Better prospects for palm oil and rubber

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Palm Oil Plantation.

Palm Oil Plantation.The year 2014 proved to be a challenging one for palm oil and rubber, which is one of the 12 National Key Economic Areas (NKEA) under the Government’s Economic Transformation Programme (ETP) announced in 2010.

However, both sectors proved their resilience and overall met their KPI for the year, said the Performance Management and Deliver Unit (PEMANDU) in its Economic Transformation Programme (ETP) Annual Report 2014.

The sectors are targeted to contribute a combined Gross National Income (GNI) of RM230.9 billion by 2020. But lower commodity prices in 2014 meant that both these sectors contributed a GNI of only RM60.5 billion.

Global economic slowdown since the third quarter of last year, especially in major importing countries such as China and European Union, along with competition from other vegetable oils resulted in lower crude palm oil (CPO) prices.

The average price of CPO for the period January to February 2015 was RM2,276 per tonne, compared with an average price of RM2,383 per tonne in 2014.

As for rubber, global prices, which were languishing near their lowest since 2009 at the beginning of the year because of a supply glut and weak Chinese demand, have improved slightly due to concerted efforts of the major rubber producers.

The Malaysian Plantation Industries and Commodities Ministry remains bullish on the prospects for both palm oil and rubber for the future.

According to Minister Datuk Amar Douglas Uggah Embas, several measures have been put into place to ensure both commodities bring better returns and remain on track to meet the NKEA targets.

This includes boosting local consumption of CPO. The development of National Biodiesel Activities through the blending of palm biodiesel in the national diesel supply is an integral part of the policy.

Besides helping to reduce greenhouse gas emissions, the higher blend of biodiesel—from 5% (B5) to 7% (B7) palm biodiesel with 95% petroleum diesel by the end of this year—will enhance palm oil utilisation, reduce palm oil stocks and boost prices.

This will contribute towards an annual consumption of 575,000 tonnes of CPO annually, said the minister, and contribute to savings of 6.7 billion litres of diesel a year for the transportation and fisheries sector.

Looking ahead, the Ministry hopes to further improve the biodiesel mix and is in consultation with the relevant stakeholders on the possible implementation on the B10 (blending of 10% of methyl ester with 90% fossil diesel) programme. If carried out, this will contribute to an annual consumption of 1.2 million tonnes domestically.

Replanting and improving yields

This NKEA has nine Entry Point Projects (EPP), starting with replanting and new planting.

Under the Government-led replanting schemes, the area of replanting and new planting by small farmers and independent smallholders has reached 79,737 hectares from January 2011 to date, mainly due to active monitoring in replanting and new planting projects related to independent smallholders.

Efforts were also made to improve oil palm yields, involving monthly monitoring of fresh fruit bunches (FFB) via smallholder cooperatives and the provision of credit and advisory services when required. With these steps, it is hoped the sector will move closer to the national FFB yield target of 26.2 metric tonnes per hectare by 2020.

In addition, the government is encouraging the industry to venture into downstream food and oleochemical value added products. To this end, an allocation of RM543 million has been made available to the industry for the period 2011-2015.

There has been some good progress on this EPP. The downstream segment saw an uptick in private sector investments during the year, particularly in Sabah.

As of December 2014, total investments committed by industry players for high-value palm-based oleochemicals, food and health segments for the year amounted to RM934.61 million. This includes an investment of RM489.78 million by Genting Plantation Bhd in Sabah and RM100 million investment in Pulau Indah by Kuala Lumpur Kepong Bhd.

Also on the plus side, the national oil extraction rate (or OER) saw a marginal increase in 2014, by 0.37 percentage points to 20.62%, from 20.25% in 2013.

Overall, the NKEA has met its 2014 KPIs despite volatility in palm oil prices. It is also zeroing on each EPP target to achieve the RM178 billion in annual GNI by the year 2020.

Rubber to bounce back

As for rubber, the government has provided grants for the replanting of old and unproductive trees by smallholders. According to Uggah, for the period to 2012-2014, a total allocation of RM529.66 million has been provided to replant 113,675 hectares of rubber planted area by the smallholders. For a new planting, the total allocation is RM271 million to plant 38,575 hectares.

“In addition, the Ministry through the Malaysian Rubber Board will continue to implement measures aimed at improving productivity from the current level of 1,400 tonnes per hectare per year to 2,000 tonnes per hectare per year by 2020. These include imparting knowledge on good agricultural practices and the use of high yielding planting materials,” he added.

The move towards a more integrated ASEAN market later this year could also have a significant positive impact on rubber and palm oil, as it will encourage cross-border trade and investments in the region of over 600 million people.

Closer cooperation between the member countries, especially an alliance between Malaysia and Indonesia, which are two largest palm oil producers, could help shore up prices of CPO in the long term.

As for 2015, the report states that the critical targets for palm oil include increasing approved and implemented area of replanting and new planting by independent smallholders to 8,550 hectares and 20,000 hectares respectively; ensure that 10 cooperatives are able to sell a cumulative minimum of 12,000 metric tonnes of fresh fruit bunches; encourage uptake of connection to the Feed-in Tariff system by biogas plants; and potential commercialisation of Bio-CNG (compressed natural gas) plants.

As for rubber, critical targets include increasing the area of replanting and new planting of rubber by independent smallholders to 24,000 hectares; improving the export of natural rubber and compound rubber to 1.4 million metric tonnes; and improvements in implementation and enforcement of dry rubber standards and regulations.

Overall, this NKEA has weathered stormy seas of global uncertainty by being innovative and embracing change to ensure that it meets its 2020 GNI goals. The future looks bright for palm oil and rubber.

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