Palm oil demand drives Indofood share surge

Indofood Agri was valued at around €1.2bn after floating itself on the market, having seen its shares rise to as high €0.9 each, after beginning trading at €0.6 each.

According to figures by the US department of agriculture (USDA), global palm oil consumption in 2006 increased by 6.6 per cent to 35.3m metric tons.

This pattern is expected to continue in 2007 with an estimated 5.5 per cent consumption rise.

This increase in consumption is being driven in part by biofuel consumption and in part by growing consumer health awareness.

The USDA has predicted that these drivers could allow Indonesia to overtake Malaysia as the leading producer of palm oils, with an expected output of 16m metric tons this year.

What makes palm oil so attractive to food processors is the fact that they are free from unpopular trans fats.

Trans fatty acids are a by-product of hydrogenated fats, which have increasingly been linked to heart problems.

In addition, the palm oil industry has been quick to emphasise that the oil is antioxidant-rich.

But the surging popularity of palm oil has attracted growing criticism from both environmentalists and health campaigners.

For example, its reputation as a 'healthy alternative' to trans fat-rich oils has been brought into question.

Speaking this week at a Trans-Tasmanian meeting of food safety officials, the Australian minister for health and ageing revealed that the food industry's obsession to find trans fat free alternatives was overshadowing wider health concerns in the regions diets.

Christopher Pyne MP praised efforts to remove trans fats from the food chain, though was wary of the reputation of palm oil as a healthy alternative for producers.

" I have seen reports in the media where a food outlet states is telling consumers that they had gone 'transfat free' when, in fact, it is using palm oil , which is high in saturated fat," he added.

Environmental groups are also concerned at the growing interest in palm oils, which is resulting in the destruction of wildlife.

Last year, pressure group Friends of the earth (FoE) published its `Oil for Ape Scandal' study, which claimed that that without urgent intervention the palm oil trade could cause the extinction of the orang-utan ape within 12 years.

The problem, according to FoE, is that over 89 per cent of all palm oil is produced in Malaysia and Indonesia, and as a result almost 90 per cent of the orang-utan's habitat in Indonesia and Malaysia has now been destroyed.

Despite these concerns Indofood Agri appears keen to continue driving growth of palm oil consumption particularly in Indonesia, announcing that the proceeds of its stock activities will be reinvested in developing its plantations in Indonesia.