Getting palm oil from the plantations into our hands is an intricate process. Journey with us as we tour a palm oil production plant!
Ever wonder where Dunkin’ Donuts gets the oil they use to fry your donut?
How about the oil McDonald’s uses for its fries?
Let’s take a closer look at one palm oil company owned by trademark name Sinarmas: Golden Agri Resources Ltd.
Palm oil production starts outside of the factory walls among the 4,000 hectares of palm oil trees. A special team of workers is responsible for the enormous effort it takes to harvest each fresh fruit bunch (FFB) from the trees on the plantation.
There are four parts to the tree’s life cycle. During the first three years, the tree is immature and not producing. During years 4 to 10, the young tree is accelerating in production, and from 10 to 15 the tree is in the prime of its life. By 15 to 20 years, the tree is 30 feet high (10 meters), past its prime, but still economic.
At the very top of each tree there are multiple fruit bunches to be harvested.
Palm oil trees are cross-pollinated crops with both male and female FFBs. Assisted pollination can sometimes be done to guarantee fertilization of all female flowers.
To chop down the fresh fruit bunch, the workers use a sickle-shaped tool.
On a very long pole.
It takes a skilled hand to use this tool and remove the bunches from the high point of the trees.
The workers are thorough, trying to meet their quota for the day. Even the fruits that fall off of the bunches are gathered and counted as part of the day’s total.
The fresh fruit bunch is then hurled into a wheelbarrow…
And dropped off alongside a road, where it is scooped up by a John Deere tractor.
After the fruits are removed from the bunches, the empty bunches are thrown into a truck…
And recycled along the forest path.
Back at the factory, the fruits are made into various kinds of palm oil.
The yellow part of the fruit is made primarily into crude palm oil (CPO), which then gets refined. The white part inside of the kernel is made into crude palm kernel oil (CPKO).
CPKO, after refined, is a higher-end product used in food ingredients such as coconut butter substitute (in chocolates) as well as non-food items like cosmetics. The factory had several signs showing exactly how the oil can be used for certain culinary purposes.
Palm oil fills grocery store shelves because of properties that make it suitable for various products, including spreads and sauces. It also has a long shelf-life.
Palm oil’s melting point is ideal for different spreadable products like margarine that must stay solid at room temperature. It’s also ideal for frying baked goods, such as donuts.
Palm oil trees yield more useable product than plants such as soy beans. Every part of the fresh fruit bunch is used, including the hard inside kernel.
Did you know that Indonesia and Malaysia make up a majority of all the palm oil production in the world? We were able to experience the daily process that goes into the production of this increasingly popular commodity. It’s this type of tacit knowledge we value here at U.S. Global Investors to help us make informed investment decisions.
Pictures courtesy of CLSA analyst Chuanyao Lu, U.S. Global Investors
None of U.S. Global Investors Funds held any of the securities mentioned in this presentation.
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