Monday, March 15, 2010

Soyoil Subsidies Create Artificial Price, Says MPOC

Soyoil is sold at a premium to palm oil owing to market-distorting agricultural subsidies given to US and European farmers by their governments, according to the Malaysian Palm Oil Council (MPOC).

It is not due to any inability of the Malaysian commodity to compete on the world stage, said MPOC chief executive officer Tan Sri Dr Yusof Basiron.

Yusof said it was difficult for palm oil to be at par with soyoil or other oils as these were being highly supported through their countries’ subsidy systems.

“So it’s not because soyoil is good that the price is high, but because of the subsidy system,” he told reporters after a roundtable discussion on the palm oil industry organised by Bernama on Thursday.

The discussion was moderated by Bernama editor-in-chief Datuk Yong Soo Heong, deputy editor-in-chief Salbiah Said and assistant editor Siti Hawa Othman.

Yusof said the subsidy system was artificially causing the price of soyoil to be higher.

On Wednesday, the US Senate passed a tax bill that included a one-year extension of the US$1 per gallon biodiesel tax credit, retroactive to Jan 1.

As reported, biodiesel production came to a virtual stop after the credit expired Dec 31 when senators could not agree on legislation that would have kept it alive.

Yusof also said the soyoil industry was crying for support in order to create good demand and high price needed by soybean farmers.

However, oil palm cannot have such a support system as there is no subsidy for palm oil in the country, he said.

“It should not be regarded that we are the discount. We are the natural price, they are the inflated price because of their subsidies,” he added.

Oil palm planters in Peninsular Malaysia have to pay windfall tax when palm oil prices go beyond RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak, however, only need to pay the windfall tax if the price crosses RM3,000 per tonne.

Yusof said even with palm oil prices between RM2,600 and RM3,000, the industry was still getting the necessary income.

“We are not complaining about the price and I think everybody will be happy getting their necessary income from this industry,” he said.

According to him, oil palm is the best crop and is also competitive as it yields 10 times more oil per hectares a year compared to soybean.

“This high yield is contributing to our competitive pricing, meaning that we can compete with those costly oils in the world market,” he said.

Yusof said that due to its competitiveness, palm oil could not be replaced by soyoil or rapeseed oil.

Currently, he said, palm oil was competing with soyoil as the prices were narrowing with palm oil having a discount of about US$100 per tonne to soyoil.

The discount was likely to narrow further and palm oil could even trade at a slight premium soon, Oilworld’s editor-in-chief Thomas Mielke said recently at the Palm & Lauric Oils Conference held here.

A record soybean harvest this year may have some dampening effect on soyoil prices as palm oil prices strengthened on bullish supply fundamentals, he said.


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