Impact of Covid-19 on MPO Industry in 2020 – A Review

The Covid-19 pandemic has posed a major impact on vegetable oils demand, including palm oil. On the global level, the worldwide lockdowns called by many countries have resulted in the closing-down of businesses that include food preparation and the transportation industry. The new norm has changed the eating habits of consumers to household consumption, as opposed to dining out at restaurants and cafes. Edible oil retailers are taking advantage of the situation by selling smaller vegetable oils packs to consumers in light of reduced demand from restaurants.

As for Malaysia, the pandemic also has a significant impact on the productivity of palm oil. This has resulted in a disruption of the palm oil supply chain. Malaysian palm oil sector relies heavily on foreign labour. Only 30% of the plantation workforce are Malaysians. So the travel restrictions imposed to prevent the spread of Covid-19 has caused labour shortages at the country’s oil palm plantations. According to Reuters, the Malaysian government in May 2020 stated that the country’s plantation industry, including oil palm, was short by 500,000 workers as recruitment activities stalled. This has resulted in lower palm oil production which went down 3.8% to 19.14 million MT in 2020 from 19.85 million MT recorded in 2019.

The export also has seen a considerable decline of 1.1 Million MT. In the year 2020, the total export of Malaysian palm oil is 17.37Million MT compared to 18.47 Million MT in 2019.  Movement control across the world reduced the usage of fuel dramatically. On top of that, the crude oil crash in early March 2020 has made the discretionary blending not viable. The reducing demand biofuel, together with the HoReCa Sector, curtailed the export of palm oil across the world.

Sustaining the Impacts – Locally and Globally

Being an important contributor to the Malaysian economy, it is imperative to sustain the palm oil industry in the long run. From the local industry’s perspective, the industry needs to continue to improve the oil palm productivity and yield to cater to the global demand. That being said, it is also crucial for the industry to continuously explore and promote market growth and expansion. 

Shifting from products of less demand to products of high demand during this pandemic will aid in sustaining the palm oil market amid the current situation. While many restaurants lost businesses due to COVID-19, packed foods are at a higher demand.  Specifically, the instant noodles market in China saw a soaring boost in demand due to the movement control orders and panic stockpiling. Tingyi Holding, the mainland producer of China’s top-selling Master Kong instant noodle brand, saw a 58.4% increase in net profit within the first half of 2020. Enhancing research to increase the usage of Malaysian palm oil products, especially red palm oil, in the food manufacturing sector, to prepare packed food such as instant noodles, frozen foods and various snacks should be the next strategy to focus.

Personal hygiene is given more weight these days with specific importance given to hand washing. Soaps and hand sanitisers saw an increasing demand worldwide after the outbreak of COVID-19. The World Health Organization (WHO), Centers for Disease Control and Prevention (CDC), Ministry of Health, Malaysia and other health organizations have emphasized on frequent hand washing to avoid the spread of COVID-19 infection. The global soap market size is projected to reach USD 55.29 billion by 2027, exhibiting 5.0% of CAGR. Malaysian palm oil players should take this opportunity to shift their business plans strategically to sustain the market, both locally and globally. 

Indonesian palm oil is at a price point advantage compared to Malaysian palm oil due to the increased availability of Indonesian palm oil. To aid the Malaysian palm oil market and the economy, Malaysia should look into the current export duty for CPO, CPKO and PPKO to be favourable to the importing countries by exercising more trade deals. This will create a fair and common ground for Malaysian players to be able to compete with Indonesian palm oil suppliers and sustain in the global market. The effect of last year’s export duty exemption was reflected in Kenya, with MPO imports of 520,758 MT in 2020, a sharp increase of 170% from 2019. 

Initiatives to Sustain the Growth

On a global perspective, there is a need to address issues raised by international NGOs with regards to health and social concerns. It is important to showcase the Malaysian efforts to adhere to international regulations especially on sustainability, human rights, and wildlife conservation.  These issues need to be addressed to ensure the acceptance of Malaysian palm oil globally. The Malaysian government has over time demonstrated its commitment towards policies for sustainable cultivation of oil palm. Total oil palm cultivation area is capped at 6.5 million hectares. No new planting of oil palm in peatland areas and conversion of permanent forest reserved areas for oil palm cultivation is banned. Oil palm plantation maps are to be made available for public access in a bid to demonstrate further transparency in the supply chain. The Malaysian government is also committed to improving productivity and yield rather than resorting to land expansion. Emphasis is placed on genome technology for better seedling, the formation of efficient fertiliser and pest diseases control as well as automation and mechanisation.

The Malaysian Sustainable Palm Oil Certification, introduced in 2013 was developed based on domestic laws and regulations as well as international sustainability requirements. The certification takes into consideration the welfare and ability of smallholders in obtaining sustainable palm oil certification. As of December 2020, 5.1 million (88.12%) of 5.9 million hectares of oil palm planted areas has been MSPO certified. At the same time, 432 of 452 palm oil mills (95.53%) have also been certified. More than 100 roadshows under the ‘Jelajah MSPO’ education programme have been conducted nationwide. The programme aims to create awareness on the importance and benefits of obtaining MSPO certification in collaboration with relevant stakeholders such as the NGOs.

Another aspect that is placed of highest importance is forest and wildlife conservation by the industry. The Malaysian Palm Oil Green Conservation Fund (MPOGC) was incorporated on 19 February 2020 to support conservation projects in environment and wildlife. Under the present on-going programmes, 1 million forest trees will be planted in the next few years in Lahad Datu, Sabah. The Orangutan Population Census and Pygmy Elephants programme is a collaboration between the Malaysian Palm Oil Council (MPOC) and the Sabah State Government.   

The National Biodiesel Programme under The National Biofuel Policy aims to expand the use of downstream products and become an initiative to increase the income of oil palm smallholders through palm oil market price control mechanisms. In line with the government’s aspiration to reduce greenhouse gas (GHG) emissions, the biodiesel programme aims to achieve a GHG emission reduction target of 45% by 2030. The biodiesel programme is also seen to help the country’s dependence on fossil fuels as one of the energy security incentives.

In ensuring the sustenance of the palm oil industry, Malaysia has also placed a commitment to international cooperation and collaboration with other palm oil-producing countries under the CPOPC umbrella. One important objective of this collaboration is to protect and promote the industry for the benefits of all stakeholders. At the same time, the cooperation has enabled Malaysia and other countries to develop and establish a global framework of principles for sustainable palm oil. Malaysia is also working closely with major palm oil consuming countries such as the Netherlands, France and China. On-going discussions with other countries, namely the United Kingdom and other EU member states as well as other countries from different regions are also taking place under different collaborative platforms.

The Free Trade Agreements (FTAs) are also an important element in strengthening bilateral relations with other countries with the latest being the Regional Comprehensive Economic Partnership Agreement which was signed on 23 November 2020.

Moving forward, Malaysia has placed selected key focus areas to guide the development and growth of the palm oil industry for the next 10 years that includes productivity, sustainability, inclusiveness, value creation and market development. Other emphases, such as positioning palm oil in new emerging markets, continuous engagements on dispelling the misconceptions on palm oil, dissemination of accurate information on palm oil health attributes, its various and versatile applications, economic contributions and workers’ well-being will continue to be on the agenda for 2021 onwards. These initiatives are pivotal in maintaining the reliability of Malaysian palm oil, the industry’s efficiency as well as its credibility in ensuring its contribution to the world’s food security.

Prepared by: Azriyah Azian, Karthigayen Selva Kumar  & Theventharan Batumalai

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