Industry Overview

8. INDUSTRY OVERVIEW 8. INDUSTRY OVERVIEW SMITH ZANDER INTERNATIONAL SDN BHD (1058’28·\1) Level 23, Premier Suite, One Mont’ Kiara, SMITH ZANDER 1 Jalan Kiara, Mont’ Kiara, 50480 Kuala Lumpur, Malaysia. T +6032785 6822 F +603 2785 6922 o2 MAY 2014 The Board of Directors BOUSTEAD PLANTATIONS BERHAD 28th Floor, Menara Boustead 69 Jalan Raja Chulan 50200 Kuala Lumpur Malaysia
Dear Sirs, Executive Summary of the Independent Market Research Report on the Palm Oil Industry in Malaysia and Edible Oils and Fats Market Globally in relation to: Initial Public Offering of up to 656,000,00’0 ordinary shares of RMO.50 each in Boustead Plantations Berhad (“BPB Shares”), comprising an offer for sale of up to 76,000,000 BPB Shares and a public issue of 580,000,000 new BPB Shares to retail and institutional investors; and II Listing of and quotation for the entire issued and paid-up share capital of Boustead Plantations Berhad on the Main Market of Bursa Malaysia Securities Berhad This Executive Summary of the Independent Market Research Report on the Palm Oil Industry in Malaysia and Edible Oils and Fats Market Globally is prepared by SMITH ZANDER INTERNATIONAL SDN BHD (“SMITH ZANDER”) for inclusion in the Prospectus of BOUSTEAD PLANTATIONS BERHAD. For and on behalf of SMITH ZANDER: ~+’-‘DENNIS TAN MANAGING PARTNER SMITH ZANDER INTERNATIONALSDN SHD 1I05B12B.vl level 23. Premier Suite. One Monl’lCiora. 1Jolon limo. Mont’ KIOfO. 50480 Kuakllumpur. Maraysla.
1 ANALYSIS OF THE PALM OIL INDUSTRY IN MALAYSIA 1.1. Definition, Segmentation and Value Chain According to the Performance Management & Delivery Unit (PEMANDU) in the 10lh Malaysian Plan, the palm oil industry is the nation’s fourth largest economic contributor and accounted for a gross national income (GNI) of RM53 billion. Palm oil and palm oil-based products are the largest export income generator in the agricultural products segment. In 2013, the exports of palm oil and PKO totalled an estimated RM48.7 billion, with China, India and Netherlands emerging as principal importers of Malaysia’s palm oiL In the year 2009, the palm oil industry formed 3.3% of Malaysia’s GDP with a contribution of RM17 billion. The value chain of the palm oil industry focuses on the activities of cultivating oil palm crops, processing of FFBs and processing/refining of refined, bleached and deodorised (RBD) palm oil and PKO into edible oils and fats, oleochemicals and biodieseL • Cultivation of oil palm crops The commercial cultivation of oil palm bears FFBs of oilseeds. FFBs are harvested from crops which mature apprOXimately three years from planting, and mature crops typically remain economically productive for up to 25 to 30 years. This crop thrives in tropical climate countries within 10° to 20° off the equator line, where there is litlle seasonal variations and constant temperature, humidity, rainfall and sunlight. As a result, 011 palm is largely cultivated in countries in Asia, Africa, Central America and South America, as well as certain parts of the Oceania region. Malaysia’s first commercial oil palm plantation was the Tennamaram Estate in Selangor andthis plantation was established and operated by British plantation owners. The increasing demand for
palm oil products and supporting Government initiatives spurred the development of plantation development in Malaysia.
• Processing of FFBs Harvested FFBs are processed in a mill where these oilseeds undergo processes such as sterilisation, threshing and pressing. These processes lead to the extraction of CPO from the mesocarp, and palm kernel from nut shells. CPKO is produced from crushed and refined palm kemeL The by-product of these processes results In EFBs which are typically used as feedstock

for biomass boilers to power mill operations, and as compost in the production of biofertilisers for plantations. Refining and fractionation of CPO is required to produce RBD palm oil, liquid RBD palm olein and solid RBD palm stearin in refineries, which are collectively referred to as palm oiL Further refining and fractionation of CPKO produces RBD PKO, liquid RBD palm kernel olein and solid RBD palm kemel stearin, which are collectively referred to as PKO. • Processing/refining of RBO palm oil and PKO into edible oils and fats, oleochemicals and
biodiesel Palm oil and PKO products are used in different end-user industry applications due to their differing physical and chemical properties. While palm oil products are largely used in various food applications, PKO products which naturally have high contents of lauric acid are more typically used as intermediary raw materials in the production of oleochemicals. Palm oil is also used as feedstock for biodiesel in fuelling automobiles.
• Value add processing, packing and marketing of downstream consumer and industrial

products This segment of the value chain has industry piayers involved in the value add processing, packing and marketing of palm oil-based consumer and industrial finished products. This segment plays an important role in national economies, as it complements the palm oil processors and –

Palm oil industry in Malaysia – industry value chain
Source: Extracted from the independent market research report prepared by SMITH ZANDER
Company No.: 1245-M 8. INDUSTRY OVERVIEW (Cont’d)
Palm oil industry in Malaysia -key supply statistics Mature planted area (‘000 Hal East Malaysia Total
,. 4.1% 3.4% 3.8% 3.4%I Source: Extracted from the independent marne! research report prepared by SMITH ZANDER Malaysia’s processing levels of FFBs, measured by the volume of FFBs processed by mills in the country, grew at a CAGR of 3.9% between 2000 and 2013. FFB volume increased from 57.5 million MT to 94.9 million MT during the said years. The nation’s average annual FFB yieid in 2012 was recorded at19 MT per Ha, whereby annual FFB yield in Peninsular Malaysia was 19,3 MT per Ha and annual FFB yield in East Malaysia was 18.8 MT per Ha. In line with the growth in mature plantation area leading to higher FFB yield, CPO production in Malaysia grew at a CAGR of 4.5% from 10.8 million MT in 2000 to 19.2 million MT in 2013. CPO production volume is cyclical and correlates closely to the volumes of FFB received by mills as a result of factors such as replanting cycles, weather conditions and market forces, specifically pricing and availability of other vegetable oils. Malaysia is the world’s second (2nd ) largest producer of CPO after Indonesia, with 19.2 million MT produced in 2013, compared to Indonesia’s production of approximately 30 million MT in the same year. CPKO production in Malaysia also grew positively between the years 2000 and 2013, from 1.4 million MT to 2.3 million MT at a CAGR of 3.9%. With a production volume of 2.3 million MT of CPKO, Malaysia was the world’s second largest producer of CPKO after Indonesia in 2013. Similar to CPO, the production of CPKO is also dependent on the volumes of FFB received by mills, which are impacted by factors such as replanting CYCles, weather conditions and market forces, specifically pricing and availability of other vegetable oils. The production of palm kernel, which is influenced by the volume of processed FFBs, increased from 3.2 million MT in 2000 to 4.9 mil/ion MT in 2013 at a CAGR 3,3%. 4 Company No.: 1245-M 8. INDUSTRY OVERVIEW (Cont’d)
Palm oil industry in Malaysia -upstream and midstream statistics Palm kernel : •I’ •• •• ••• …,production (million MTl ~OOO 57.5 3.2 10.8 i 1.4 , I 2


+= ‘ f——~~~–61.4 3.4 11.8 i 1.5 __~ ~ 2002 59.8 3.3 ~—–l–~——j ~-~~–+–~—l—–i~–;~~–i-~–~ I 2005 I 74.2 I 4.0 15.0: 1.8 ——li 2.’l0..s…..+= 79.3–+_ 4.1 15.9′ 2.0 I L__ ~07_–i__ 78.6__+—~ .. 15.8 1.9 I 2008i-__1~’_ I 4.6 17.7–2.1 J ~:~~6=—–~—-~—J::::—1—–:::—~.~ I–~: I :~:: i__ ::~ =-~~-=~=”l-=-_ –~~ I
FFB yield (MT/Ha) Peninsular East Malaysia . . MalaySIaMalays,a Sabah Sarawak Total ,=-~I=t ~;:~ .. :~–l–i~~~=~-i==-~==~-~:l~ l—-~6~—~—i:·~ —-i-~i~———-i~:.:–·+—~:~ ——–i:~ —l
l=~ 2005-1 ~77 I” 23.0 ~ 14.7 ~ ~0~_==~_”.2~ __~ I 2006-1 18.7 ==’ 23.1 I 15.5 ,20.7 19.6 I 1-~~6~-t—~~:: -=f-~::6 1 -i:~-t–i~—.–~~~ -J
~ 2009 I 19.4 –r 21.2 I 153 T 19.0——-19.2 ~ r-=:2010 ~__ 17:_9_-_1__L-….-_ 20.2 = 1_4_9__.1__ 18.2 F-~—–il _~__..J 192 i 22.3.J 16.8 J–~1….–.. _19.7 : ” ~ i~’ ~~l ~ i 18.7 189 I 2013 19.3 20.9 r—162 I 188 19.0 ••I”. I” :’• I• I’ 5 ¥ ….E z Company No,: 1245-M 8, INDUSTRY OVERVIEW (Cont’d)
r 21,1t-2006′-1—19:2+”’–21.1 ——rI­-J ~~{—+-~~i—~~—1! 200-7-_–1–_–19. 3—I ———–l———————-1 ~~:~—–.l.~~::~—–~ –~H——~~:: –I
r—2008 I F-~—j-I 2011 T  _196 -­-[-­-~-=1—~~~ ~—-16f—1 -~:~ –­20.1 I 20.7 I 20.6 I 20.7  -~~~–J 20~~  ,  2012  r  20.0  I  21.0  I  20.4  i  20.8  2~q  ~-u.  201  ‘  207  __
Sabah Total I 2000 I 5.9 I 4.6 J 4.8 I 4.7 -+—5.5 ~~5~:+—–H–·E:..:~~_-J_\ ::: ~ -+-_—_-::: __J t-~~~–~E.~H—i_ ::~ 1-::~-i_~J11~—::=-1 t–~~-.l—-~~——j—¥i—-+–~;_-I –~~—‘ —-+i-I’ 2007: 55 i 4.9 I 4.6 I 4.8 5.2-2008——r–s:s—-j—4.8 4.6′ 4.8 -5:2–1F___20.0_9_-1 -_~_6 ~ 4.8 4.5 —–t 4-8 ~}__~ 2010 I _5_5 : 4.8 4.4 —-1′-4.7 5_2 __~ I—~.:.~~’:____j—-{:;—-+-~ ::: –r–:.:–~+-~ 2013 1—5.5 t—4.i4.8 4.3 ~4_6 -,—5.11 CAGR -0.5% I 0.3% -0.8% -0.2% -0.6% Source: Extracted from the independent market research report prepared by SMITH ZANDER In 2012, palm oil mills in Malaysia processed 92.3 million MT of FFB at a declining rate of 0_6% compared to the previous year, due to lower volumes of harvested FFBs in 2012 (2011: 93.8 million MT; 2012: 93.3 million MT). SUbsequently, Malaysia’s milling capacity utilisation rate declined by 3.0% in 2012 compared to 2011 as a result of lower volumes of processed FFBs in 2012. In 2013, the volume of processed FFBs rose to 94.9 million MT due to bumper crop witnessed in that year. 6 … ..~ –“.,,””…. Company No.: 1245-M 8. INDUSTRY OVERVIEW (Cont’d)
Palm oil industry in Malaysia -upstream and midstream processing performance
2010  86.5  —i——s1.3–T—9~~_  -r-.-~84–.C:-6–+—–:’85~.·7  2011  ,92.7!  88.8  : ‘  109.6  I I  94.5  93.4  2012  91~_~__8_2.21.___  109.6  I  90.1  90.6
Note: Latest available year is 2012
Source: Extracted from the independent market research report prepared by SMITH ZANDER 1.2.2. Demand Analysis CPO consumption, measured by the volume of CPO processed by refineries into palm oil, increased from 10.3 million MT in 2000 to 16 million in 2013 at a CAGR of 3.4%. The consumption of palm oil which refers to RBD palm oil, RBD palm olein and RBD palm stearin also grew positively over the same duration from 1.5 million MT to 2.5 million MT at a CAGR of 4.0%. The groW1h in the consumption of CPO is largely impacted by the supply of FFBs to mills, while the demand for end­user consumer products impacts groW1h in the consumption of RBD palm oil, RBD palm olein and RBD palm stearin. CPKO consumption, measured by the volume of CPKO refined and fractionated by refineries into PKO, has increased from 1.4 million MT in year 2000 to 2.3 million MT in year 2013 at a CAGR of 3.9%. PKO consumption, measured by the voiume of PKO products (RBD PKO, RBD palm kernel olein and RBD palm kernel stearin) consumed by downstream oleochemicals and edible oils and fats refineries, grew at a slightly higher rate of 6.0% between 2000 and 2013 and registered an increase from 0.8 million MT to an estimated 1.7 million MT. At the close of 2012, there were a total of 54 refineries generating demand for locally produced and imported CPO and CPKO. 7 …… Company No.: 1245-M 8. INDUSTRY OVERVIEW (Cont’d)
Palm oil Industry in Malaysia -key demand statistics Consumption (million MT) Year CPO Palm oil CPKO PKO ~ 2000 10.3I 1O8 2002 11.2
f-2001 I–____ -t-_ ~ f—;~~: =+—-~;-~ t——….. ..
~–___¥o~~—I -~–. ~:~ i-·—:·~ 2007 14.4′ 2.2 2.2 200B 15.7 2.6 2.2 1.3–J 15 9 _____-t-_.__._. I ~.~ —~-:~-._——-+: -~ —–I ~_~_-_.~_~~_:_-_·····_=t_·-_·-:.-=·_~::~ 1—. 2_1·_~ 1_-_~-~~_~_’-:’-.-… ..-.–··–~-:——=—l1__ 16.0 2.5 2.3 1.7 I 3.4% 4.0% 3.9% 6.0% Source: Extracted from the independent marl<et research report prepared by SMITH ZANDER Palm oil Industry in Malaysia -downstream processing facilities 177,000 . 16 • 6,861,500 : –._.–:—–;——1,_1_~012 o,1 ii 60,000 _._. .L •.. L .J Note: Latest available year;s 2012
Source; Extracted from the independent market research report preparedby SMITH ZANDER Malaysia’s exports of palm oil stood at 18.1 million MT in 2013, with the top three importing countries China (3.7 million MT, 20.4%), India (2.3 million MT, 12.8%) and Netherlands (1.5 miilion MT, 8.5%) accounting for approximately 41.7% of total export volume. Palm oil export volumes stood at 9.1 million MT in 2000, with top three importers India (2 million MT, 22.4%), Pakistan (1.1 million MT, 12.1 %) and China (1 million MT, 11.3%) accounting for 45.8% of totai export volume. Malaysia’s exports of PKO increased from 520.3 thousand MT in 2000 to 1.2 million MT in 2013. Top importers in 2013 Were China (271.1 thousand MT, 23.2%), United States (218.1 thousand MT, 18.6%) and Netherlands (167.6 thousand MT, 14.3%) which COllectively accounted for 56.1 % of total 8 -,;;;;;;; ‘” Company No.; 1245-M 8. INDUSTRY OVERVIEW (Cont’d)
PKO exports. Top importers in 2000 were United States (121.4 thousand MT, 23.3%), Netherlands (49.7 thousand MT, 9.6%) and Japan (47.3 thousand MT, 9.1%), collectively importing 42% of total PKO export volume. Collectively, Malaysia’s exports of crude and refined palm oil products increased from RM14.9 billion (12.4 million MT) in year 2000 to RM61.4 billion (25.7 million MT) in year 2013. Palm oil industry in Malaysia -key external trade statistics Year 2000 Year 2013 ——,–­Export Export volume Percentage of Export volume Percentage of partner (‘000 MT) export volumeExport partner (‘000 MTI export volume % (%) ~Imoil ~ India —–,r.’–2-,0-3-s-.0—,i–,–2-2-.4—,-CC’h-in-a—-,——–,—204­pakis_t_an__—-iI__1,102.0:.:=c= ‘2.’ -j-I_n_di_a -!–!_—‘_ 12:8
_:~i~d States~. l_H..E.0 C~i~~ J 271.1 C 232==j_!21.4 Netherlands__+–_49.7__1_ 9.6 UnitedStates ~. 218.1 -1 ‘_8._6__1
Source: Extracted from tho independont market research reporl prepared by SMITH ZANDER 1.2.3. Price Trend Analysis Local delivered CPO prices in Malaysia have historically moved in tandem with global CPO prices. In December 2006, global CPO prices were recorded at USD583 per MT, rising to USD950 per MT in December 2007 before dropping to USD503 per MT in December 2008. Global CPO prices recovered gradually to USD792 per MT in December 2009 before rising to USD1,228 per MT in December 2010 and settling at USD1,027 per MT in December 2011. In December 2012, global CPO prices were recorded at USD776 per MT. Likewise, local delivered CPO prices in Malaysia increased from RM1 ,9S5 per MT (USD554 per MT) in December 2006 to RM3,095 per MT (USD936 per MT) in December 2007 before dropping to RM1,608 per MT (USD464 per MT) in December 2008. In December 2009, local delivered CPO prices were recorded at RM2,518 per MT (USD735 per MT) and it increased to RM3,745 per MT (USD1,215 per MT) in December 2010 before subsequently settling at RM3, 141 per MT (USD989 per MT) in December 2011. Local delivered CPO prices were recorded at RM2,141 per MT (USD700 per MT) in December 2012. Between January 2013 and October 2013, the local delivered CPO price has traded between approximately RM2,200 per MT and apprOXimately RM2,400 per MT. However, as a result of a slowdown in CPO production in Malaysia during the year-end monsoon season, the local delivered CPO prices began rising during the latter half of October 2013, reSUlting in the average local delivered price in December 2013 to increase to approximately RM2,575 per MT. Based on a regression analysis on the supply and demand of CPO which was adjusted relative to prices in 2012 and 2013, the average local delivered price is forecast to be in the range of RM2,600 to RM2,700 per MT in 2014. 9-“_..~ CPO – forecast average local delivered prices in Malaysia
Source: Extracted from the independent market research report prepared by SMITH ZANDER 8. INDUSTRY OVERVIEW (Cont’d)
• Wide range of applications of palm oil and its derivatives The versatility and fat content in palm oil which extends shelf life, shortens cooking time, and contributes to texture as well as flavor makes it a popular base ingredient that is utilised in a wide range of food and non-food applications. Palm oil can be used for a multitude of food applications, including the production of cooking oil, margarine, bakery shortening, and confectionery fats, as well as non-food applications such soaps, detergents, toiletries and cosmetics. The application of palm oil in the production of polyols has also recently been discovered. Polyols is used to make polyurethane, a plastic material with multiple applications in various industries such as building and construction, automotive, furniture and electrical and electronics. Additionally, palm oil is also used as a feedstock in the generation of renewable energy such as of biofuels (biodiesel) and biomass, which are increasingly gaining popularity as they are renewable and widely available, with environmentally friendly processing techniques which do not emit large amounts of greenhouse gases. • Strong government support to strengthen the palm oil industry As the second largest producer of CPO and CPKO globally, Malaysia’s palm oil industry has great economic potential and reach globally, contributing to fulfilling the growing global demand for palm oil and its derivatives as well as employing a large number of workers in plantations locally. Malaysia’s competitiveness in the palm oil industry is evident as the country has a long history of experience and strong market ieadership in terms of productivity and research and development. The Government of Malaysia, via the Economic Transformation Programme (ETP) aims to increase the GNI contribution of the palm oil industry from RM52.7 billion in 2009 to RM178 billion by 2020. This will be made possible through a series of concentrated efforts spanning across the palm oil industry value chain which are aimed at capturing the growing demand for palm oil. Efforts to improve upstream productivity include acceierating the replanting of oil palm, improving FFB yield and worker productivity, increasing oil extraction rate and deveioping biogas at palm oil mills. Downstream expansion of the palm oil industry will focus on developing oleo derivatives, commercialising second generation biofuels and expediting growth in food and health-based downstream segments. (The rest of this page is intentionally left blank] 11 *'” 8. INDUSTRY OVERVIEW (Cont’d)
• Increasing demand from China and India as the two largest consumer markets China is also the largest importer of edible oils and fats, including soybean oil, palm oil and rapeseed oil, and these imports have increased from 9.5 million MT in 2008 to an estimated 10.4 million MT in 2012 at a CAGR of 2.3%. India’s imports have grown steadily over the same period, increasing from 6.9 million MT in 2008 to an estimated 10.4 million MT in 2012 at a CAGR of 11.2%. India’s jump in imports over recent years can be attributed to rising income levels and various Government schemes that encourage demand, such as the Pubiic Distribution System which provides edible oils, including imported oils, at a subsidised price. In 2012, China and India’s total imports of edible oils and fats accounted for 14.5% of global imports. The increasing demand from China and India, in terms of both volume and grow1h rates, are key factors driving the grow1h of the globai edibie oils and fats markets. China· consumption and imports of edible oils and Consumption ImportsIfats·•••• ‘r 2008″ 29.3 I 18.3 I 9.5 [ 15.4 iI i I. ,~~0:2I34~3~:=C ‘1!l’:_J—1~~ __ J~_~~.~] ‘LCAGR ! 4.0% 2.3%’,, SoulCe: Extracted from the independent market research report prepared by SMITH ZANDER India· consumption and imports of edible oils and fats
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• Emergence of Africa and Middle East as a key consuming region Between the years 2000 and 2012, the regions of Africa and Middle East have emerged as key consuming regions of vegetable oils. While Africa’s consumption of vegetable oils grew at a CAGR of 3.5% during this period, imports grew at a higher rate of 5.5%. Key vegetable oils consumed in Africa are palm oil and PKO. Meanwhile, consumption of vegetable oils in the Middle East countries grew at a constant 0.5% during this period compared to the higher 6% growth in imports, Key vegetable oils consumed in Middle East countries are sunflower oil and palm oil. The popularity of palm oil in the region of Africa stems from the region’s familiarity with oil palm crops, which are cultivated in countries such as Nigeria, Cote d’ivoire (Ivory Coast), Cameroon and Ghana. Palm oil is also the most cost effective vegetable oil. thereby proving Its affordability for the larger segment of middle and lower income population in this region. • Increase in use of biodiesel Africa region -consumption and imports of vegetable oils Consumption Imports1_••
2000 8,002 8.7′ 3,885 i 10.0 ‘ .’._—–<-_.._——-.———~’-‘”‘—-!——~~,-~-~_: I 2012 I 12,117, 8.8 , 7,352 i 10.4-‘—-:~.~-~—-+-‘ CAGR 3.5% i 5.5% ! —_.-._.. ————-,_. ————,Source: Extracted from the independent market research report prepared by SMITH ZANDER Middle East region -consumption and imports of vegetable oils Consumption Imports Volume Global : -(‘000 MT) market share (%) 2000’ 8,002 8.7 I 2,142 5.5 –_.”-‘—+–~”.,.,”-_···~·—i 2012 8.510 4.6 I 4,327 I 6,1 I ·–I—-~~_· —“1 CAGR 0.5% 6.0% Source: Extracted from the independent market reseBrch report prepared by SMITH ZANDER Depleting crude oil reserves have spurred the use of biodiesel as a source of energy in various parts of the world. As biodiesel is derived from edible oils and fats, it possesses several benefits over fossil fuel such that it is renewable, less harmful to the environment and biodegradable. Thus, many Governments have legislated the use of biodiesel in vehicles, usually in a blend with diesel, to reduce dependence on crude oil as well as to reduce carbon emissions. The United States, member countries of the European Union, Australia, Brazil, as well as countries in Asia including Malaysia, Indonesia, Philippines and Thailand have introduced legislations regarding biodiesel. These legislations mandate a minimum percentage of biodiesel to replace diesel or petroleum for use in automobiles. In Malaysia, the Government targets to implement the B5 biodiesel programme nationwide by July 2014 where the B5 biodiesel is a biend of 5% palm oil or palm methyl ester with diesel fuel. Biodiesel reduces the release of harmful emissions such as unburned hydrocarbons, carbon monoxide and particulate matter into the air, and contains almost no amount of sulphur or aromatics. Furthermore, biodiesel yields a positive energy balance ratio of 4.5 to 1, in which for every unit of energy required in its production, 4,5 units of biodiesel energy points are gained. This is due to the fact that plants are efficient carriers of solar energy. 13 E “‘”‘” 8. INDUSTRY OVERVIEW (Cont’d)
1.3.2. Demand Restraints • Fluctuations in edible oil prices which may affect demand As with any other commodity, market prices of CPO and PKO have been seen to fluctuate during periods of economic growth and contractions. However, market prices of CPO and PKO have been also been seen to be closely tied to the market price of crude oil, due to their use as feedstock in the production of biodiesel and hence, serving as a substitute for crude oil. This has been evident since 2007, whereby market prices of palm oil have largely been in tandem with that of crude oil, rather than being infiuenced by supply and demand dynamics, because of its use in biodiesel. Biodiesel accounted for 11.7% of consumption of edible oil and fats in 2010. Other factors that have significant impact on the price movement of CPO and PKO include supply and demand forces, demand from food and oieochemicals industries, weather, price and performance of other competing edible oils. If both supply and demand are strong but market prices remain high, consumption levels are likely to be affected, thereby restraining the growth of the industry. Lack of manpower With the recenlly rapid expansion of palm oil production, plantation owners are facing manpower shortages. There is a reliance on foreign labour in lhe oil palm industry, especially labour from neighbouring countries such as Indonesia, Vietnam and Cambodia, as locais are typically reluctant to work in this industry. As the harvesting of FFB is labour intensive, the lack of participation from the locals has caused the Government to employ foreign labour. At the same time, the cost of labour has been increasing, resulting in higher production cost. According to lhe Minister of Plantation, Industries and Commodities, 50% of the total workforce in the plantation sector in 2012 was made up of foreign labour. The employment of foreign labour in the plantation sector grew by 58.8% between 2000 and 2008, and has been increasing since then. 1.4. Key Supply Conditions and Dependencies The palm oil industry is influenced by various factors such as weather conditions, stock count from previous year(s), soil fertility, availability of land for cultivation and planted area, crop productivity and yield, pest attack and crop diseases and availability of labour, equipment and infrastructure, in addition to market prices and prevailing global economic conditions. • Weather conditions The various vegetable oils thrive under differing weather condilions. For instance, oil palm crops thrive in tropical parts of the world, Whereby temperature, sunlight and availability of moisture determine the crop’s growth, yield and quality of output. Ideal conditions for oil palm crops include the following: o Temperature: 25°C-33°C throughout the year
o Humidity: -80%-85%
o Rainfall: -2,000 millimetres of eveniy distributed annual rainfall in the particular geography
o Sunlight: -5-7 hours per day throughout the year
o Soil: pH level < 7.5
o Prime cultivation area: within 10°_20° off the equator

Historically, poor weather conditions have Jed to low production of CPO and CPKO. These include the period of the EI Nino and La Nina phenomena that lasted from mid-2009 till April 14 8. INDUSTRY OVERVIEW (Cont’d)
2011, leading to a slowdown in oil palm harvesting, sUbsequently affecting Indonesia’s and Malaysia’s CPO and CPKO output in 2012. • Availability of land for cultivation and planted area The palm oil industry is dependent on the plantation of oil palm crops for the constant supply of crude oils. With the absence of plantations, seeds cannot be harvested and this would, in turn, affect the supply of edible oils and fats for consumption in various end user industries including food, energy and oleochemicals. This can be seen at a country specific level whereby the expansion in planted area influences growth in production of CPO and CPKO. Based on latest available data, the thriving mature planted area in Indonesia which grew at a CAGR of 10% from 2000 to 2012, resulted in a healthy CAGR of CPO and CPKO production of 11.5% and 12.2% respectively over the same period. In the case of Malaysia, mature oil palm planted area in East Malaysia grew significantly between 2000 and 2013 at a CAGR of 5.7%, while Peninsular Malaysia witnessed a lower growth rate of 1.5%, resulting in a nationwide CAGR of 3.4% during the same period. As a result, CPO and CPKO production also increased over the same period at a CAGR of 4.5% and 3.9% respectively. • Availability of labour, equipment and infrastructure A major issue which can potentially affect the supply of vegetable oils such as palm oil is the shortage of skilled harvesters to harvest ripe FFBs. The issue of shortage of the labour force is common in the agricultural sector in Malaysia and there is currently a reliance on foreign labour, whereby according to the Minister of Plantation, Industries and Commodities, approximately 50% of the total workforce in the plantation sector in 2012 was made up of foreign labour. As such, the lack of skilled labour could potentially affect the output of FFBs, and consequently, the production of CPO and CPKO. CPO and CPKO processing is a highly automated process. Equipment utilised in mills to produce CPO and CPKO include, amongst others, cooker, screw press, digester and clarifying centrifuge. Edible oils and oleochemical refineries meanwhile employ sophisticated machinery such as boilers and fractionation tanks. In addition, bulkers are required to handle the logistics and transportation of palm oil and PKO products. As such, the availability of such equipment and infrastructure are viewed as key supply dependencies. • Factors affecting crop productivity and yield Productivity levels may be influenced by various factors such as weather conditions, pest attacks and crop diseases, skilled labour availability, efficient management of plantations by sourcing and utilising quality planting materials, ensuring sufficient land area for oil palm crops, maintaining plantations by weeding, pruning, soil fertilisation and harvesting during optimum seasons as well as utilising efficient production techniques in the process of oil extraction. Increase in FFB yields and higher oil extraction rates lead to higher volumes of CPO and CPKO produced. Therefore, productivity levels and yield playa signiflcant role in determining the supply of palm oil. The annual yield of mature crops do not remain constant and varies annually arising from external factors such as soil fertility and climate as well as biological factors such as frond production, floral abortion, sex ratio, bunch survival after flowering and average bunch weight’ which, when affected, can possibly lead to tree stress, thus adversely impacting FFB yield. Tree Source: Oil Parm Cultivation and Management, P.D. Turner and R.A. Gil/banks, The 017 Palm in Mafaya, Ministry of Agn’culture and Co-operatives Malaysia, The Oil Palm Fourth £dition, R.H. V. Corley and P.B. Tinker 8. INDUSTRY OVERVIEW (Cont’d)
stress is a biological production pattern where crops experience lower yield performance after a period of high yields. Crops that are in the latter stages of maturity are more likely to face prolonged biological stress after a period of bumper harvest. Industry players strive to mitigate the impact of tree stress through among others, staggered replanting schemes, the use of higher­yielding seedlings and the application of more fertiliser. The palm oil industry in Malaysia has experienced periods of bumper yields and low yields between 1990 and 2013, where periods of depressed yields may, in part, be attributed to tree stress. • Pest attack and crop diseases One of the major challenges in the cultivation of oil palm crops includes managing pest attacks and crop diseases as oil palm crops are susceptible to a variety of pests as well as diseases. Among the pests that attack oil palm crops include rats, squirrels and beetles. These crops are also susceptible to fungal diseases. The oil plant crop can be affected by diseases such as ‘ganoderma basal stem rot’, ‘fusarium’ and ‘fatal yellowing’ as well as bacteria-related diseases like the ‘endophytic bacteria’. These pests and diseases can affect yield, and in some cases, these attacks could terminate a wide spread of oil palm crops. In the event of pest attacks or diseases, the supply of oilseeds would be adversely affected, leading to low production of edible oils and fats. Stock count from previous year(s) In many instances, the amount of CPO and CPKO to be produced in a year is determined by the remaining stock count from previous year(s). When consumption patterns remain stable, oil surpluses will typically lead to decreased output, and a deficit in stock count from the previous year will lead harvesters to increase acreage and yield to meet consumers’ demand levels. A surplus or deficit in end-of-year stock levels can also exert upward or downward pressure on market prices, following which industry players will react by decreasing or increasing output in order to stabilise prices. 1.5. Product Substitution The versatility of palm oil and PKO in a variety of food and non-food applications is hard to be matched by other vegetable oils. Within the food segment, palm oil and PKO are most commonly used in the manUfacturing of cooking oil, margarine, shortening, vanaspati, ice cream, cocoa butter substitutes and confectionary fats. Other vegetable oils such as coconut oil and rapeseed oil are possible substitutes for palm oil and PKO in these applications. While there are substitutes for palm oil and PKO, SMITH ZANDER notes that these two oils remain as the preferred choice owing to their availability in large volumes compared to other vegetable oils such as soybean oil, rapeseed oil and sunflower oil. From a price perspective, CPO has also emerged as the most cost competitive and lowest-priced among the vegetable-based edibie oils, such as crude soybean oil, rapeseed oil, sunflower oil and crude coconut oil. In 2013, the average annual price of CPO was recorded at USD857 per MT, the lowest when compared to crude soybean oil at USD1,057 per MT, rapeseed oil at USD1,082 per MT, sunflower oil at USD1, 124 per MT and crude coconut oil at USD940 per MT. Throughout the years 2000 to 2013, CPO has consistently emerged as the most cost competitive vegetable oil. The lower CPO price and its wide availability has rendered it a preferred alternative when compared to the other vegetable-based edible oils. 16 ……-.0 … ,n’ ., L t 221.* 8. INDUSTRY OVERVIEW (Cont’d)
1.6. Relevant Policies, Laws and Regulations Malaysian Palm Oil Board Act 1998 The Malaysian Palm 011 Board Act 1998 was enacted to repeal the Palm 011 Registration and Licensing Authority (Incorporation) Act 1976 and the Palm Oil Research and Development Act 1979 as well as to dissolve the Palm Oil Registration and Licensing Authority, the Palm Oil Research and Development Board and the Palm Oil Research Institute of Malaysia with the establishment of Malaysian Palm Oil Board (MPOB). Under this Act, among the functions of MPOB includes conducting and promoting research and developmenl activities relating to oil palm activities; regulating, registering, coordinating and promoting all palm oil related activities from cultivation to milling, to storage, testing and distribution as well as developing and maintaining markets for oil palm products. Malaysian Palm Oil Board (Licensing) Regulations 2005 The production and distribution of oil palm products without a license from MPOB are prohibited under the Malaysian Palm Oil Board (Licensing) Regulations 2005. A license is required for the production of oil palm planting material, selling or transporting all palm planting malerial, FFBs, palm oil, palm kernel, palm fatty acids and palm oleochemicals, purchasing of FFBs, palm oil and palm kernel, commencing of construction of palm oil mill and milling. Malaysian Palm Oil Board (Quality) Regulations 2005 This Act provides MPOB with the right to determine the quality of all activities pertaining to the all palm industry inclUding the production and management of planting materials, agronomical practices in oil palm plantation estates, grading of FFBs, milling of CPO and CPKO, refining and fractionation of palm oil and PKO products, surveying, inspecting, testing, examining and analysing of oil palm products as well as the storing, transferring, handling and transporting of all palm products. Failure to comply with the specifications set out by MPOB would cause an industry player to be Iiabie for a fine not exceeding RM200,000 or imprisonment for a term not exceeding two years or both. Environmental Quality Act 1974 Malaysia’s Department of Environment (DOE) is responsibie for the implementalion and monitoring of Malaysia’s environmental regulations and policies. The Environmental Quality Act 1974 prohibits industrial activities which cause air, sound, soli, and water pollution without obtaining a valid license. Therefore, the burning of waste or rubbish or any open burning is prohibited without obtaining the necessary licenses or permits. Under this Regulation, effluent shall not be diluted, whether raw or treated, at any time or point after it is treated, without first obtaining a written authorisation which approves treatment of effluent according 10 terms and conditions of the authorisation. Environmental Quality (Prescribed Premises) (Crude Palm Oil) (Amendment) Regulations 1982 The Environmental Quality (Prescribed Premises) (Crude Palm Oil) (Amendment) Regulations 1982 came into force on 1 July 1982. The amendment that took place with the enactment of this Regulation was pertaining to the conditions limiting the parameters of effluent to be discharged from the prescribed premises. Under this Regulation, the amount of Biochemical Oxygen Demand (BOD), which is the quantity of oxygen utilised in the biochemical oxidisation of materials present in effluent during a specified period, is limited to 100 milligrams per litre (mgll) , whiie the amount of suspended solids present in the effluent must exceed 400 mgll. The amount of oils and grease and ammoniacal­nitrogen present in effluent is limited to 50 mgll and 150 mgll respectively, and lhe total nitrogen 17 :x:. –,,-;: 8. INDUSTRY OVERVIEW (Cont’d)
present must not be higher than 200 mgtl. Additionally, pH levels of effluent must be between 5 -6 and its temperature must not be higher than 45°C at all times. Industrial Co-ordination Act 1975 The Industrial Co-ordination Act 1975 is an Act introduced with the objective of maintaining the coordination, orderly development and growth of Malaysia’s manufacturing sector. As the oil palm industry is part of the manufacturing sector, thus a license is required for the manufacturing of palm oil products. The Act requires manufacturing companies with shareholders’ funds of RM2.5 million and above or engaging 75 or more full-time employees in Malaysia to apply for a manufacturing license for approval by MITI. Applications for the manufacturing iicense are to be submitted to the Malaysian Industrial Development Authority (MIDA), in which it will subsequently be approved and issued by MITI. The licenses are non-transferable without prior approval obtained from Ministry of Trade and Industry. Occupational Safety and Health Act 1994 The manUfacturing industry, which includes the oil palm milling industry, is also regulated by the Occupational Safety and Health Act 1994. As part of the manUfacturing industry, all palm oil manufacturers possess a general duty of care to their employees, to provide and maintain production facilities and systems that are practicable, safe and without risks or hazard to employees’ health and safety. It is aiso the obligation of the employer to prOVide employees with the training, knOWledge, information and supervision, in prOViding a safe working environment without risks to their health, safety and welfare. The Department of Occupational Safety and Health (DOSH) is authorised to ensure that companies take proper steps to ensure a safe working environment for their employees. DaSH also stipulates that for most manufacturing industries, including the oil paim industry, companies that employ more than 500 employees are required to appoint a safety and health officer, who will be responsible for ensuring due observance of the statutory obligations with regards to workplace health and safety as well as the promotion of a safe and healthy working environment. A health and safety committee should also be formed to monitor the implementation of the safety measures during work, to promote and also plan measures to ensure employees’ safety and health. Factories and Machinery Act 1967 DaSH also requires compliance with the Factories and Machinery Act 1967 by all manufacturers in Malaysia. The Factory and Machinery Act 1967 prOVides for the regulation of factories with respect to matters relating to the safety, health and welfare of employees, and also the registration and inspection of machinery and manufacturing facilities identified for the purpose of palm oil processing. Under this Act, all machinery manufactured locally or imported for manufacturing purposes require a valid certificate of fitness before they can be operational. This approval needs to be obtained from DaSH. Employment Act 1955 Oil palm plantation cuitivation is a labour intensive activity. The Employment Act 1955 stipulates the rights and welfare benefits that employees are entitled to, and which all employers are required to comply. This Act also states that an employer is required to obtain a license to import legal foreign workers under the contract of services, and ensure their welfare and rights are fulfilled in terms of wages, working hours, rest days, and sick and annuai leaves. The Ministry of Human Resource is responsible for monitoring and ensuring that companies are in compliance with this Act and protecting the welfare of employees. 18 Company No.: 1245-M 8. INDUSTRY OVERVIEW (Cont’d)
1.7. Reliance and Vulnerability to Imports Malaysia’s large supply of oilseeds has ranked the nation among the largest CPO and CPKO producers globally. Prior to 2006, Malaysia was the world’s largest CPO producer before Indonesia emerged as the leading CPO producer between 2007 and 2013. Similarly, Malaysia was also the world’s largest CPKO producer historically before being eclipsed by Indonesia in 2009. Therefore, Malaysia is not dependent on imports, with local production of CPO and CPKO largely being sufficient to meet local demand. In 2013, the imports of CPO constituted 3.5% of total CPO input used domestically while the imports of CPKO constituted 8.4% of total CPKO consumption, thereby demonstrating Malaysia’s low levels of dependency on imports. Imports of palm oil, palm kernel oil and palm kernel supplement domestic production levels in meeting demand from the downstream edible oils and oleochemical industries. 1.8. Competitive Landscape The palm oil industry in Malaysia is a vibrant and thriving industry owing to Malaysia’s strategic geographical location along the tropical belt of the equator line. In 2013, total oil palm planted area in the country accounted for 5.2 million Ha whereby mature planted areas comprised 4.5 million Ha. In the same year, industry players processed 94.9 million MT of FFBs to produce 19.2 million MT of CPO and 2.3 million MT of PKO. The palm oil industry in Malaysia is highly re9ulated and dominated by large vertically integrated public listed companies that have typically interests in the three (3) major activities within the industry, namely plantation, milling and refining operations. [The rest of this page is intentionally left blank] 19 ~mpany No.: 1245·M 8. INDUSTRY OVERVIEW (Cont’d)
Palm oil industry in Malaysia -profiles of key industry players 20.88 I 4.60 684,996′ 1 159,670P I , ——r——I I: II20.51 i 531 I 12,886,499 1 905,058—r –r——–i ——J 20.77 i 5.19 I 1,233,417, 321,873 I ii ! I—··–I–·—-t——i—-­21.29 I 4.76 i 526,499 i 140,335 I 20.70 , 4.80 i 486,277 I 118,448 143
I Company No.: 1245-M 8. INDUSTRY OVERVIEW (Cont’d)
Crop area (Hal  I.  _!~~,7~L~49~_~~ … 1_~~~~__1_~:~32:382 L1’~1:,0~1!_:36,61~_l_~~3~~0~J.46,812,30~13,83~~00-J , r I, I I , I 28~~9~.J_~~~ I 489,789J_98,~7_~_.~~:~~1 20.21 I. 5.54 ~375,846 I 167,53.6J , ‘t! I I I I12,700 960 17.83 301,379 i 61,282 ‘14,378 20.33! 4.77 ! 194,197 ! 25,469 I -~;;;-,~:i’~;’T:;;’:~~;,~J ,;”,-,~,,-i ,±ro’;, i_ ,,,;,, j  •  ,  Source: Exfracted from the independent market research report prepared by SMITH ZANDER  21
Boustead Plantalions Berhad competes against all oil palm plantation players lhat produce CPO and PK. However, the competitors most comparable to Boustead Plantations Berhad are those in the upstream palm oil industry value chain that do not have interests in refinery operations, and this includes industry players such as, among others, Genting Plantations Berhad, Hap Seng Plantations Berhad, IJM Plantations Berhad, Rimbunan Sawit Berhad, Sarawak Plantation Berhad, TH Plantations Berhad and Unico-Desa Plantations Berhad. Players in the upstream segment of the palm oil industry are principally involved in the cultivation of oil palm plantations and milling operations, I.e. harvesting and processing of FFBs into CPO and PK. Boustead Plantations Berhad’s positioning within the palm oil industry in Malaysia compared to other public listed key industry players, including vertically integrated players that have interests in plantation, milling and refining operations, as well as compared to its most comparable upstream competitors, can be ranked based on total planted area, CPO production volume, revenue and PAT. Boustead Plantations Berhad’s positioning compared to other public listed key industry players, including vertically integrated players
Source: Extracted from the independent market research report prepared by SMITH ZANDER 22 8. INDUSTRY OVERVIEW (Cont’d)
Boustead Plantations Berhad’s positioning compared to other upstream palm oil competitors that do not have refinery operations Note: 7  Berhad  12.700  8  Unico-Desa Plantations Berhad  61.282  Total planted area for Rimbunan Sawit Berhad was not  Note:  pUblicly available for the FYE 31 December 2012.  a CPO production is for the FYE 2012 In order to be consistent  with the latest available FYE ofmost other industry players  Revenue  PAT


consistent with the latest available FYE of most other industry players. d Includes revenue derived from geographies other than Malaysia Source: Extracted from the independent market research report prepared by SMITH ZANDER Boustead Plantations Berhad’s market share in 2013 is a measurement of its performance against the industry, whereby: • Boustead Plantations Berhad garnered a market share of 1.4% based on a total planted area of 70,991 Ha compared to the total of 5.2 million Ha in Malaysia.
• Boustead Plantations Berhad gained a market share of 1.5% in terms of 65,734 Ha of mature planted area compared to the total of 4.5 million Ha in Malaysia.
• Boustead Plantations Berhad achieved a market share of 1.2% based on 1,141,824 MT of processed FFBs compared to the total of 94.9 million MT in Malaysia.
• Boustead Plantations Berhad garnered a market share of 1.2% based on 238,371 MT of produced CPO compared to the total of 19.2 million MT in Malaysia.
• Boustead Plantations Berhad gained a market share of 1.1% based on 52,927 MT of produced palm kernels compared to the total of 49 million MT in Malaysia.

Palm oil industry in Malaysia -market share 2013 Total planted area. Mature planted area a //~]-“—–­-“”” I’ , ,/”, \I /’ eoustead “\. ,f (/ Planlallons \ \ , Bemad )I 1A%! \ )j \.” “! \ ‘,—_../ /’~ Crther ‘” players .
“”‘~ 98.6%”._–_._.,,,,/
FFBs processed CPO production volume PK production volume //”–J–~ / //~J——–””’ //~-]’-~-“””,,,,, , // “‘”\ / /~-, -‘” ‘\ I /-‘–“”-\ ! .–\I Boustead J / Boustead ‘” \ ! // BoUs1ead \ \'( Plan””’ons \ \ f / Plantations \ ‘\ / / Plantations. ]( j Berhad \! Berhad \ I I If Berhad l I I’ 1.2% j i I, 1.2% jII \ 1.1% i \ ‘, “‘/ \\ i!\\ ) I • \. IJ . ,/’ I \\ . j , “../ /\ “,/ I\ ‘–_/ /\ ~–_…/ / , ~—-/\ other / ” Other / \”, Other /”‘.”-players ,/ ‘” ptayers ,// ” players />’…….. 98.8%
~””” 98.8% // ~, 98.9% //-…._~_._—–~/ .~——­Note: a Mature planted area as defined Boustead Plantations BerfJad refers to crops between the ages of 4-20 years while MPOB’s definition refers to crops aged 3 years and above Source: MPOB, SMITH ZANDER analysis 24 8. INDUSTRY OVERVIEW (Cont’d)
2 OVERVIEW OF THE GLOBAL EDIBLE OILS AND FATS MARKET 2.1. Definition and Segmentation The edible oils and fats market comprise 17 widely recognised and globally traded vegetable oils and animal oils/fats. These edible oils and fats can be broadly categorised into two, namely vegetable oils and animal oils/fats. The term ‘oil’ iargely refers to liquid substances while ‘fal’ refers to solid substances. Oils and fats are insoluble in water, but are solubie in most organic solvents. Edible oils and fats are made of triglycerides, a molecule that combines one unit of giycerol (or glycerine) with three units of fatly acids. Edible oils and fats can be found in a liquid, semisolid, or solid form at room temperature. Edible oils and fats -market segmentation EDIBLE OILS AND FATS · Derived from plantationVEGETABLE OILS • Castor oil, coconut oil, corn oil, cotton oil, groundnuUpeanut oii, linseed oil, olive oil, palm oii, palm kernel oii, rapeseed/canola oii, sesame oil, soybean oil and sunllower oil ANIMAL OILS/FATS • Derived from animals• • Butler, fish oil, lard and tallow Source: Extracted from the independent market research report prepared by SMITH ZANDER Edible oils and fats are primariiy utilised for food applications, and largely in the manufacturing of cooking and salad oiis, margarines and spreads, food dressings, shortenings, and substitutes for hard butler and cocoa butter. The main processes required to produce these food products are: •  extraction of oil from the oil-bearing source  degumming to remove a minor component of crude vegetable oil-phosphatides  •  refining or neutralisation of free fatly acids  bleaching to remove colour-producing compounds  deodorisation to remove undesirable fiavors, colours and odours
Several further processes are additionally required to obtain margarines and shortenings, including fractionation, hydrogenation and/or interesterification. Edible oils and fats are also utilised in non-food applications as raw materials for the production of oleochemicals, in which they are used in the manufacturing of a wide range of goods such as soaps, lUbricants, paints, candles and biodiese!. 25 B. INDUSTRY OVERVIEW (Cont’d)
Characteristics and applications of major edible oils and fats ~ l/l-l 0 W -l lD ~ W C>
W >
‘–­Castor oil  Coconut oil

Corn oil Cottonseed  oil  Groundnut  I peanut oil  Linseed
oil Olive oil Palm oil EDIBLE OILS AND FATS • Extracted from the castor seed.
• The oil is pale and has little or no taste.
• Popularly used as a lubricant. in the manufacturing of cosmetics, soaps, plastics and paints, and an ingredient in medicinal drugs.

· A tropical oil extracted from dried coconut or copra. • Has high content of saturated fatty acids, which provides it with thermal and oxidative stability.
• Resistant to rancidity, and has a long shelf life even in warm climates

· Refined coconut oil has a high-smoke point, which makes it a suitable frying oil. Also used to make maq~arine, snack foods. soaps, 85 well 85 in cosmetics.
“-• · · · • Extracted from the endosperm of com kernels (or maize). Odourless and has a slight taste. Ideal for frying due to its high-smoke point. Widely used in salad dressings, margarines, and mayonnaise (after undergoing partial hydrogenation). Also used in animal feed, and in industrial applications such as soaps, paints and inks. ·
· · · · Obtained from the seeds of the cotton plant upon removal of cotton lint. Viscous and has a mild nutty and buttery flavour. Light golden in colour, although the colour is dependent on the extent of refining. Commonly used in the manufacturing of snack foods such as potato chips, as well as in
margarine, salad dressings, and other fried products. ~ · · Clear, all-purpose oil pressed from peanuts. Pale gold in colour and is subtly flavored with the richness of peanuts. · • Popular ;n Asian cuisine as a cooking oil, especially in Chinese cooking. Ideal for frying due to its high-smoke point, and can be reused again as it absorbs very little · taste or odour. Commonly used in the manufacture of salad dressings and margarine.
( Derived from the seeds of the flax plant. -, · · Cold-pressed linseed oil is edible and referred to as flaxseed oil. Flaxseed oil is consumed for its health benefits. ,I ·• Linseed oil is commonly used in paint and wood finishes. \ ·  Oblained from ripe green olives, and one of the best sources for monounsaturated fatty acids.  ·  Mainly used in food applications as cooking oil and as salad dressing  •  Also utilised in personal care products and cosmetics.  –
·  Obtained from the fibrous oil-bearing ouler mesocarp layer of the oil palm fruit.  ·  Has  solid  consistency  at  room  temperature,  rendering  it  ideal  in  a  variety  of  food  applications.  ·  Major food use at cooking oil as its fatty acid content is generally stable to oxidation, and it  also contains high levels of natural antioxidants.  ·  Ideal ingredient in margarine as it provides the required solid fat content with little or no  hydrogenation, and  ensures  a stable crystal structure to enable a desirable spreadable  characteristic  ·  A preferred ingredient in shortening, due to its ability to ·crystallse and to facilitate mixing in  order to create a smooth structure, making it highly useful in baking applications.  ·  Also used in the production of ghee (vanaspali), ice cream, cocoa buUer subslilutes and  confeclionary fats.
27 j 8. INDUSTRY OVERVIEW (Cont’d)
EDIBLE OILS AND FATS (cont.)  ,-­Butter e en Fish oil l­e« LL iii ..J 0 ..J « lard::!E Z •« Tallow  • • • • fl: /’ • •  Produced by churning milk or cream until it reaches a semi-solid state, whereby the fat granules are then separated from the liquid buttermilk. Can be consumed directly, and widely used in cooking applications such 85 baking, sauce making and frying. Derived from the tissues of fish, such as cod, tuna and salmon and high in Omega-3 fatty acids. Widely used as a nutritional supplement. Commercial lard refers to rendered and clarified pork. fat which is white in colour. Has a high~smoke point and was thus traditionally used for deep frying. Lard also provides flavour and texture when used as an ingredient in pie crusts, biscuits, pastries and other baked goods. Also used in soaps, salves and candles . / Solid fat that is rendered from the tissues and fatty deposits (referred 10 as suel) from cattle and sheep. Pure tallow is white in colour and is nearly tasteless and odourless.
• Used as cooking fat or shortening in baked goods, and as a lubricant and in the making of candles and soaps.Ue Source: Extracted from the independent market research report prepared by SMITH ZANDER 2.2. Market Performance, Outlook and Prospects 2.2.1. Supply Analysis Global production of edible oils and fats displayed steady positive growth since 2000, increasing from 114.9 million MT in 2000 to 186.3 million MT in 2012 and registering a CAGR of 4.1% over this period. Globally, CPO and soybean oil are the highest produced oils, far outstripping the supply of other edible oils and fats. The market share of CPO and soybean oil, compared against other edible oils and fats. in 2012 was recorded at 28% and 22% respectively, with CPO being the oil of choice in developing nations in Asia and Africa, where supplies are abundant. and soybean oil being preferred in the advanced economies of North America and Europe. Rapeseed oil was the third most produced oil globally in 2012 and accounted for 13% of the global edible oils and fats supply market. PKO was the fifth most produced vegetable oil globally in 2012 and accounted for 3% of the edible oils and fats supply market in that year. In terms of suppliers. the key producers of edible oils and fats globally in 2012 were Indonesia (accounted for 15% of global production), China (accounted for 13% of global production), Malaysia (accounted for 12% of global production), the United States (accounted for 9% of global production) and India (accounted for 5% of global production). Member countries of the European Union, such as Germany, France and Spain, were also notable producers of edible oils and fats, and this region collectively accounted for 12% of global production in 2012. Indonesia and Malaysia mainly produced palm oil and PKO, while China was a producer of a variety of oils including cottonseed oil, groundnutlpeanut oil, sesame seed oil and soybean oil. The United States is a key producer of corn oil, as well as cottonseed oil and soybean oil. India meanwhile produced coconut oil. cottonseed oil, groundnut/peanut oil and sesame seed oil. Weather conditions playa crucial role in determining production trends each year, with various parts of the world generally experiencing different weather patterns that will in turn affect the production of each oil and fat in a different manner. For instance, the EI Nino phenomenon that occurred in 2009 28





3 OUTLOOK AND PROSPECTS FOR BOUSTEAD PLANTATIONS BERHAD Edible oils and fats are some ot the most crucial cooking ingredients in the world and are more sought after now than before. These oils form the basis for food, energy, oleochemicals and fuel. Demand is growing steadily and will continue to do so, matching the growth in population and rising living standards in emerging markets. Global demand for edible oils and fats is expected to grow from 113.5 million MT in 2000 to 209.7 million MT in 2015 at a CAGR of 4.2%, strongly driven by the key supplying nations of Indonesia, China, Malaysia and United States. The strong consumption growth in edible oils and fats over the forecast period is projected to be supported by strong production growth, particularly for palm oil, which is the most produced and consumed of the edible oils and fats. Growth in the palm oil industry is expected to be driven by a number of factors. Among them include the increasing demand for food as a result of the growing popuiation and economic development of key consuming markets such as China and India as well as regions such as Africa and Middle East. Other regions globally such as East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, and South Asia have also registered healthy population increases, along with growth in GOP. Growth in these markets is expected to boost growth in the demand for palm oil and palm oil related products, thereby driving production and consumption worldwide. Furthermore, palm oil’s versatility and fat content have positioned it as a key sustainabie global commodity. Hence, palm oil is increasingly used in a wide range of food and non-food applications, and this bodes well to the continued demand for palm oil products. Malaysia has consistently been among the top two producers of CPO and CPKO globally as a result of the nation’s focus on this oilcrop as an economic sector. The palm oil industry has shown significant growth globally as well as domestically, and this industry is expected to continue to witness growth in the future. The Government has identified the palm oil sector as a National Key Economic Area (NKEA) in the ETP, which is aimed at reaching a GNI of RM178 billion in 2020 while creating an additional 41,000 jobs during this period. The eight entry point projects (EPPs) that span across the palm oil value chain targets developing oil palm cultivation, productivity and sustainability, and ensuring expansion and sustainability of mill and refinery operations. Collectively, these EPPs aim to achieve an increase in the supply of palm oil for domestic and export consumption, and generate higher revenues for the industry. As a result of these EPPs, Malaysia expects to witness growth in total planted area with industry players such as Boustead Plantations Berhad boosting their respective planted areas, thereby providing impetus for the nation to achieve greater export revenue resulting from higher FFB yields and increased production of CPO as well as refined palm products. SMITH ZANDER notes that Boustead Plantations Berhad intends to expand its plantation assets by 20,000 Ha over the next five (5) years, with the ultimate objective of increasing CPO and PK production, its main revenue streams. With the growing demand for edible oils and fats globally, especially for palm-based oils and fats, Boustead Plantations Berhad’s planned increase in CPO and PK production is in line with overall market direction and appears to be a justified growth strategy for the Company. Such an expansion, together with increased productivity and efficiency, shall be made possible as Boustead Plantations Berhad leverages on its competitive strengths and advantages gained from its long experience in the upstream palm oil industry. 38



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