Beyond Oil Palm Sector Finds New Value In Bio Mass And Sustainability

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Planters are now investing more to not only enhance estate productivity but also to optimise by-products from the oil palm tree. Ageing trees, labour constraints and the spread of diseases are some of reasons for falling fresh fruit bunch (FFB) yields in recent years as reported by FAO. 
“More modern and efficient mills could be a reason for better oil extraction but newer planting materials with higher oil content rather than heavier FFB could also be a factor,” said Kenanga. 
As such seeds often sacrifice palm kernel (PK) for more crude palm oil (CPO) yields, PK yields have indeed moderated somewhat over the past decade.
More significantly, IOI, KLK, United Malacca and United Plantations are now prepared to re-plant with 10%-40% of clonal planting materials which can cost 10x more than seeds to improve yields from existing land banks. 
Meanwhile, SDG and GENP have invested in genomic technology to cut development time for seeds, improve yields at competitive prices for even the smaller-holders.
Further automation can be expected ahead driven by a shrinking pool of workers and rising wages while new tools, implements and vehicles are being introduced and tested. Abundant energy from the capture of palm oil mill effluent (or POME) bio-gas over together with the traditional solid bio-fuel (fibres and shells) generated by the POM may nudge the upstream operation further.

IOI has started with a hundred electric powered infield collection vehicles and discovered them as cheaper to maintain with lower emission compared to its old diesel fleet.
Oil palm is widely known as the most productive oil crop in the world. Lesser known is that the tree produces more bio-mass than it does oil. As an example, after processing FFB, a typical POM will produce 5x more palm bio-mass than palm oil and this ignores the bio-mass left out in the field.
Fortunately, most of the bio-mass is already being re-used by the estates or POMs. Fronds, for example, is re-used as mulch to retain moist in the field as well as to re-claim its nutrients. However, a bio-mass that is still not fully exploited is POME bio-gas.
“Even so, a third of the 451 POMs in Malaysia are already capturing POME bio-gas which is environmentally unfriendly but energy rich. Comprising 50%-75% methane, many mills use the bio-gas to generate steam and electricity for internal use with excess electricity sold to the grid,” said Kenanga.
A few POMs are starting to process and condense the bio-gas to market as compressed natural gas (CNG). As monetisation options broaden, more POMs are expected to invest in facilities to capture otherwise wasted and harmful bio-gas.
Planters can be recognised for re-using most of the sector’s bio-mass. However, some bio-mass can now be more valuable than previously appreciated. IOI Palm Wood is an attempt to convert oil palm trunks (OPTs) into environmentally friendlier and sustainable wood panels for the furniture and door making industries.
A new product, patience is needed for “palm wood” to refine the end-product, gain certification and market acceptance. Otherwise, OPT is often just left in the field to de-compose and reduce some application fertiliser.
Another bio-mass often spread in the field to claw back some of the nutrients is Empty Fruit Bunch (EFB). Nextgreen Group Berhad (NGGB, Not Rated) together with IOI and China’s Xiamen C&D Corp (XND) are setting up a 180,000MT EFB-to-pulp plant in Pekan, Pahang.

NGGB is already running a pilot plant (10,000MT) successfully. After over half a century of rapid expansion, SE Asia’s oil palm sector is slowing down. Essential factors of production such as land and labour are getting limited.
Fortunately, many larger players are well capitalised and have invested to raise productivity and efficiency, even if the pace could have been faster.
“Looking ahead, we expect such investment momentum to pick up, partly out of necessity (due to limited land and labour) but also for better returns in the case of maximising the value of oil palm bio-mass,” said Kenanga. 
Overall, upstream earnings should stay healthy with downstream niche playing a bigger role (as bulk downstream continues to face over capacity) and non-plantation earnings such as real estate and renewable energy set to grow. 
With the likelihood of a strong CY25, easier-to-flattish sector earnings are expected for CY26 but healthy profits should still prevail. Larger integrated players are diversifying beyond palm oil into property, renewables energy and even palm bio-mass (with independent market and price cycle from the edible oil segment) in search of growth while many non-integrated ones have re-built their balance sheet substantially. — Focus Malaysia

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