Palm oil industry to grow by going downstream

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Malaysia’s palm oil industry has been one of the star performers under the government's Economic Transformation Plan (ETP), and is expected to contribute RM69.3 billion to the country's GDP in 2015. Malaysia’s palm oil industry has been one of the star performers under the government’s Economic Transformation Plan (ETP), and is expected to contribute RM69.3 billion to the country’s GDP in 2015.

Malaysia’s palm oil industry is slated to get a major boost over the next decade as the government pushes for greater investment by large plantation companies in the high-yielding downstream sector.

The Ministry of International Trade and Industry’s sectoral policy division senior director Hiswani Harun said the industry is expected to post a compounded annual growth rate (CAGR) of 7.1% over the next 10 years.

“Special focus will be given to the downstream sector which will become the catalyst for the overall growth of the palm oil industry,” she said in her paper ‘Driving Transformation, Powering  Growth’ presented at the Palm Oil Economic Review and Outlook Seminar 2015 recently.

Hiswani said the sectors that will benefit from the increased production of processed palm oil are oleochemical derivatives, biodiesel, food, pharmaceutical products, nutraceutical products, biofertilisers and biomass products.

“These high value products can generate an incremental GNI (Gross National Income) of RM14 billion by 2020,” she said.

“As the world’s second largest palm oil producer after Indonesia, Malaysia needs to capture the full potential of the existing downstream opportunities to sustain growth in the palm oil sector.”

As at 2009, only 18.5% of Malaysia’s palm oil output was exported as downstream products compared to 81.5% exported as upstream products.

Palm oil is one of the biggest drivers of the Malaysian economy and a priority in the National Key Economic Areas (NKEA).

It has been one of the star performers under the government’s Economic Transformation Plan (ETP), and is expected to contribute RM69.3 billion to the country’s Gross Domestic Product (GDP) in 2015.

It is also the fourth largest contributor to GNI, contributing RM52.7 billion or 8% of GNI in 2011. At its current rate of growth, its contribution to GNI is expected to increase to RM178 billion by 2020.

As such, the industry will be given continued emphasis in the upcoming Eleventh Malaysia Plan (2016-2020), as it had received under the previous 10 five-year economic blueprints to propel Malaysia forward.

The eleventh plan will, however, give a greater push to the downstream sector, as a follow-on from the tenth plan’s efforts to promote Malaysia as a global hub for palm oil and foreign investments. This had included the setting up and development of Palm Oil Industrial Clusters (POICs) or integrated sites to promote downstream activities.

Moving downstream is becoming increasingly crucial because of fluctuating prices of crude palm oil in recent years. Palm oil exports’ contribution to GDP had fallen from 9.09% in 2011 to 6.09% in 2013 due to a lower export value resulting from the lower price of crude palm oil in 2012 and 2013.

Hiswani said the targeted downstream activities under the Eleventh Malaysia Plan include developing biogas at palm oil mills, developing oleo derivatives, commercialising second generation biofuels, and expediting growth in the food and health-based downstream segment.

She said the government’s role will include supporting local oleo derivative companies to expand domestic production, providing incentives for local companies to set up plants abroad through joint ventures, and assisting major oleochemical companies to attract investments in the recommended product segments.

The government will also work to develop synergies among petrochemical companies by encouraging foreign investors to set up factories or enter into joint ventures in Malaysia.

Palm oil-based small and medium scale enterprises (SMEs) will also be assisted to grow through the transfer of research and development findings, and strengthening of industrial linkages.

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