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Oil Palm Growers May Profit Under Rainforest Protection Accord
2010-11-24 00:00:01.0 GMT
By Jeremy van Loon and Claire Leow
Nov. 24 (Bloomberg) -- When United Nations climate
negotiators meet next week in Mexico and debate protecting
tropical rainforests, Golden Agri-Resources Ltd. and rival oil-
palm growers in Southeast Asia will be paying attention.
Any UN-led accord that restricts clearing rainforest for
planting more palm trees would limit the supply of the edible
oil crushed from their fruit and be a boon to prices for
growers, said Dorab Mistry, a director at oil trader Godrej
International Ltd. More than 80 percent of the world's palm oil
comes from the rainforest nations of Malaysia and Indonesia.
"It's a no-brainer that such exercises are bullish for
prices," said Mistry, who has traded edible oils for more than
30 years. Global supply of edible oils will fail to keep pace
with demand for a third year, he said in an interview.
Palm oil climbed to a two-year high this year as more
consumers and companies used the substance in cooking,
detergents, cosmetics and biodiesel. The boom has helped destroy
rainforests as growers expanded plantations of the 20-meter
(66-foot) trees.
Because equatorial forests store more carbon dioxide than
most other vegetation on earth, UN negotiators have said saving
tropical trees is essential to a global effort to limit the man-
made greenhouse gas linked to global warming.
Wilmar International Ltd., the world's largest palm oil
trader, as well as producers PT Astra Agro Lestari of Indonesia,
Singapore-traded Golden Agri and Kuala Lumpur-based Sime Darby
Bhd. operate in the regions that might benefit from a global
agreement on tropical forestry protection.
Cancun Talks
Delegates from 194 countries who will meet at UN climate
talks through Dec. 10 in Cancun, Mexico, are closer to drawing
up an accord on tropical forests than on other issues, said
Gerald Steindlegger, policy director for the forest carbon
initiative in Vienna for environment group WWF.
Reducing emissions from deforestation and degradation,
known as REDD, is "ripe for an agreement," said Steindlegger,
as delegates may want to highlight a breakthrough on
deforestation as proof of success at the Mexican meeting.
Global forests contain an estimated 638 gigatons of carbon,
more than all the carbon in the earth's atmosphere, the UN
Framework Convention on Climate Change, which sponsors the
talks, said on its website. One gigaton is a billion tons.
Supplies of edible oils from soybeans, palms, coconuts,
groundnuts, cotton, rapeseed and sunflower will rise by 3.5
million tons in the year to September 2011, while demand may
rise as much as 5 million tons, Godrej's Mistry said.
Palm oil has gained about 17 percent this year and closed
on Nov. 23 at 3,115 Malaysian ringgit ($993) a metric ton in
Kuala Lumpur, according Bloomberg data.
Supply Pinch
UN-sponsored limits on the use of forest land will likely
put the brakes on expansion of the palm oil industry and fuel
rising prices, said Carl Bek-Nielsen, vice chairman of Teluk
Intan, Malaysia-based United Plantations Bhd.
"If more oil can't be produced, then what is there will
become more valuable," Bek-Nielsen said in a Nov. 17 interview
in London. "If someone could wave a magic wand and not a single
tree would fall down in the next 20 years, food prices are going
to explode."
Limits to expansion are already under way. In Malaysia,
growth will have to come from improving productivity because 58
percent of the country is forested and the government has a
commitment to maintain at least half of all land as natural
forest, Plantation Industries and Commodities Minister Bernard
Dompok said on Nov. 17 in London.
"I do not see any further large-scale planting of oil palm
in Malaysia," Dompok said.
Raising Yields, Replanting
Analysts agree. Future growth for Golden-Agri, based in
Singapore, will come from raising yields by replacing trees that
have outlived their useful lives, said Ben Santoso, a plantation
analyst at DBSVickers Securities (Singapore) Ltd. on Nov. 8.
Replanting reduces supply and supports prices because oil
palms take three years to mature and produce oil, he added.
Wetter weather than usual this year has hindered replanting
groves in Indonesia and Malaysia and helped prop up prices.
With most of the world's palm oil coming from Malaysia and
Indonesia, destruction of their rainforests raised the ire of
environmental and non-governmental organizations. One NGO, WWF,
seeks to end deforestation and protect habitats of endangered
species such as the orangutan and Sumatran rhinoceros.
"We want to plant as much as possible," Kuok Khoon Hong,
chief executive officer of Wilmar, said on Nov. 10. "Now with
NGOs so active, it is difficult. In the past, you get the land
and you start to plant. Now everything is slower as we need
licenses."
Biodiesel Demand
Growers also want to meet demand for biodiesel, one of the
few alternatives to fossil fuels that can power heavy trucks.
The pressure to increase palm oil supply will rise because it's
suitable for biofuels, said James Fry, managing director of LMC
International. The company studies the economics of edible oils
and their meal residue, which can be used as livestock feed.
"Biofuel policies add to oil demand without lifting meal
demand," Fry said by e-mail. "Biofuels have tipped the market
balance towards crops high in oil and low in meal. Oil palm is
the ideal crop to meet the market's new needs."
Oil palms produce 8 tons of oil for each ton of meal, while
soybeans produce 0.25 tons of oil per ton of meal, he said.
About 2 percent of the 302,149 hectares of Amazon forest
destroyed in Brazil's states of Mato Grosso, Para and Rondonia
can be attributed to soybean planting, a July survey
commissioned by Brazil's Environment Ministry and trading
companies showed. The three states are the largest producers of
the oilseed in the Amazon region.
Amazon Destruction
To inhibit soybean planting in the Amazon, trading
companies that handle about 90 percent of the crop in Brazil
agreed to ban sales of the oilseed illegally grown in the
rainforest. The agreement between companies, the Environment
Ministry and non-government organizations was signed in 2006 and
renewed each year since.
Restrictions on forest clearing are already being felt in
Indonesia where the government in May agreed to a two-year
moratorium on logging and clearing of forests, with $1 billion
in aid from Norway.
Restricted expansion of oil palm plantations "will have
profound implications for price behavior," said Mistry, who
correctly predicted in March that prices would exceed 3,000
ringgit ($962) a ton on supply constraints. "The world must be
braced for much higher prices in the years to come."
For Related News and Information:
Stories on palm oil markets: TNI PALMOIL AGMARKET BN <GO>
Stories on energy from agriculture: TNI AGR ALTNRG BN <GO>
Commodity arbitrage calculator: CARC <GO>
Bloomberg weather data by region: WETR <GO>
Forestry stories: TNI PAP ENV <GO>
Top environment, renewable energy page: GREEN <GO>
Most-read environment stories: MNI ENV <GO>
Climate-change news: NI CLIMATE <GO>
--With reporting by Alex Morales in London. Editors: Todd
White, Reed Landberg, Peter Langan
To contact the reporters on this story:
Jeremy van Loon in Berlin at +49-30-70010-6231 or
jvanloon@bloomberg.net;
Claire Leow in Singapore at +65-6212-1153 or
cleow@bloomberg.net
To contact the editor responsible for this story:
Reed Landberg at +44-20-7330-7862 or
landberg@bloomberg.net
