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Palm oil transforms economic landscape [09-11-2012]  
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TOWARDS VISION 2020: Sector will generate an export revenue of RM10 billion from RM3.4 billion currently

EVER since the 1960s when the first oil palm seeds were brought into Malaysia from Africa one would never have imagined how the crop would transform the country's economic landscape.

Riding on the wise business acumen of the country's leaders, together with the guidance of the sector's experts, Malaysia is now become the world's second largest producer of palm oil and its related products.

The spin-off effects it has on other sectors such as work processing and other value added products has enable the sector to contribute positively to the country's gross domestic product.

The sector has been identified as one of the 12 entry point projects under the government's economic transformation programmes.

It is now acknowledged that the sector will contribute immensely to help realise the country's vision to be a developed country by 2020 with world class companies.

Some companies are doing just to become global plantation companies such as Sime Darby Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd and Felda Global Ventures Bhd.

Together, they form part of Malaysia's growth story with many business tentacles all over the world such as operations in Indonesia and set to expand their horizons such as in Africa, the Philippines, Papua New Guinea and even as far as South America.

One of the pillars of a developed nation, including Malaysia, is to eradicate poverty.

Needless to say the palm oil sector has contributed immensely in eradicating poverty among settlers in the 1960s.

Today Malaysia's unemployment level is below three per cent and poverty is virtually eliminated with efforts underway for Malaysians to have per capita gross income of US$15,000 (RM45,000) by 2020 from below US$10,000 at present.

The palm oil sector has also buffered the country during bad times, whenever there is a global or regional economic slowdown such as in 1988, 1997 and now 2012 crisis.

When times are uncertain in the US and Europe, Malaysia still stands strong and is on track to register a gross domestic product of between four and five per cent this year.

The palm oil sector has helped rehabilitate logged over or abandoned agriculture land and help convert the land into more useful ventures, providing income to the society as well as acting as a carbon sink.

Palm oil is poised to position itself well in the next 15 years by leveraging on its inherent advantage through better planting materials and management practices.

By 2020, the sector is catapulting productivity, targeting to produce an additional 4.5 million tonnes of palm oil in the next 15 years.

This will be a challenging task for Malaysia.

By 2020, Malaysia can be a big producer of oil palm seeds with a yield improvement of up to 20 per cent can be expected in the near term with the advent of clonal hybrids and clones with improved oil-to bunch and adaptability to specific environmental and/or agronomic conditions.

Over the long-term, the industry is set to propel itself towards attaining greater heights with its Vision 35:25 (fresh fruit bunches yield of 35 tonnes a ha per year with 25 per cent oil extraction rate) by 2020.

The vision is achievable. The present day planting materials already have the potential to produce 8.8 tonnes of oil from 35 tonnes a ha of fresh fruit bunches, a 25 per cent oil extraction rate.

Palm oil has consistently been the world's largest traded vegetable oil. Its exports rose by a hefty 41fold from a mere 0.55 million tonnes in 1962 to 23.3 million tonnes in 2004 with market share expanding from 9.2 per cent to an astounding 51 per cent with the highest growth rate of nine per cent an annum, the export of palm oil has outpaced the performance of soyabean oil whose share only increased from 12.8 per cent to 19.8 per cent.

Effective utilisation of palm biomass into value-added products has the potential to generate another RM20 billion in the next 10-15 years.

The oleochemical industry is another manifestation of the success of value-added downstream development strategy of the Malaysian palm oil industry.

By 2020, Malaysia is expected to continue to be the oleochemical hub of the world and is envisaged to generate an export revenue of RM10 billion from RM3.4 billion currently earned by the sector.

With these kind of figures, palm oil will undoubtedly stay at the forefront as one of the country's largest contributors in achieving Vision 2020.


However, the sector is wrought with various challenges before it can help Malaysia attain its Vision 2020.

* This include bridging the demand and supply gap

Macroeconomic factors such as growth in population and disposable income will continue to affect the demand for food items, including palm oil.

* Optimising land use

In the past, oil palm planting has been done on a monocultural basis. Attempts were made to undertake livestock and crop integration but there are fear of causing crop damage.

In the future, an evolution of an integrated oil palm industry is foreseen to be realised where land under oil palm will be jointly utilised to produce protein (livestock) and carbohydrate (crops).

* Widening the food and non-food uses of palm oil

Palm oil is known to be a versatile crop and due to its technically superior properties, it encourages wider use of a range of end-products, both in the food and non-food sectors.

With its fast expanding production, markets overseas have to be explored as the the domestic market could not possibly absorb the exponential growth in production.

However, in mid 1970s, in line with the industrialisation policy of the government, the country undertook a bold step towards greater value addition by making palm oil products available in various fractions and refined forms to meet the specific needs of the market.

* Leveraging on globalisation and trade liberalisation waves

Malaysia and other palm oil producing countries will have to leverage on the multilateral trade negotiation and free trade agreements with initiatives to seek greater access for palm oil.

The future holds bright for palm oil as countries are unlikely to maintain high levels of subsidies for their agriculture.

* Food versus energy

Palm oil will provide a delicate balance between the needs of both sectors.

One would argue that food wins hands down but one must also remember that palm oil as an energy source is sustainable and its fruits are renewable compared with depleting fossil fuels.

* Labour shortage

Malaysia's plantation sector which already employs 500,000 foreign workers will have to think hard on how it will toil the sector which is facing acute labour shortage as well as ageing settlers and some of the younger generation who are not interested in working at plantations.

* Depleting land

The next challenge will be finding land for new planting as Malaysia is already land-strapped.

Although Indonesia and the so-called next frontier in Africa offers abundant land, issues such as deforestation have to be considered for the benefit of future generations.

What we should do is maximise existing plantations and boost yield.

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