By Dorab E Mistry
The palm oil industry has come a long way towards improving its practices and to embracing Sustainability in a whole hearted and committed manner.

The rise of the Sustainability Movement is entirely justified and not before time. Many of us unreservedly applaud the work that NGOs have undertaken and welcome the spirit of Partnership that the RSPO has fostered between Consumers and Growers.

One direct consequence of this Partnership is the greater attention being paid in Indonesia, Malaysia, Papua New Guinea, and even here in Latin America to selection of land for new plantations. This process of land selection has slowed down the expansion of plantation areas from an annual growth of almost 600,000 hectares at peak to about 250,000 hectares today. This slowdown in growth has profound implications of future world supply of Palm Oil in particular and of vegetable oils overall.

Market Developments so far
Many of you will recall that as early as 4 December 2009 at the Gapki conference in Bali, I sounded the alarm on prospects for CPO production in 2010. I explained this more fully in my POC paper in March this year and forecast that for the first time in history, we shall see two consecutive years of production decline in Malaysia. My estimate of 9 March was for Malaysia to produce only about 17.2 million tonnes of CPO as compared with 17.556 mln mt in 2009 and 17.727 million tonnes in 2008.

I had further stated that Indonesian CPO production will rise only on account of expansion of mature acreage and that production will rise at best by 1million tonnes in 2010.

My CPO production estimates were ridiculed and ignored by most commentators who were churning out wildly optimistic estimates for Malaysia with figures like 18.1 and 18.6 million tonnes.

Most commentators were relying on a continuation of big growth in Indonesia and were blandly predicting annual growth in world CPO production of 2 to 2.5 million tonnes. Even as recently as June, most commentators were happily predicting each month, a 10 to 15 percent growth in CPO production month-on-month.

As a consequence of very bad outside markets and the over-optimistic projections of CPO growth, CPO prices on the Bursa Malaysia Derivative fell from around 2600 Ringgits to a low point of 2250 Ringgits between April and June. From July onwards some sanity has begun to prevail as month after month, our so-called experts were proved wrong and CPO production failed to expand.

All 3 predictions have come good
I am very pleased that all 3 of my forecasts are coming right. Firstly, the El Nino of 2009 is impacting the production of palm trees in 2010, just as I had predicted.

Secondly, my pain-staking research on the biological cycle of the palm tree, studied in conjunction with regional patterns over several sub-divisions in the Malaysia-Indonesia belt has once again proved to be correct. This cycle has so far been proved right at each juncture and that fact alone gives me much satisfaction. Research is hard work and time consuming.

I consider myself very fortunate to be part of the remarkable Godrej organisation where the motto has always been Excellence with Integrity. I have the opportunity to indulge in my passion for research no matter how much time and effort it takes and to speak my mind honestly and fearlessly. I believe the biological cycle, studied in conjunction with key variables like rainfall, temperature and fertiliser sales, gives the most accurate signal of CPO production performance.
Thirdly, my forecast that the U S Dollar must begin to weaken from July onwards also proved to be accurate almost to the day.

As a result we have seen a strong catch-up rally in world vegetable oil prices and particularly in palm oil prices.

At this juncture, I wish to reiterate that I stand by my forecast of Malaysian CPO production in 2010 at 17.2 million tonnes. CPO production during the Ramadan period will be flat to lower and recovery will have to wait until October.

Indonesian CPO production has also disappointed and I feel compelled to reduce my forecast of growth to just 500,000 tonnes for 2010. Hence overall, for 2010, I am now forecasting Zero Growth in world palm oil production.

Market Outlook for sustainable palm
In my opinion our aim should be for all Palm oil produced in every corner of the world to be Sustainable Palm Oil. Sustainability is not an option anymore. The plantation sector needs to embrace sustainable practices whole-heartedly and to get its production duly certified.

It is a matter of great satisfaction to note that within less than 7 years of the formation of the RSPO, we have built up a capacity for 2.5 million tonnes of Sustainable Palm Oil and of this almost 1 million tonnes has been taken up by consumers. The trading platform for GREEN PALM OIL is working well and that is reflected in the declining premium expected by growers.

I have 2 suggestions to offer:
My first suggestion is that once we get to a Sustainable Palm Oil capacity of 5 million tonnes, suppliers should offer to supply Sustainable Palm Oil at a nominal or token premium of just USD 1 per tonne.

In the last 2 months, palm oil prices have moved higher by over USD 100 per tonne and are currently in the region of USD 850 pmt locally. At this price level, the production of palm oil is quite rewarding to the growers and there is no need to charge a further premium for Sustainable Palm Oil.

This will be the quickest way for the industry to put its money where its mouth is and to convert the world to Sustainable Palm Oil. Let the industry not wait for its customers to come forward and demand Green Palm Oil. Let each customer have no reason whatsoever to refuse to use Green Palm Oil. I believe this is enlightened self interest and it will be the biggest positive statement made by the plantation sector in recent years. This single act will expand the market for palm oil and destroy all negative perceptions about palm oil cultivation.

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