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Malaysian and other oil palm companies expanding plantations [17-11-2011]  
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The sale of plantation land in Malaysia is on the rise, with greenfield reaching about RM30,000 to RM55,000 per hectare while brownfield is estimated at RM70,000 to RM90,000 per hectare depending on the age profile at the acquisition period for young, prime and old oil palm trees, said Tradewinds Plantation Bhd general manager (advisory services) Ramesh Veloo.

He said there was strong interest in the expansion of oil palm plantations in Malaysia and other countries, given the current good prices for crude palm oil (CPO) and agricultural products.

The economic climate and financial health of plantation companies, too, had contributed to the pursuit of more suitable land for oil palm expansion.

The capital expenditure and replanting costs for greenfield were about RM12,500 and RM13,500 per planted hectare respectively, he said on the second day of the International Palm Oil Conference 2011 (PIPOC 2011) organised by the Malaysian Palm Oil Board (MPOB).

“Ideally, many potential buyers will prefer to purchase existing plantation land that has both young and prime trees above seven years, in terms of age profile.

“The fresh fruit bunches (FFB) yield criteria are also important at over 25 tonnes per hectare while the planting material must be known and proven,” Ramesh said.

However, he pointed out that most of the oil plantation land up for sale in the market currently were brownfield areas, where more than 30% of the palm oil trees were over 25 years, and had poor upkeep which would require extensive rehabilitation costs.

The rate of return on investment for brownfield in Malaysia was also lower than greenfield, mainly due to the very high initial capital outflow for land acquisition, he added.

This, Ramesh said, had prompted many Malaysian firms to seek expansion of plantation land overseas, particularly Indonesia.

Cambodia is also drawing Malaysian planters, given its attractive incentives like an eight-year tax holiday, tax-free repatriation of dividends or profits and 100% exemption on exports. Other countries with expansion potential for local planters included South America and Africa, he said.

Meanwhile, Indonesia Palm Oil Association (GAPKI) executive director Mohamad Fadhil Hasan said that managing the rising cost of production would soon become a big challenge for Indonesia, the world's largest CPO producer.

Although its planters' production costs were still competitive versus Malaysian planters', he said the production cost per unit volume of CPO in the republic was rising following the increase in the price of materials and workers' wages.

In addition, inefficiency due to the use of uncertified seedlings, incorrect upkeeping, insufficient weed control and pest management, and improper use of fertiliser also contributed to the rising cost of production.

From 2002 to 2009, the production cost of CPO in Indonesia increased 5.6% to US$206 from US$195 a tonne.

“It did not include land costs, interest on capital and forwarding costs from mill to port. If these additional costs are included, then about 20% to 30% more should be incorporated into the existing cost of production,” Fadhil said.

Industry players are pegging the production cost of efficient oil palm planters in the peninsula at RM1,100 to RM1,200 a tonne while those in Sarawak at about RM1,500 to RM2,000.

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