Palm Oil Continues to be the Nation’s Pillar of Growth

KUCHING: Malaysia’s influence in shaping the direction of the global palm oil market cannot be ignored though overtaken as the world’s largest palm oil producer by Indonesia.

POISED FOR GROWTH: Although Malaysian is a major rubber and timber producer, almost three quarters of the country’s agricultural land is devoted to palm oil production.

For the past 25 years, the Malaysian palm oil industry’s stronghold has been in upstream activities, where domestic fresh fruit bunch (FFB) production achieved higher yields or production per acre compared with other producers globally.

Currently, Malaysia’s palm oil industry is the fourth largest contributor to the national coffers, accounting for at least eight per cent Gross National Income (GNI) per capita.

The commodities sector was mostly driven by the private sector, with the government having a strong presence through its government-linked companies (GLCs), said International Investor country publisher Cory D’Abreo.

In Malaysia, 71 per cent of total agricultural land was used by oil palm plantations. As of 2009, the total planted area for oil palm estates stood at 4.7 million hectares. “Growth is estimated at more than seven per cent in the next ten years, driven by FFB yield, expansion overseas and downstream activities,” he added.

In terms of export, Malaysia boasts strong local production of palm oil, which contributed 37 per cent of palm oil production globally. Major exports were to China, European economies and Pakistan.

In recent years, the world has witnessed a strong entrance by Indonesia. Despite domestic problems, Indonesia has emerged as a significant exporter and aggressive competitor in all palm oil markets, especially the production of FFB.

“On top of that, Indonesia’s weak ruppiah has also allowed it to sell below Malaysian prices,” said D’Abreo. “In ensuring the sustainability of palm oil, organisations at a global level aspire to transform the markets to make sustainable palm oil the norm.”

At the national level Malaysia Palm Oil Board (MPOB), the Malaysian Palm Oil Association (MPOA) and the Malaysian Palm Oil Council (MPOC) are collaborating to set structures and standards for the local industry.

In addition, MPOB also drives initiatives through research and development to introduce higher quality seeds and seedlings for local plantation usage. The main focus of the research is on increasing yields, quality of palm oil and decreasing height of the oil palm trees for easier harvesting.

“As such, the land exploration for palm oil in Malaysia is increasing rapidly,” D’Arbeeo highlighted. “In 2010, the total planted area was 4.8 million hectares compared with 2.02 million hectares ten years ago.”

Currently, 52 per cent of the planted area is in Peninsular Malaysia, 19 per cent in Sarawak and 29 per cent in Sabah where 61 per cent ownership is by private corporations. “Lack of available land is a major concern for the upstream industries,” D’Abreo added.

As a result, major players in Malaysia have started to focus on downstream activities such as production of downstream oil products, product packaging and global distribution. Export value for palm oil products increased to RM59.79 billion in 2010 in comparison with RM49.66 billion in 2009.

The future roadmap for the palm oil sector was set to move even further with the implementation of Economic Transformation Programme’s (ETP) Entry Point Projects (EPP) for palm oil, where financial support are made available for industry players.

Ntional monitoring unit Performance Management and Delivery Unit (Pemandu) has outlined an action plan to clear a backlog of over 300,000 hectares of palm trees aged over 25 years.

On the technology advancement perspective, there are only 12 mills currently, in Malaysia that embarked on the development of biogas plants and Pemandu had recomended that 500 additional mills to be developed by the year 2021.

“There are several opportunities offered in the area of constructing and operation of biogas plants, including building gas flaring facilities (worth RM1.7 billion), investing in connection of mulls to the grid (worth RM845 million) and investing in gas burners (worth RM259 million),” said D’Abreo.

“In line with the effort to move investing focus to the downstream sector, the emphasis on shifting national production from basic oleochemicals to high-value oleo derivatives is in action,” he added.

One of the biggest concerns in the industry right now was the move to revise crude palm oil (CPO) export tax which remain unchanged since the 1960s. Although the changed was expected to take place by year-end or early 2013, there were no official announcement from the government as yet, he pointed out.

Currently, Indonesia imposes 19.5 per cent export tax for CPO, while Malaysia’s is 30 per cent after a duty-free limit of 3.6 million tonnes, putting it in a disadvantage position.

Besides this, Indonesia refiners are also getting cheaper CPO and feedstock.

Malaysia, being the world’s second-largest palm oil producer needs to reform the industry’s tax structure to counter new rates in Indonesia.

On the other hand, HwangDBS Investment Bank Bhd (HwangDBS) in its latest report said palm oil processors in Indonesia were expected to consume more of their home-grown commodity in the third quarter and this would progressively deplete inventories.

“For this reason, refining capacity utilisation in Malaysia could drop in the near-term and reverse the inventory downtread observed thus far,” it said.

On the production front, it said May’s output of 1.383 million tonnes was below the research houses’s forecast of 1.67 million tonnes.

However, its said stocks were expected to grow 26 per cent in June to 1.746 million tonnes in anticipation of yield recovery in FFB.

Source : The Borneo Post

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