Analysis: SE Asia eyes palm oil

Indonesia and Malaysia, in particular, are increasing their production of palm oil -- traditionally used in food, hair and other products -- it can also fuel vehicles and generators -- in hopes that world demand for renewable fuel sources will continue to grow despite recent dips in oil prices.

Myanmar, the Philippines and Thailand are also reportedly keen on entering the market and are planning to create new biofuel plantations in the coming years.

"If oil prices remain high, palm oil could be a big break-out export for both countries," Edward Yu, an international oil seed analyst at the Food and Agricultural Policy Research Institute at Iowa State University, told United Press International.

Banking on continued oil price inflation, Indonesian and Malaysian leaders are taking the most aggressive approach among their Southeast Asian counterparts, inaugurating ambitious new plans for augmenting their respective palm oil outputs.

Earlier this year, Indonesian President Susilo Bambang Yudhoyono pledged $110 million to his country's farmers to assist them in the planting of palm trees and other biofuel crops. Indonesia's Research and Technology Minister Kusmayanto Kadiman recently announced that his ministry was planning to build four biodiesel plants at a total cost of $33 million and increase crop development to a half million hectares per year.

Kadiman said the government was prepared to spend a total of $1 billion to achieve its goal.

Due to government intervention at state-owned gas stations, Indonesia's own biofuels are slightly cheaper than fossil fuel diesel. Without the government's hand, biofuels and blends containing renewable energy sources and petroleum would actually cost consumers more at this stage of the industry's infancy.

"The biggest impediment of biofuel popularization is its higher price than conventional fuel," wrote Tomohide Sugino, a project leader for the U.N. Center for Alleviation of Poverty through Secondary Crops' Development in Asia and the Pacific, in a Jakarta Post newspaper commentary published earlier this year.

"Roughly speaking, the production cost of biofuel is twice as much as gasoline (...) the forerunners who have successfully increased biofuel consumption have provided tax exemptions or subsidies to their biofuel producers."

Much like when Brazil subsidized its then-nascent ethanol industry in the 1970s, Indonesia is hopeful that a dose of federal assistance will get the sector up and running. Then, with time and a growing worldwide demand for alternatives to oil, the biofuel industry will be ready to stand on its own feet.

Meanwhile, Malaysia has already approved the construction of 52 new biofuel processing plants, and starting next month, will begin mixing 5 percent biofuels with its diesel. Leaders there say that amount will eventually be increased to 20 percent.

The mixture initiative is part of a larger Malaysian proposal to reduce the country's dependence on fossil fuel and increase the competitiveness of its own palm oil sector.

Both nations' collective fuel ambition has already received a boost from the palm oil food product industry, which in recent years has grown by more than 25 percent. Malaysia has increased palm oil yield from 11.8 million metric tons in 2001, to a projected 15.9 million metric tons this year.

During the same period, Indonesia experienced even greater growth. In 2001, Indonesia produced 9.2 million metric tons of the oil, with a projected yield increase to 16.3 million metric tons by the end of this year.

Though both countries continue to increase their palm output, they do differ in their ratio of usage. Malaysia, for example, cultivates 70 percent of its crop for industrial uses, including household products as well as fuel, while the remainder goes into food products. As for Indonesia, the reverse is true, with 30 percent used for fuels and other industrial products.

Not everyone, however, is as keen on palm oil production as the Southeast Asians.

While regional leaders and growers hail palm oil and other biofuel crops as economic saviors, some are convinced the industry will eventually open a Pandora's box of starvation, animal extinction and other environmental disasters.

Indonesia and Malaysia argue that expanding palm oil production means planting more crops, which in turn could add a million more jobs. Critics counter that by increasing palm oil acreage, other crops like cocoa and rubber must be reduced, costing jobs in those respective sectors, and thereby shifting the work force from one crop to another without real change to the employment rate.

Another criticism of the palm oil boom stems from its recent price hike due to rising fuel demand. This has made it prohibitively expensive for the poorer segments of the population, who rely on palm oil for cooking and as a component to many basic food items sold in supermarkets.

Corruption among officials in those countries intent on expanding the biofuel sector -- and willing to give companies the green light to clear large tracks of land to do it -- is another concern expressed by critics.

"The land cost is massive and people don't realize that land is the world's scarcest resource," Dennis Avery, a senior fellow at the Washington-based Hudson Institute and director for the Center for Global Food Issues, told UPI.

"The environmental movement is now risking the very wildlife they claim to want to protect and backed the world into a ridiculous corner," Avery said. "How can these people say: 'Let's take a huge chunk of land and use it to produce automotive fuels' and still consider themselves protectors of the environment?"