Malacca P. Malaysia Sabah Sarawak Total Source: PORLA 1980 737,674 460,669 368,609 445,350 168,198 107,307 27,034 11,932 41,721 25,830 2,394,324 156,471 22,378 2,573,173 990 1,681,428 1,264,547 779,352 630,122 337,827 299,540 125,010 80,262 73,088 36,800 6,094,622 678,995 107,651 6,094,622 1995 1,847,764 1,571,236 997,161 614,707 393,088 307,311 163,225 102,473 53,657 43,938 6,094,560 1,493,623 222,363 7,810,546 1998 2,021,349 1,450,708 1,001,546 525,168 343,906 335,899 151,174 90,209 37,445 36,474 5,993,878 2,015,733 310,071 8,319,682 1999 2,425,163 1,867,127 1,220,920 618,858 452,398 410,048 215,723 128,701 46,086 42,836 7,427,860 2,666,518 459,667 10,554,045 The national average yield per hectare in terms of fresh fruit bunches (FFB) and crude palm oil (CPO) as well as the oil extraction rate (OER) are shown in Figure 7.

FFB yield and CPO per hectare vary from year to year and are influenced by several factors such as weather and the natural biological cycle. Similarly, OER is affected by many factors in the plantation as well as the oil mills, as elucidated by Gan (1998). However, if we examine the 5-year averages since 1975 (Table 13), a declining trend is apparent for the three parameters over the last 15 years, in spite of the fact that there was a decline in the proportion of the immature area. 19 Figure 7: Yield of Fresh Fruit Bunches & Crude Palm Oil (tonnes/ha) and Oil Extraction Rate (%) 25 FFB 25 20 15 OER 20 Tonnes/ha 15 10 CPO 10 5 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 5 – Year Source: Dept. of Statistics (cited by PORLA) PORLA

Table 13: 5-Year Average for FFB and CPO Yield/ha, OER and Immature Area FFB/ha (tonnes/ha) 16. 89 19. 33 19. 70 18. 68 18. 44 CPO (tonnes/ha) 3. 46 3. 81 3. 90 3. 55 3. 46 OER (%) 20. 46 19. 62 19. 69 19. 12 18. 75 Immature Area (%)* 42. 1 33. 5 22. 4 16. 9 12. 9 * % Immature area for the preceding 5-year period Period 1975/79 1980/84 1985/89 1990/94 1995/99 Comparative statistics for production of palm oil by estates, federal and state development schemes and smallholders are not readily available. However, Chandran (2000) noted that there is a wide gap in productivity between plantations and smallholders; some well-managed estates have obtained 4. 5–5. tonnes of oil per hectare while production by the smallholder sector was much lower than the national average. % OER 20 2. 2. 3 Contribution to the Malaysian Economy The oil palm industry has been a major contributor to Malaysia’s export earnings and its role became particularly significant during the 1997/98 financial crisis which caused a marked decline in the gross domestic product of Malaysia. In 1998, exports of palm oil and palm oil products (palm olein, palm stearin, palm kernel cake, palm fatty acids, etc. ) amounted to RM22. 65 million or 7. 9% of the nation’s total export earnings (Table 14). It became the top export earner, exceeding the contributions from crude petroleum and petroleum products and forestry by a wide margin.

The 1998 earnings from palm oil were 178% higher than those of the previous year and this was attributed to sharp increases in CPO prices. In 1998, CPO fetched an average FOB price of RM2,360. 07 per tonne compared with RM1,412. 69 in 1997, an increase of 167%. Table 14: Export Value of Malaysian Primary Commodities (RM million) % of Total Export Earnings 5. 78 3. 27 0. 30 0. 14 0. 03 6. 66 16. 18 0. 52 7. 53 % of Total Export Earnings 7. 90 2. 99 0. 27 0. 13 0. 02 4. 93 16. 27 0. 37 5. 63 Primary Commodities 1997 1998 Palm Oil and Palm Oil Products Natural Rubber & Rubber Manufactures Cocoa and Cocoa Products Pepper Canned Pineapple and Juice Forestry Products 12, 758. 7,217. 8 666. 8 300. 2 70. 5 14,721. 3 35,735. 0 22,648. 5 8,567. 8 770. 5 362. 6 53. 5 14,248. 1 46,651. 0 1,071. 5 16,134. 2 Minerals Crude Petroleum, Petroleum Products & LNG TOTAL EARNINGS FROM PRIMARY COMMODITIES & PRODUCTS TOTAL EXPORT EARNINGS Source: Ministry of Primary Industries 1,140. 1 16,640. 3 53,515. 4 24. 23 63,856. 7 22. 27 220,890. 4 100. 00 286,750. 1 100. 00 The oil palm industry has also played a key role in poverty eradication through land development agencies such as the Federal Land Development Authority (FELDA), the Federal Land Consolidation and Rehabilitation Authority (FELCRA) and various state development 21 agencies.

The contribution by FELDA is documented in FELDA—3 Decades of Evolution by Tunku Shamsul & Lee (1988). To date, FELDA has emplaced more than 109,000 settlers who were previously landless and living below the poverty line. The population of residents in FELDA settler schemes is about 547,000 at present (Syed Sofi, pers. com. ). 2. 2. 4 Challenges for the Oil Palm Industry Major issues and challenges faced by the oil palm industry in Malaysia have been a topic in many seminars and conferences, the most recent being the Incorporated Society of Planters (ISP) Conference 2000 and publications such as The Planter. They are also covered in Chapter 9 of the 3rd National Agricultural Policy (NAP3).

Commonly cited challenges are as follows: • Labour shortage is the most serious constraint and presently the industry is highly dependent on foreign workers. While efforts have been made to mechanise various field and mill operations, overall progress has been rather slow, particularly for harvesting fresh fruit bunches, the most labour-intensive operation. Land availability for further expansion is limited, particularly in Peninsular Malaysia where the cost of land is also substantially higher. While Sarawak has relatively more land availability, land tenure associated with Native Customary Rights (NCR) could pose a problem for further oil palm development. Productivity gap. A major concern is the large gap between the actual production of palm oil per hectare and the crop’s genetic potential.

The gap has been widening with time as plant breeders have continued to improve the inherent productivity of oil palm but the yields realised have remained static or even declined. Cost of production continues to increase. The Malaysian Oil Palm Growers Council’s (MOPGC) production cost survey for the period 1981–97 showed that the average cost of producing one tonne of CPO increased from RM612. 90 in 1981 to RM762. 83 in 1995, RM865. 32 in 1996 and RM780. 55 in 1997 (Tan, B. H. , pers. com. ). Total cost would be considerably higher if marketing expenses, duty and cesses had been included in the survey (Khoo, K. M. , pers. com. ) Competition. The Malaysian oil palm industry faces increasing competition from lower cost producers like Indonesia, the world’s second largest producer of palm oil.

Chandran (2000) stated that the cost of production of well-managed plantations in Indonesia is only US$100–120 per tonne oil, which is equivalent to RM380–460 per tonne oil. The industry also faces competition from other fats and oils produced at a lower cost. • • • • 22 • Technological challenges include the need to diversify from basic commodities to value added downstream products in food and non-food applications such as antioxidants, oleochemicals and biofibre composites. Environment. Increasing pressure from importing countries and various stakeholders requires the industry to take more positive action on promoting sustainable development.

Bek-Nielsen (1995) stated that “whether we like it or not, we cannot avoid to pay attention to the environmental issues which have become of worldwide importance to this world focus”. Yusof (1999) encouraged the industry to take advantage of the ISO 14000 series of standards for environmental management as they “have become a reference point for acceptable environmental corporate governance”. The sustainable development challenge was also highlighted at the ISP International Planters Conference held in May 2000. • In addition to the above challenges, Bek-Nielsen (1995) has raised concerns over increasing difficulty in maintaining discipline among the workforce and the shortage of dedicated executives and officers. These have a negative impact on the efficiency of plantation management. 2. Oil Palm and the Environment 2. 3. 1 Awareness and Concern of the Industry A review of the publications and activities of major organisations associated with the oil palm industry such as the Incorporated Society of Planters (ISP), Palm Oil Research Institute of Malaysia (PORIM) (which became part of the Malaysian Palm Oil Board (MPOB) in May 2000), and the former Malaysian Oil Palm Growers Council (MOPGC) could provide an indication of the industry’s level of awareness and concern for the environment. The ISP is a good indicator organisation as it is a professional organisation founded in 1918 to represent and promote the interests of the planting community.

Today, the Society has more than 4,300 individual members from 42 countries. The ISP publishes a monthly magazine, The Planter the main channel for keeping members abreast with technical and non-technical issues. The interest and position of the ISP on the environment is reflected in various editorials over the years; these are listed in Table 15. 23 Table 15: Editorials on Environment in The Planter Editorial Title Bukit Takun —A National Treasure Agro-Industrial Waste Theme Issue — The Environment Conservation Tropical Rainforests Carbon Dioxide and the Single Planet Post-Rio Forestry & Woodlands: Are They Relevant to the Plantation Industry?

The Environment Biocontrol with Bioherbicides Encouraging Biodiversity in the Estate Sector Sustainable Development Biodiversity and Its Importance Changing Weed Population and Judicious Use of Pesticide The Planter Issue (No) 48 (556) 51 (595) 53 (619) 59 (692) 62 (719) 62 (727) 68 (800) 71 (828) 71 (834) 72 (848) 73 (854) 73 (859) 75 (877) 76 (889) July 1972 September 1975 October 1977 November 1983 February 1986 October 1986 November 1992 March 1995 September 1995 November 1996 May 1997 October 1997 April 1999 February 2000 Date The Planter has published two theme issues on the environment: the October 1977 No. 53(619) issue was published prior to the gazetting of the Environmental Quality (Prescribed Premises) (Crude Palm Oil) Regulations 1977 to familiarise planters with the requirements of the new regulations. The second theme issue — Volume 59(692) of November 1983 — focused on conservation. In 1992/93, The Planter serialised the monograph A Manual on the Conservation of Malaysia’s Renewable Resources by Dr. P. R. Wycherley.

This was published as “Conservation in Malaysia” in eight parts covering Climate, Agriculture, Biological Communities, Threatened Species, National Parks, Nature Reserves and Conclusions. PORIM’s (now MPOB’s) interest and efforts in oil palm and the environment are documented in the PORIM Bulletin , occasional papers and proceedings of conferences and seminars. Recent publications devoted to environmental management are as follows. (i) Proceedings of the 1999 2nd National Seminar on ISO 14000 Series for Environmental Management Standards for Oil Palm and Related Industries (August 1999). 24 (ii) Proceedings of the National Seminar on the Development, Applications and Implications of ISO 14000 Series of Environmental Standards on Oil Palm and Related Industries in the 21st Century (August 1998).

Proceedings of the 1993 PORIM International Palm Oil Congress “Update & Vision: Special Joint Session on Life Cycle Assessment” (September 1993). (iii) The most comprehensive publication by the industry to date is Oil Palm and the Environment: A Malaysian Perspective published by the Malaysian Oil Palm Growers Council in November 1999. Contributions by authors from the industry, PORIM and relevant Government Departments were presented under the following headings. (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Oil Palm and the Rain Forest Biomass Resources Sustainable Field Practices Effluent Treatment Nutrient Recycling and Soil Conditions Bulk Lignocellulosic Materials for Industrial Users By-products for Animal Feed and Other Uses Biofuel Environmental Regulations. 2. 3. Impact of Oil Palm on the Environment The effects of replacing natural forests with oil palms were reviewed by Henson (1994) with respect to the potential impact on biodiversity, climate, hydrology, soil erosion, soil physical and chemical properties and specific management aspects. He concluded that “oil palm cultivation in general poses little direct environmental impact per se; rather it is during the forest clearing operations where problems arise”. The main impact of the latter is the loss of biodiversity. A number of publications (Salleh & Ng, 1983; Henson, 1994; Mohd. Hashim et al. , 2000) have quoted the work of Wycherley (1969) to support this point.

Forest disturbance initially causes loss of canopy fauna, followed by ground fauna, which are progressively replaced by species from the open. The number of mammalian species recorded in various vegetation types was as follows. 25 Vegetation Primary forest Disturbed forest Secondary forest Oil palm in rubber Scrub land Grass land Lalang No. of Mammalian Species 75 32 11 13 11 7 4 Salleh and Ng (1983) stated that monocultural plantations create an environment that is very different from that of natural forests; the uniformity of plantation crop and its regularity in spatial distribution “creates a monotonous environment impoverished in variety and life”.

These authours favoured greater species diversity in plantations and suggested that in contrast to monoculture, “a harmonious integration in a agroforestry system which is ecologically more stable, may be in the long run be more sustainable”. (The issue of oil palm monoculture and mixed culture is discussed further in Section 3. 4. 5. ) In situations where land development for oil palm results in fragmentation of natural habitats, particularly of large mammals, the well-being and survival of these animals become a cause for concern. A case in point is in the Lower Kinabatangan floodplain where the development of contiguous blocks of oil palm has impeded the movement of elephants.

This has led to incursion of the animal into oil palm plantations, causing damage to the crop in the process. Displaced animals may become a nuisance to residents in land schemes and towns in the vicinity of disturbed forests. For instance, periodic reports in the local Press have documented incidents of attacks by tigers and other carnivores on humans and domestic animals. A recent case which appeared in the New Straits Times on 27 May 2000 reported on the capture of a male black panther that had been terrorising workers in an oil palm plantations adjacent to the Chini forest reserve. It was also reported that this panther had mauled 13 cattle reared by the settlers in Felda Terapai Satu, Pekan, during the past year.

Fortunately, this panther was sedated by the relevant authorities and will find a new home in the Melaka Zoo. Clearing of forests for whatever reason obviously leads to the loss of native plant resources, many of which are sources of traditional medicines and health food products. It has been estimated that 75% of 121 commonly prescribed drugs are derived from medicinal plants and that about 25% of them are extracted directly from plant materials (Ng & Azizol, 1999). Many of these are currently collected from the forests, including the famous tongkat ali (Eurycoma longifolia ). Another major consequence of clearing or disturbance of forests is changes in the hydrology and soil erosion.

It is pertinent to note that new oil palm plantations are developed mainly from logged-over forests after economic timber species have been extracted by timber concessionaires. Nevertheless, the extraction of timber and land clearing for cultivation will 26 have adverse impacts unless appropriate mitigation measures are taken. Pushparajah (1983), citing Tang et al. (1979), stated that while sediment yield under undisturbed forest conditions in a study area in Kelantan was 100 m3 /kg/year, logging of 30–40% of the catchment area increased it to 300m3 . Logging of the entire catchment raised the sediment yield to 2,500m3 , a 25-fold increase over the natural state!

Estimates by Daniel & Kulasingam (1974) (cited by Pushparajah, 1983) indicated that runoff during peak storms from a catchment with rubber and oil palm during a 13-month period was twice that from a similar area under jungle. Ling et al. (1979) showed that in new clearings, runoff and soil loss can be reduced significantly if the ground is protected by natural covers or legume cover crops (Table 16). While well-managed plantations generally plant legume covers soon after land preparation and terracing, it usually takes at least six months for the exposed ground to be fully covered. During this period, there would be significant runoff and loss of top soil.

Table 16: Mean Runoff and Soil Loss under Different Covers Treatment Runoff (mm) 236 70 61 Runoff (% Rainfall) 15 5 3 Soil Loss (t/ha/yr) 79 11 10 Bare Legumes Natural Covers Source: Ling et al. (1979) With regard to the carbon cycles of natural forests and oil palms, Henson (1999) stated that in spite of the substantial removal of biomass in the form of FFB, the net carbon fixation of oil palm is similar to that of lowland forests. However, as oil palms are replanted about 25 years after planting, the carbon in standing biomass will not be able to match that of a forest. Over the years, the oil palm industry has developed many sound practices to minimise the negative impacts; in well-managed plantations, the following are regarded as standard operational practices. i) (ii) (iii) (iv) Construction of terraces for soil and water conservation in undulating to hilly terrain. Zero burning during replanting. Establishment and maintenance of leguminous cover crops. Integrated pest management, combining biological control and the judicious use of pesticides. 27 (v) “Discriminatory” fertiliser usage based on diagnosis of nutrient requirements from soil and foliar analyses. Organic waste recycling with empty fruit bunches (EFB) and land application of digested palm oil mill effluent (POME). Treatment of POME to 100 mg/l or less for discharge into waterways or below 5000mg/l where land application is permitted by the Department of Environment. (vi) (vii)

The adoption of the zero burning technique for replanting on a commercial scale since 1989 (Mohd. Hashim et al, 1993) and in new plantings (Jamaludin et al, 1999; Ramli, 1999) has been a major factor in minimising air pollution by plantations in Peninsular Malaysia. Hitherto, the clean clearing method which involves burning of the old crop or timber stand had been the most commonly used method for oil palm cultivation. In contrast, it has been reported that opening burning for land clearing by oil palm plantation in Indonesia contributed to the forest fires in 1997/98 and the transboundary haze and atmospheric pollution (Wakker, 1999). The implementation of integrated pest management (IPM) reduces the use of pesticides in plantations.

Wood and Corley (1990) estimated that about one per cent of the oil palm planted area is treated with pesticides every year. IPM also promotes the more judicious use of more selective pesticides and safer application methods, such as trunk injection of insecticides. Nevertheless, some stakeholders are still concerned over potential chemical contamination, particularly in the groundwater. So far, there are apparently no published studies on this aspect with regard to oil palm, but it is encouraging to note that MARDI and the Malaysian Palm Oil Board (MPOB) have recently initiated a research project to study the short- and long-term impacts of pesticide usage in oil palm plantations on soil and water contamination.

Pesticides under investigation are deltamethrin, cypermethrin and endosulfan. MARDI is also collaborating with an agrochemical company to study the environmental impact from the use of metsulfuron, a commonly used herbicide (Cheah U. B. , pers. com. ). In the last decade, there has been an increasing awareness of the use of by-products and wastes from palm oil milsl with the dual objective of reducing their environmental impacts and enhancing the economic viability of the crop. Teoh & Chia (1993) reviewed the recycling aspects of oil palm cultivation and palm oil processing and provided an indication of the present and future use of oil palm biomass.

Gurmit (1999) gave an updated level of biomass utilization (Table 17), current applications being mainly for organic fertilisers and fuel. The ultimate aim is towards zero waste and producing value added products in the process (Yusof and Ariffin, 1996). Abdul Rahman (1996) provided the vision and road map for maximising the utilisation of oil palm biomass through the zero emissions philosophy. 28 Table 17: Level of Utilisation of Oil Palm Biomass Residues in Malaysia (1998) Quantity Quantity Produced Utilised (million tonnes) (million tonnes) 27. 20 1. 38 25. 83 1. 10 % Utilisation 95 80 Method of Utilisation Mulch Mulch Biomass Pruned fronds Trunks & fronds at replanting Fibre Shell POME 3. 56 2. 41 1. 43 3. 0 2. 17 0. 50 90 90 35 Fuel Fuel Nutrient source & organic fertiliser Mulch & bunch ash EFB Total 3. 38 39. 36 2. 20 35. 00 Level of utilisation = 89% 65 Source: Gurmit (1999) Compared with other major seed oil crops, oil palm is more efficient in utilisation of land resources and inputs such as fertiliser and energy and is less polluting to the environment. As discussed in Section 2. 1. 1, (Table 2) production of palm oil per hectare is seven times more than that of soybean. Wood and Corley (1991) showed that the output:input energy value for oil palm was 9. 5 times for oil palm compared with 3. 0 and 2. 5 for rapeseed and soybean respectively.

A FAO study cited by Pusparajah (1998) showed that oil palm has a lower requirement of nutrients (nitrogen and phosphates) and pesticides/herbicides per tonne oil than soybean, sunflower and rapeseed (Table 18). It also has the lowest soil and water emissions in respect of nitrogen, phosphorus and pesticides/herbicides. 29 Table 18: Input–output in Cultivating Oil Palm and Oilseeds Inputs per tonne of oil by crop Item and unit Palm oil Seed/fruit for extraction (kg) Inputs i. Nitrogen (kg N) ii. Phosphate (kg P 2 05 ) iii. Pesticides and herbicides (kg) iv. Others (kg) v. Energy (Gj) Outputs a) Emission to soil and water i. Nitrogen ii. Phosphates iii.

Pesticides/herbicides b) Emission to air (kg) – NOx – SO – CO – Pesticides/herbicides 4500* Soybean oil 5000 Sunflower oil 2500 Rapeseed oil 2500 47 8 2 88 0. 5 315 77 29 117 2. 9 96 72 28 150 0. 2 99 42 11 124 0. 7 5 2 0. 4 32 23 23 10 22 22 10 13 9 0. 5 0. 2 32 0. 1 4 2 205 6 0. 3 0. 1 16 6 0. 8 0. 2 50 2 Source: FAO (1996) as cited by Pushparajah (1998) *Fruit bunches 2. 3. 3 Environmental Management in Plantations Although the discussion in the preceding section shows that the oil palm industry as a whole has a favourable environmental profile, particularly when compared with the major seed oil crops, there is much scope for improving the environmental performance of individual plantations.

For instance, black smoke emission by palm oil mills continues to remain a problem; the level of compliance to the relevant environmental regulations is estimated to be about only 50–60%. There is also concern that zero burning has not been practised by many estates in Sabah and Sarawak (Rosnani, pers. com. ). Although the level of regulatory compliance in respect of discharge of treated effluents into waterways is generally good (above 90%), some mills in more remote areas of Sabah and Sarawak are not able to comply. The Department of Environment (DOE) hope to achieve 100% compliance in the year 2000. Public complaints sent to the DOE provide further evidence of the need for the palm oil industry to improve its environmental performance (Table 19). 30

Table 19: Public Complaints on Air and Water Pollution 1997 Pollution Palm Oil Mills Air Pollution Water Pollution 80 (2. 5%) 17 (4. 5%) Total Complaints 3,355 382 Palm Oil Mills 35 (1. 8%) 18 (4. 8%) Total Complaints 1,995 377 1998 Source: Dept. of Environment (1997, 1998) Based on interviews conducted during the course of this study, companies generally do not adopt a systematic and holistic approach towards environmental management that involves the whole company. There is no assurance that the numerous sustainable plantation practices developed over the years are applied through the industry; the extent and effectiveness of their implementation is dependent on the level of commitment and competence of the man on the ground — the planter.

It is to be noted that labour shortages and rising costs may make it more difficult to apply some of the good practices such as the establishment and maintenance of leguminous cover crops for ground protection and enhancement of soil fertility. Companies that have put in place an environmental management process have a clear commitment to improve their environmental performance, two examples being Palmol Plantations Sdn. Berhad (a subsidiary of Unilever) and Golden Hope Plantations Berhad. Palmol’s commitment is a reflection of Unilever’s global policy to improve the sustainability of their operations by minimising the “environmental imprint” of their activities throughout the world (Anderson, 1997).

In the environmental policy of Golden Hope that has been published in its corporate annual reports, the company declares that “We at Golden Hope recognise our responsibility to safeguard the environment in the course of conducting our business operations will be a primary consideration in all aspects and at all stages of our business”. Effective implementation of environmental management requires proactive leadership and involvement of top management. These two companies have established appropriate structures to make this happen. Palmol Plantations have a Sustainable Agriculture Committee with its membership comprising the Managing Director and Heads of all departments including Human Resources and support services (V. Rao, pers. com. ), while Golden Hope has the Quality and Environment Council (QAEC) which is headed by the Group Chief Executive.

The QAEC is responsible for spearheading and implementating the Grou