IOI Corporation Berhad – Transformation of Malaysian Palm Oil Sector
Dato’ Lee Yeow Chor, Group Managing Director and Chief Executive of IOI Corporation Berhad, a global palm oil business, describes what is driving industry change in the region that is the world’s largest palm oil producer.
IOI Corporation Berhad (IOI), a leading global integrated and sustainable palm oil player stands at the forefront of the industry’s transformation. Running a successful palm oil business consisting of upstream plantations in both Malaysia and Indonesia and downstream resource-based manufacturing business in seven different countries, the company applies a hands-on management approach and excellent agronomic practices. IOI is ranked highly as one of the most efficient major plantation owners, producing one of the highest oil yields in the industry.
IOI’s resource-based manufacturing business consists of three segments: refining, oleochemical and specialty oils and fats. The company owns two palm oil refineries in Malaysia and four oleochemical manufacturing plants in Malaysia and Germany. Its specialty oils and fats manufacturing business is carried out by its 30%-owned associate company, Bunge Loders Croklaan, which has manufacturing operations in various parts of the world.
Dato’ Lee Yeow Chor, speaking in his capacity as IOI Group Managing Director and also as Chairman of the Malaysian Palm Oil Association, provides an insight not only into his company and its prospects but also into the palm oil industry in Malaysia and Indonesia as such, and the current changes that the sector is facing and needs to accommodate.
“In terms of production, Malaysia and Indonesia together produce about 85% of global palm oil volume as they have ideal climatic conditions – a narrow belt of 5° above & below the equator with good rainfall,” says Dato’ Lee, pointing out that the industry is over 100 years old – oil palms started to be commercially grown as a crop in Malaysia in 1907, first by the French, and then by other European entities.
He points out that palm oil is the world’s most consumed vegetable oil. It is used not only in cooking but also in snack ingredients and infant formula. Palm oil can also be processed into oleochemicals, i.e., vegetable-based chemicals as a substitute for animal-based and petroleum-based chemicals, and also as biodiesel, a renewable fuel.
Dato’ Lee further acknowledges that despite agriculture being a traditional sector, modern technology and innovative methods have been employed in oil palm cultivation to increase productivity and reduce agricultural inputs. Some companies use tissue culturing to produce clonal planting material (non-GMO), and UAVs or drones are deployed to conduct block boundary and contour survey, census on planting density and disease detection.
Modernisation and digitisation are topics close to Dato’ Lee’s heart – last year he was awarded the Digital Transformation CEO of the Year for Malaysia by the renowned international research firm International Data Corporation (IDC), in recognition of his efforts to have successfully undertaken his company’s digitisation and transformation journey.
“Recently companies like ourselves have intensified their digitisation processes. With the pandemic, technology and digitisation have become critical business success factors, ” he points out.
IOI implemented the SAP Enterprise Resource Planning (ERP) System in its downstream resource-based manufacturing business more than 15 years ago, and in 2018, the company decided to implement the SAP ERP System together with the Electronic Plantation Monitoring System (ePMS) using handheld devices in its oil palm plantations to control crop quality and the movement of crops to factories.
“This has been an ambitious project, involving 107 business units across 170,000 hectares of land, an area 2,5 times larger than Singapore to give you a picture of the effort involved,” says Dato Lee, explaining that the digital transformation programme was initiated with the vision of optimising activities across the entire value chain to maximise productivity, minimise cost and to cope with the fluidness of market conditions.
Moving forward, IOI is already exploring ways to further automate routine business processes by enabling robotic processing automation (RPA).
Sustainable palm oil future
Reflecting on what drives successful palm oil planting in Malaysia and Indonesia, Dato’ Lee says: ” It is an inclusive agricultural sector where 35% of the land is owned by small farmers each managing less than 5 hectares of land. Oil palm planting provides employment and uplifts the income of the rural population, and it also works as a catalyst to improve infrastructure. It also provides an important source of income for migrant workers that have come to replace the younger generation moving to the cities. Today, of the 800,000 working in the sector in Malaysia, about 45% are workers from less developed countries.”
Dato’ Lee affirms that as oil palm is grown on the vast land area in the two countries which still have large tropical forests, growers have recognised the importance of subscribing to sustainability principles focused not only on the protection of the environment but also on workers and community.
To this end, the RSPO (Roundtable on Sustainable Palm Oil) was established in 2004, jointly by the large growers and a few leading household goods multinational companies to form a global certification body with over 3,000 members that aims to make sustainable palm oil the norm. While RSPO is voluntary, there is another body that provides country-wide mandatory certification – MPSO (Malaysian Sustainable Palm Oil). As of today, around 90% of Malaysian growers are certified (the remaining 10% are smallholders). All of IOI’s Malaysian plantations have been RSPO-certified since 2015 and were MSPO-certified in 2019.
Speaking about the future, he reflects that the focus will be on reducing the dependence on manual migrants through increased mechanisation, deploying more modern technology, and on increasing value-added applications, such as green chemicals that are renewable and biodegradable, nutraceuticals such as beta carotene and tocotrienols and renewable fuel. “Demand for palm oil is increasing globally and a zero-carbon policy is a target in many countries now. The potential is therefore considerable.”