'Belt and Road' revival in Malaysia: Sime Darby and COFCO ink agreement over palm oil

By Pearly Neo

- Last updated on GMT

Palm oil currently takes the global top spot for plant oils in terms of production, consumption and trade volume. ©Getty Images
Palm oil currently takes the global top spot for plant oils in terms of production, consumption and trade volume. ©Getty Images

Related tags Malaysia China Palm oil Sime darby

Malaysia’s Sime Darby Plantation (SDP) and China’s COFCO Group Co. Ltd. (COFCO) are joining forces to collaborate over palm oil related ventures and boost trade between the two nations.

The newly-signed MOU includes a joint research project on the health benefits of palm oil products such as palm tocotrienol, red palm olein, and palm kernel oil.

It also extends to the manufacturing of specialty oils and fats, as well as collaborative sales and marketing efforts over high-value differentiated palm oil products in China.

“This memorandum of understanding truly reflects our aspiration to be the leader in promoting the health benefits of palm oil and to produce certified-sustainable, high value palm oil products for the global market,”​ said Tan Sri Dato’ Seri Mohd Bakke Salleh, SDP executive deputy chairman and managing director.
“We look forward to seeing the positive results of combining Sime Darby Plantation R&D capabilities with COFCO’s expertise in advanced health-based food research,”​ he added.

SDP is currently the world’s largest producer of Certified Sustainable Palm Oil (CSPO) as well as the largest palm oil plantation corporation (in terms of plantation acreage) worldwide. It is also one of Malaysia’s biggest state-owned enterprises.

In a statement, COFCO Corporation CPC leadership committee deputy secretary and president Yu Xubo acknowledged the collaboration as “an in-depth partnership to boost growth and innovation of the industry based on complementarity and win-win […] promoting practical cooperation between China and Malaysia for the joint construction of ‘Belt and Road’.”

The signing of the MOU by Tan Sri Mohd Bakke and Yu in Beijing was witnessed by Malaysian Prime Minister Tun Dr Mahathir Mohamad who was on a five-day official visit to China.

Significance in view of ‘Belt and Road’ initiative

Under the MOU, both parties are to actively support the ‘Belt and Road’ initiative with the aim of improving palm oil trade between China and Malaysia.

The initiative is a trillion-dollar effort, initiated by China leader Xi Jinping. It is a development strategy aimed at collaboration and connectivity between Eurasian countries, touted by the Chinese government as "a bid to enhance regional connectivity and embrace a brighter future"​.

Tun Mahathir’s presence at the ceremony is significant mainly because the 93-year-old premier has previously vilified the ‘Belt and Road’ initiative as “a new version of colonialism”​, that should be prevented from occurring just because “poor countries are unable to compete with rich countries”​.

Since winning the Malaysian general elections in May 2018, Tun Mahathir has already pushed for the cancellation of several China-funded projects. This includes the US$ 27 billion (RM 111 billion) East Coast Rail Link, the flagship project of the ‘Belt and Road’ infrastructure push by China in Malaysia.

Work has also been halted on two more China Petroleum Pipeline Bureau projects worth over US$ 3.1 billion (RM 12.7 billion). These were linked to corruption via controversial state fund 1MDB.

Whether or not Tun Mahathir’s presence at the ceremony signifies diminished resistance to ‘Belt and Road’ when it comes to trade remains to be seen.

Palm oil on a global scale

The MOU comes after a recent report by experts predicted a rise in palm oil prices​ following a drop in production from the world’s biggest producers, Malaysia and Indonesia.

The drop is expected to take place between 2022 and 2025 as a result of declining yield from ageing palm plantations.

“Typically, it takes four years for palm to become commercially viable, yielding close to 10 tonnes of Fresh Fruit Bunches (FFB) per hectare. It reaches its peak between nine and 17 years, and yields above 25 tonnes of FFB per hectare,”​ said Rabobank senior analyst of grains, oilseeds, food and agribusiness Oscar Tjakra.

“Currently in Malaysia and Indonesia, we estimate that about 36% and 9% of palm are older than 25 years,”​ he added.

Palm oil currently takes the global top spot for plant oils in terms of production, consumption and trade volume.

Malaysian palm oil production accounts for 39% of global supply, and the country also makes up 44% of palm oil exports worldwide.

China is Malaysia’s second biggest palm oil export destination, and the world’s largest palm oil importer. The sovereign state recently established The China Sustainable Palm Oil Alliance​, comprising big food firms such as Mars and Cargill, aiming to promote palm oil sustainability.

At present, only 1% of the palm oil imported into China is classified as sustainable by the Roundtable for Sustainable Palm Oil (RSPO).

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