The first commercial oil palm estate in Malaysia was set up in 1917 at Tennamaran estate, Selangor. Palm oil is one of the seventeen major oils and fats in the world market. The government encouraged crop diversification from rubber to oil palm in the late 1950s. The area utilised for oil palm plantations in Malaysia has increased to 3.31 million hectares by the year 1999; where 62% of the total area is located in Peninsular Malaysia while Sabah and Sarawak 28% and 10%, respectively [4].

The oil palm fruit produces two distinct oils which are palm oil and palm kernel oil. Palm oil is obtained from the mesocarp while palm kernel oil is obtained from the seed or kernel. Palm oil is used mainly for the production of margarine and compounds in cooking fats and oils and also for the production of candles, detergents, soap and cosmetic products. Production of palm kernel oil is about 12% of the production of its palm oil.

The success of the Malaysian palm oil industry is the result of the ideal climatic conditions, efficient milling and refining technologies and facilities, research and development, and efficient and adequate management skills. Practically all palm oil mills generate their own heat and power through the co-generation system [13]. The Malaysian government is fully committed to the expansion of the industry and encourages global expansion of palm oil production. Palm oil is now readily accepted globally and Malaysia has exported palm oil to more than 140 countries in the world.

Most palm oil is currently produced in South East Asia, even though the oil palm is originally an African crop, which was introduced to South East Asia in the 19th century. The two largest producers are Malaysia and Indonesia, who together account for roughly 85% of the world palm oil production [14]. In 2004 Malaysian production exceeded Indonesian production. However, the US Department of Agriculture notes that mature palm area in Indonesia is being expanded from 5 to 8 million hectares, which should easily overtake

Malaysia in the near future [15]. There are plans for expansion of palm area in South America [16] and Africa [17], both of which in principle offer large tracts of suitable tropical land. Compared to the potential expansion, however, these plans are embryonic and current production is low and largely for domestic consumption.

Palm oil and related products represented the second largest export of Malaysia in the first nine months of 2005, after electronics, but just ahead of crude oil [18]. In 2005, Malaysian palm oil production is projected to reach approximately 15 million tonnes (301,000 barrels per day), which is very close to the actual value of 14.96 million metric tones recorded by Malaysian Palm Oil Board (MPOB) [19,20]. By comparison, Malaysian petroleum production in 2004 is estimated at 43 million tonnes (855,000 barrels per day), of which 16 million tonnes (321,000 barrels per day) were exported. Domestic petroleum demand of 26 million tonnes represented 44% of the total energy demand of 60 million tonnes of oil equivalent [21].

The total oil palm planted area in Malaysia increased by 2.8% to 4.17 million hectares in 2006. The area expansion occurred mainly in Sabah and Sarawak with a combined growth of 4.5% compared to 1.6% in Peninsular Malaysia [22]. Sabah remained the largest oil palm planted state with 1.24 million hectares or 30% of the total planted area. Table 2.2 shows the oil palm planted areas by state in Malaysia for 2005 until 2008 (in hectares) [22,23].

The production of crude palm oil increased by a further 6.1% to 15.9 million tonnes in 2006 from 15.0 million tonnes the previous year as shown in Figure 2.3. Figure 2.4 shows that the increase was mainly attributed to the expansion in matured areas by 2.0% and rise in the average fresh fruit bunches yield per hectare by 3.8% to 19.6 tonnes due to better management and agricultural inputs. Figure 2.4 also shows that the oil yield per hectare

Crude palm oil Palm kernel Crude palm Palm kernel cake

kernel oil

Figure 1. Production of Palm Oil Products every Ten Years from 1976 — 2006, 2007 and 2008 [18,23]

had increased by 3.4% to 3.9 tonnes, despite the oil extraction rate (OER) declining marginally by 0.5% to 20.04% as shown in Figure 2.5. The decrease in OER in the years 1993 to 2001 which is significant is due to the global recession accounting for a lower demand of export market. However, despite a weak global economy, there is a significant recovery in 2002 as the government implemented prudent policies to assist the Malaysian oil palm industry. These include the expansion of oil palm in matured areas and the campaign on improved productivity in the oil palm industry, coupled with providing competitive prices of oil palm, liberalization of export duties and the encouragement of counter-trades for higher exports [24]. Crude palm kernel oil production rose by 6.1% to 1.96 million tonnes in tandem with a 4.1% growth in palm kernel production as shown in Figure 2.3 [18,23].

The rapid expansion of oil palm cultivation has raised concerns about the sustainability and environmental impact of oil palm plantations, in particular with regard to biodiversity, destruction of old growth rainforest and air pollution [25,26]. To illustrate the potential impact, it is worthy to reflect on the fact that with a palm oil yield of 4 tonnes per hectare tropical forest of roughly the size of the United States would be required to satisfy current world crude oil demand. Increased yields are one avenue for reducing the area imprint for oil palm plantations. It is estimated, based on fundamental factors and actual yields achieved on experimental plots that yields as high as approximately 10 tonnes per hectare may eventually be achievable [27]. At these yields, current world oil demand could be met on roughly 4 million square kilometres, which is 40% of the area of the United States, or over half the land mass of Brazil.