Oil Palm Industry Economic Journal Vol. 11 (1) March 2011 p. 12-22

Strengthening the Malaysian Palm Oil-based Biodiesel Industry: Solving Current Issues and Impact on CPO Prices

Ayat K Ab Rahman; Ramli Abdullah; Mohd Arif Simeh; Faizah Mohd Shariff and Hamid Jaafar
Received:    Accepted:    Available Online:


The palm oil-based biodiesel industry can be considered as a ‘golden egg’ of the Malaysian palm oil supply chain. This is due to the role it plays in improving price scenario of crude palm oil (CPO) as well as creating value addition for palm oil products. This benefits all subsectors in the Malaysian palm oil supply chain. Based on the last four years scenario, total additional income received by oil palm growers was RM 20.835 billion. This scenario adds up another RM 61.50/t or 16% in support of fresh fruit bunch (FFB) prices. Meanwhile, under the Bx implementation programme, price of CPO is estimated to increase by RM 13/t if B1 programme implemented were to be. If the production of palm methyl ester (PME) increased to 0.3 million tonnes (B3) the price of CPO is expected to increase by RM 55/t. The aggressive implementation of biodiesel blending at 5% (B5) would result in the price of CPO to increase by RM 120/t. However, although still at infancy stage, the palm oil-based biodiesel industry has already faced a few challenges. These challenges can be either within the oil palm industry itself or outside the industry. The analysis on cost of PME production in 2009 shows that biodiesel industry is still not viable as producers cannot fully recover depreciation in their operation due to the problem of overcapacity. Meanwhile, the main challenge is the implementation of the Bx programme for the local market. It can be a ’key‘ to the success of the Malaysian biodiesel industry in particular and the whole industry in general. Meanwhile, the challenge from outside the market is beyond the control of the industry as it is difficult to be solved. The challenge is related to rules and regulations from importing countries in order to protect their own products. Meanwhile, palm oil industry itself should always produce palm oil products in a sustainable manner at all levels of production to ensure this industry can sustain in the future.

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