MOSTA: Prospects of IR 4.0 and Enabling Technologies for Oil Palm Industry

Last Tuesday, the Malaysian Oil Scientists’ & Technologists’ Association (MOSTA) held its annual conference where experts and companies share their scientific progress in the oils and fats field. This year, the one-day event focused on oil palm plantations and was split into three IR 4.0-related themes:

1. Precision agriculture: This system was touted as a way for more efficient agricultural practices, allowing for better science-based decision making, e.g. assessing land suitability. At least one panelist mentioned climate change as a reason for data-driven precision agriculture practices.

2. Farming technologies: There is a notable highlight on drones. Sime Darby claimed that its multi-drone operations will be perfected in the next three years for better parallel spraying and opined that smaller plantations may soon have access to drones-as-a-service as the usage increases throughout the industry.

3. Milling technologies: Panelists were emphasising on the importance of digitising milling practices. Some of the opportunities for growth in this regard include incorporating big cloud computing in the Continuous Emission Monitoring Systems (CAMS) and adopting real-time mobile platforms for mill supervision and inspections.

Source: Chen Zi Yan/Applied Agricultural Resources (AAR; 2021). Mr Chen Zi Yan of AAR presented his team’s assessment of the potential economic costs involved in three different insecticide spraying processes at an 180 ha oil palm plantation.

An interesting observation during the concluding panel discussion: in stark contrast to the overall placid progress-updating event, several panelists voiced frustration over the fact that many of these advancements are apparently contained within corporations; researchers are still struggling to obtain adequate cooperation from the private sector to come up with new tech that would benefit the industry as a whole. Additionally, it was pointed out that there is a shortage of required experts, such as drone pilots and robotics engineers, which will become an increasingly significant concern as more and more plantations adopt newer technologies.

ChinaDaily: Jabs Key to Malaysia's Tourism Revival

Last week, ChinaDaily published an interesting piece by Prime Sarmiento on how vaccinations are the key to reviving Malaysia’s struggling tourism industry. The article follows news that the government is mulling plans for a travel bubble to Langkawi, a quintessential tourism region, for fully vaccinated individuals (note: the bubble comes into effect on 16 Sep 2021). Several experts have voiced cautious optimism for this move since, as explained by People’s Health Forum’s Dr Micahel Jeyakumar Devaraj, it is now no longer possible to maintain a zero-case policy in the country.

Photo: The Langkawi Sky Bridge by Manish Tulaskar/Unsplashed. Known as the Jewel of the Kedah state, Langkawi is one of Malaysia’s wildly popular tourist destinations. In 2019, the archipelago recorded 3.92 million tourist arrivals, raking in an estimated revenue of RM1.7 billion (USD410 million) to nearly 5,000 businesses operating on the island. Approximately 70% of Langkawi’s residents are reported to rely on the tourism sector for income.

Deakin University’s Dr Catherine Bennet emphasised the need for vaccinations, explaining that restricting travel to only fully-vaccinated individuals would lower the risk of serious illnesses even in a case of infections. This would mean continuously pushing for more and more people to get the jab—Segi Enam Advisor’s Khor Yu Leng has pointed out that this may not be a significant issue for Malaysia considering that vaccine hesitancy is relatively low in the country.

NEW! Khor Reports' PalmTrack Kicks Off

September is a month of a couple of new things for Khor Reports—the first was our PolTracker: Malaysia—1 Sep 2021, an online-view only report tracking hot topics and themes in Malaysia’s political economy and backed by data from social media and human-sourced intel.

This time, we are shifting our focus back to the staple of our work: the economics of the palm oil industry. Khor Reports is proud to present PalmTrack!

In PalmTrack, we offer exclusive updates surrounding the palm products trade. Written by Khor Reports/Segi Enam Advisor’s Khor Yu Leng and Nadirah Sharif, we aim to provide info-data driven insights with reference to granular trade statistics, near-time shipment/cargo information, and human-source market intelligence. PalmTrack mainly covers key Indonesian ports.

At the moment, subscription is free! Members will have access to relevant research data and news stories, including trade updates from key export countries and reports on sustainability and geopolitical conflicts. We also offer more granular trade and vessel data mentioned in our reports for corporate subscribers.

Interested? Subscribe by clicking the button below! Questions? Feel free to reach out to us at research@segi-enam.com.

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Indonesia Ends Cooperation with Norway on Emissions Reduction Plan

After more than 10 years in effect, Indonesia has terminated its 2010 Letter of Intent (LOI) with Norway, ending the countries’ collaborative efforts under the REDD+ initiative, i.e. reducing greenhouse gas (GHG) emission from deforestation and forest degradation. According to the Indonesian Ministry of Foreign Affairs, the termination was due to the “lack of concrete progress on the implementation of the obligation of the government of Norway to deliver the results-based payment for Indonesia’s achievement in reducing 11.2 million CO2eq greenhouse gas emissions in 2016/17.” Indonesian Deputy Minister for Environment and Forestry Alue Dohong similarly cited a lack of payment from Norway—despite agreeing in 2019 to remit approximately USD56 million—as a possible reason behind the termination.

Norway has since responded by reaffirming its support to Indonesia in latter’s efforts to protect its forests and peatlands.

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Our comment

This new development has certainly led to some raised eyebrows. Recent data shows that Indonesia has been making headway in forest protection, recording a steadily declining deforestation rate in the last four years.

Together with the Singapore Institute of International Affairs (SIIA), Segi Enam Advisors has explored Indonesia’s success story in the Haze Outlook 2021. Indonesia lost 115,459 hectares to deforestation in 2020, a historic low considering the millions of hectares lost in the previous years as well as the generally increasing trend of deforestation happening globally despite the Covid-19 pandemic. The archipelago’s achievement meant it slipped from its regular top three place for primary forest loss countries to fourth in the World Research Institute (WRI)’s global forest review for the first time since 2000.

From SIIA/Segi Enam Advisors (2021): “Official deforestation rate for Indonesia and forward targets, 1990-2030. Note: Forest areas refers to zones that should legally be maintained as forests, while non-forest areas are zones that lack such legal status (but may still have tree cover). The spikes in deforestation correspond to previous severe transboundary haze incidents, linked to weather conditions and economic factors such as the Asian Financial Crisis and growing demand for vegetable oils (including for biofuels). Source: Official data and targets (annualised), KLHK.”

As for GHG emissions, agriculture, forestry, and other land use (AFOLU) typically generates at least half of Indonesia’s annual emissions, recording approximately 67% in 2015 and approximately 50–60% in a more normal year). Official data puts average emission levels from the forestry sector between 2000–2018 at about 439.9 million tonnes of carbon dioxide equivalent (CO2e); the level is 214.0 million tonnes of CO2e if emissions from peat fires are excluded.

To get more perspective, we spoke to a specialist on regional climate change policy. “Indonesia received some payments. But we have been hearing about their dissatisfaction.” It looks like payments have been significantly below the headline figure, were there issues on milestones or other? “It seems to be about the use of payments.”

From SIIA/Segi Enam Advisors (2021): “Indonesian national GHG emissions (including peat fires), 2000-2016. Note: Graph tracks Industrial Process and Product Use (IPPU), Forestry and Other Land Use (FOLU), and other sources of emissions. Source: UNFCCC.”

research@segi-enam.com | 13 Sep 2021, 3 p.m.

NEW! Khor Reports' PolTracker: Malaysia—1 Sep 2021

Debuting under our brand new—and long in the making—Products page, Khor Reports is proud to present our first PolTrackers report on the Malaysian political economy scene!

The [SAMPLE] Poltracker: Malaysia—1 Sep 2021 tracks hot topics and themes relevant to the Southeast Asian nation based on data obtained from social media and human-sourced intel. The 6–8 paged briefing includes: (1) questions about Prime Minister Ismail Sabri’s taking over for an embattled Muhyiddin; (2) Twitter Malaysia, e.g. hashtag protests and netizen reaction to the “new” cabinet; (3) eye on the opposition response, e.g. Mahathir's Council or Muhyiddin reform deal; (4) Covid worries persist; and (5) a Q&A session, including a 20-min session for subscribers.

Interested? Just add the report to your cart (it’s free!) and check out. Request for access and allow us one (1) working day to verify your email address before granting you access to the report.

Please note that the document is view online only.

BFM: Politics Roundup—Vote of Confidence, Muhyiddin's Appointment

It has been almost three weeks since the appointment of Ismail Sabri as Prime Minister, making him Malaysia’s second premier appointed during the Covid-19 pandemic. Together with parliamentary consultant Maha Balakrishnan and Merdeka Center programme director Ben Suffian, Segi Enam Advisors principal Khor Yu Leng joined BFM’s Inside Story for a 40-minute discussion surrounding the various political upheavals—and their long-term implications—the country has recently experienced: Politics Roundup—Vote of Confidence, Muhyiddin's Appointment

We round up on political developments by looking at the the ramifications of the Attorney General saying that there’s no need for a vote of confidence in the upcoming Dewan Rakyat sitting. Then, we explore what the larger impact of former PM Tan Sri Muhyiddin Yassin being appointed the chairperson for the National Recovery Council will have. And finally - we talk about what this all says about Ismail Sabri’s administration.

Image Source: zmpixes, Shutterstock; produced by: Tasha Fusil, Alia Zefri, Loo Juosie; presented by: Sharmilla Ganesan, Lee Chwi Lynn

Aquaponics: What's That?

The search for more sustainable, environmentally-friendly farming methods has been well underway within the agricultural community, further motivated by growing concerns about food security amidst the looming threat of both climate change and the ongoing Covid-19 pandemic. One promising concept that has been shyly popping up in recent discussions is aquaponics.

Aquaponics is essentially a practice combining both aquaculture and hydroponics. The idea is to create a symbiotic relationship by growing both fish and plants in the same space—fish manure fertilises the plants with nutrients beneficial for growth; in turn, the plants purify the water which is then pumped back into the fish pond. Aquaponics thus presents an interesting avenue for sustainable, eco-friendly farming, especially in areas where the resources required for more traditional agriculture activities are limited.

Due to the absence of soil, much of the benefits reaped from an aquaponic environment is similar to that of its hydroponics or aeroponics-based cousins, with possible added bonuses. Crop yield and productivity from soilless cultivation systems, for example, are generally higher than their soiled counterparts, with aquaponics having the added advantage of a more natural source of nutrients courtesy of the fish (Trees.com, 2021; Agritecture, 2019; Gashgari et al., 2018).

Pak choi at the Kundasang Aquafarm (Kundasang Aquafarm, 2018)

Still, aquaponics is not the most popular agricultural practice out there, probably owing to factors such as the relatively expensive and complex start-up. However, some places in the world have turned to aquaponics farming as a continuous, sustainable source of fresh produce: an aquaponics lab in Berkshire County, Massachusetts plays a dual role of providing the community with almost 1,000 heads of lettuce a week and as an educational site for inmates; the Malaysian farming scene is seeing a rise in aquaponics spearheaded by small companies/projects such as The Urban Farm, E-Farm, Kundasang Aquafarm, Homegrown Goodness, and Aquaville Asia; German-based desert-tech company Desertfoods International has partnered with Integrated Aquaculture Ltd to establish South Africa’s largest aquaponics facility, which aims to generate 200 tonnes of fish and vegetables annually.

Questions Surface over Leon’s Carbon-neutral Burgers and Fries

Earlier this year, Leon announced that it would be the first UK-based chain restaurant to offer carbon-neutral burgers and fries via its carbon offsets programmes. However, scientists, journalists, and NGOs are raising questions of credibility of its Redd+ projects. There are concerns that these carbon projects do not truly have a significant impact of reversing carbon emissions, potentially misleading consumers into thinking they are making a beneficial change to the environment. 

For one, since carbon offsets programmes are generated based on hypothetical predictions of deforestation if the programme doesn’t exist, there are justifiable doubts as to whether threats of deforestation and carbon reductions are fully captured. This concern is well-documented—an investigation of accredited forest protection schemes by the Guardian and Greenpeace's Unearthed, for example, found instances of possible understated deforestation risks and overstated emission reductions. In response, Verra, the organisation responsible for accrediting these schemes, issued a rather fiery statement defending itself, bringing the matter to a stalemate and indicating that this concern will likely remain unresolved for the time being. 

Another issue regarding carbon-neutral programmes is risk management. In this instance, the “buffer pool” mechanism employed by carbon offset projects comes to mind. A buffer pool is essentially a form of insurance where some of the credits generated from a project are set aside and cannot be sold; in instances of carbon emissions due to fires or other events, credits will be taken out from the pool and cancelled. 

Forests are not only prone to fire, but also drought and pests. CarbonPlan (accessed 2 Sep 2021) uses data analytics to map out these risks based on previous historical forest data.

Among the various criticisms of this mechanism, which include out-of-date calculations and permanence, one notable criticism is how much buffer pools “insure” carbon forests in the first place. Experts have pointed out that buffer pools comprise only a fraction of the credits associated with the offset, meaning that projects are underestimating the forest-associated risks, particularly that of fires. For example, in the fire-prone Colville Indian Reservation, only 2% of credits were contributed to the buffer pool, suggesting that the pool is not created in a way that takes into full account real climate-related threats faced by Colville’s forests.

Maps of offset projects on the west coast of the US (left; Forest Trends, accessed 2 Sep 2021) compared with detected fires/hotspots of the same within the last 30 days (right; FIRMS/NASA, accessed 2 Sep 2021). California is home to a number of carbon offset projects, primarily in the northern region. Surprisingly, this is also an area where significant fire risks can be found.

Concerns about risk management are relevant in our home region of Southeast Asia as well. Currently, Indonesia is making an effort to introduce more offset projects for conservation efforts and foreign direct investment involving forests in Kalimantan, Sulawesi, Maluku, and Papua. Considering that much of the archipelago consists of peatlands and fire-prone forests, risk management is a highly important—and complicated, since efforts to mitigate disasters vary from region to region—issue to tackle.

Maps offset projects (left; Forest Trends, accessed 2 Sep 2021) and detected fires/hotspots in the eastern region Sumatera (right; FIRMS/NASA, accessed 2 Sep 2021).

Ultimately, it would seem that the proof of concept for carbon offset forestry programmes includes at least two important factors: transparent data reporting and proper risk management systems.

By MUHAMMED Hazim, Segi Enam intern, 2 Sep 2021 | LinkedIn

Edited by Nadirah SHARIF

ESG Benchmarking: Part #3 - Race to the Top

As explained in previous posts in this series (again, disclaimer made in the first post still stands!), investors may be better versed with the key issues that Contemporaries focus on, and are given more up-to-date, standardized and reliable ESG ratings for companies. However, data scores given are more volatile when comparing Contemporaries with Traditionalists. When comparing TVL with MSCI, TVL has higher standard deviation and variance in ratings, with standard deviations of 1.41 and 0.97 respectively. 

However, this is not to say that this volatility is bad. Humans have a habit of lowering entropy or seeking out patterns, some of which may not entirely exist. In the AI world, it is purely algorithmic, determined by a machine. There is no conscious decision making that is forcing the AI algorithm to lower deviation in data. It simply uses the information at hand, does some calculations, and comes up with a rating. 

This is a good thing that reinforces the objectivity of Contemporary approaches. Nevertheless, it is not to say that the Contemporary approach is entirely perfect. AI algorithms are highly dependent on large volumes of data to enhance learning and provide outputs closer to the “true value” we are looking for. Therefore, Contemporaries would definitely need lots more data to help fine tune their system. For example, data is not evenly distributed geographically: there is more data to be scrapped in the developed world than there is in developing countries. There is no equality in data access, and things such as data censorship, government suppression of information, or simply a lack of infrastructure to relay data online can all affect the reliability of the AI algorithm used by Contemporaries. 

Moreover, Contemporaries are completely dependent on external sources of data. It is important that there are data vendors available to them, or rather more data vendors may be needed. But more global data sources are becoming increasingly available, and may be used in the near future to help enhance the Contemporary method of ESG rating. Two examples include the Global Forest Watch (GFW) and MethaneSAT. GFW provides forest data globally, using satellite data as well as a network of partners to collect this information. This data is publicly available and free to use. MethaneSAT is a Jeff Bezos-funded initiative utilizing satellites to collect methane data all around the world and at a faster rate than scientists can measure from Earth. Data is publicly available to see how companies and governments are progressing with their carbon initiatives. 

MethaneSAT boasts several impressive feats. Its satellites can identify emissions across the globe and measure the amount of emissions released from pre-determined locations. From there, its algorithms are able to calculate the rate at which methane is escaping into the atmosphere as well as the total emissions from both individual points or regions.

The key points about these data vendors is that they provide global data and are publicly available. Having more data sources like this would thus be advantageous to Contemporaries, as they help tackle the issue of geographic informational inequality and enforce the reliability of data due given the freedom of public scrutiny. However, there needs to be more of these types of data sources, and data vendors of this sort for the other two aspects of ESG, Social and Corporate Governance.

Additionally, corporate disclosures are also an important source of information that has not been given much attention by Contemporaries, although to avoid greenwashing or providing a false image of a company, mandates should be put in place to enforce responsible auditing on ESG issues and more transparency in company disclosure.

Perhaps a better approach for Contemporaries would be to look at the discrepancies between the corporate disclosures and the internet data they collect. Discrepancies could be used as a confidence weighting on ratings for each component of ESG to ultimately determine a company’s rating. Whatever approach is taken, it is clear more data and richer sources are therefore required to help tackle the issues of volatility and increasing equality in access to data. 

What are the issues we should be worried about?

A major concern regarding Contemporaries is that they are run by profit-driven businesses. Their work is not publicly available or free to use, whereas Traditionalists like Sustainalytics have their ESG ratings available online. There is a lot of talk on how powerful their AI tools are, but not much of it can be publicly scrutinised unless you request for a demo, raising justifiable concerns about how reliable the technology actually is. Moreover, Contemporaries tend to be closely associated with international financial centres (IFCs)—TVL, for example, is owned by FactSet, an American financial services company in the second largest hedge fund state of Connecticut. 

Since their methodology is not easily examined,  due to limited disclosure, it is unclear as to the sort of parameters used or the assumptions made in developing its ESG rating model. Moreover, algorithms are not entirely subjective in their creation. They are subject to the scrutiny of their makers, and may have certain biases or other hints of subjectiveness built into the foundation of their AI system. Without a true value to compare ESG ratings with, we would not be entirely sure how well the algorithm really works.

With the uncertainty in the actual formulation of the Contemporary AI analyst, and the profit-driven nature of Contemporaries themselves, Hughes, Urban, and Wójcik (2021) note that Contemporaries may “complement rather than substitute” the Traditionalists in the near future (Hughes, Urban, and Wójcik, 2021). Although Contemporaries seem more democratic and provide more transparent ratings, Contemporaries also have areas of opaqueness that can affect the way ESG ratings are done. Perhaps if Contemporaries were not profit driven and rather more altruistic could AI truly replace traditional approaches to ESG.

Check out my first two posts on AIs and ESG benchmarking: ESG Benchmarking: Part #1 - ESG, AI, and the Investment Industry and ESG Benchmarking: Part #2 - AI, the New Hope of ESG

By MUHAMMED Hazim, Segi Enam intern, 30 Aug 2021 | LinkedIn

Edited by Nadirah SHARIF

BFM: Competency Needed in New Cabinet

Following his appointment as Malaysia’s Prime Minister, Ismail Sabri promises to announce his new Cabinet this week. As speculations abound on who will make it onto the administration line-up, one thing is for certain: competency from this new Cabinet is non-negotiable. Segi Enam Advisors principle, Khor Yu Leng, was on the BFM Morning Brief yesterday to join in on the discussion, including who the new Deputy Prime Minister might be and possible investor reaction: Competency Needed in New Cabinet

Khor Yu Leng, Political Economist at Segi Enam Advisors speculates how the new cabinet would look like and its size under Datuk Seri Ismail Sabri as Prime Minister. Would it be sizeable to appease all parties? And who might become Deputy Prime Minister(s)?

Image credit: Shutterstock.com; produced by: Arleen Webber; presented by: Shazana Mokhtar, Noelle Lim, Khoo Hsu Chuang

BTS of the BFM Morning Brief! Parti Warisan Sabah President Shafie Apdal joined the call for a brief moment in preparation for the next segment, Shafie: It Comes Down to Leadership.