Industry News

Sarawak’s palm oil industry: the next catalyst for growth

Sunday, September 18 2011

Sarawak is slated to be the next catalyst for growth as its palm oil plantations reach a mature stage. BizHive Weekly takes a look at the industry and several key issues at hand, including Sarawak’s significance in landbank plantations, downstream activities as well as the implementation of IAS: 41 Agriculture.

The oil palm’s ability to churn out everything from food products to bio-fuel and feedstocks makes it a prime catalyst for economic growth.

The increasing global demand and consumption for this ‘golden crop’ coupled with its potential to be the first generation bio-fuel has placed oil palm on the agenda of the Malaysian government as a key focus for a sustained economic growth.

As such, with the limited landbank left available in Pe­ninsular Malaysia, Sarawak has been put on the spotlight as the final frontier of the Malaysian oil palm industry which would consequently be a major source of revenue for the state.

Realising the enormous eco­nomic potential that this ‘tree of life’ has to bring for the strategic development of the country, it is no wonder that the state govern­ment is keen on aggressively pursuing the development of the oil palm sector.

It was announced not so long ago by Datuk Patinggi Tan Sri Alfred Jabu, Deputy Chief Minister who is also the state Minister of Modernisation of Ag­riculture and Minister of Rural Development that Sarawak had planned to double the amount of land earmarked for oil palm plantations.

The plans according to Jabu would see the amount of land allocated to the oil palm industry increased to two million hectares (ha) or 15 per cent of state land, which would place the industry firmly at the heart of Sarawak’s agricultural development.

Thus, the significance of the oil palm industry had been as­tonishing.

As Mahbob Abdullah, a vet­eran specialist in the plantation sector noted, “I can see the im­pact of oil palm on the population more than the likes of the timber, rubber or pepper industries; and yet I can feel that this is only the beginning.”

Indeed, it was not so long ago when timber, rubber and pep­per sectors were the leading highlights of the state.

Now, however, the state’s eye-ball had zoomed in on oil palm. According to Malaysian Insider, the oil palm industry was worth RM60 billion to the economy, providing employment to about 600,000 workers. Malaysia as quoted by the publication was the world’s second-largest pro­ducer behind Indonesia of the oil that was used to produce cooking oil, soaps, bread, chocolate and biofuel.

Latest data garnered from the Malaysian Palm Oil Board (MPOB) showed that total ex­ports earnings of oil palm products, consisting of palm oil, palm kernel oil, palm kernel cake, oleochemicals, biodiesel, finished products and other oil palm products rose by 40.9 per cent, an amount equivalent to the difference of RM15,221.9 million from January to August this year from the previous corresponding period.

Total export earnings rose to RM52,458.4 million from the previous corresponding period which registered earnings of RM37,236.5 million.

With all the hype buzzing in the oil palm sector, the industry now commanded the attention of not only the Malaysian government, but of business players as well.

Landbank expansion in Sarawak has been aggressive and was rapidly picking up its pace within the past decades.

“The area under oil palm in Sarawak was 55,000ha in 1990, and had risen to 330,000 in 2000. By 2010, the area has exceeded 900,000ha.

“The best areas are under the native customary rights (NCR) land and most have yet to be planted with oil palm,” high­lighted Mahbob.

As of 2010, data provided by the Ministry of Land Development Sarawak revealed that on the whole, total planted area for the oil palm plantation accounted for only 156,536ha.

However, Sarawak, according to director-general of MPOB, Datuk Dr Choo Yuen May, was progressively representing a larger and larger portion of Malaysia’s total oil palm planted area with an annual growth rate of 8.6 per cent as at June this year. The total oil palm planted area in Sarawak was 971,611ha,and has risen by 194 per cent or 641,224ha from 330,387ha in 2000.

OSK Research Sdn Bhd’s (OSK Research) plantation analyst, Gan Jian Bo noted that the state’s oil palm area now accounted for 20 per cent of the country’s total area compared with 10 per cent back in 2000.

An estimated 80 per cent of Sarawak’s oil palm according to Shahina Halip, the head of RAM Rating Services Bhd Real Estate and Construction Ratings, was in the matured category con­tributing to about 14 per cent of Malaysia’s total crude palm oil (CPO) production for the first half of this year.

“As these trees gradually move up into higher yielding oil palms, contribution to CPO production will increase.

“Additionally, as plantation land is scarce in other parts of Malaysia, it has been observed that some local plantation players – apart from venturing overseas into Indonesia – have expanded into Sarawak to seek for potential new plantation land bank there,” Shahina told BizHive Weekly.

HwangDBS Vickers Research Sdn Bhd analyst, Quah He Wei could not agree more as he believed that Sarawak at the moment was the only place left in Malaysia for additional planting. According to Quah, it was estimated that 75 per cent or one million ha of the maximum expansion potential of 1.3 million additional hectares were located in Sarawak.

As of June this year, statistics garnered from the MPOB showed the total oil palm planted area for Sarawak was 971,611 ha, a mere 19.6 per cent of the total planted area in the whole of Malaysia.

Out of this, 784,496ha (80.7 per cent) were matured trees while the remaining 19.3 per cent con­sisted of 181,116ha of immature trees.

Peninsular Malaysia account­ed for a large share of the total planted area with 2,562,072ha, an astounding 51.6 per cent of the total area planted in the whole of Malaysia. Out of this, 86.7 per cent or a total of 2,221,475ha were matured trees while 13.3 per cent (340,597ha) were immature.

Sabah on the other hand took a modest portion of 28.8 per cent with 1,427,169ha of oil palm planted. 89.6 per cent or a total of 1,279,368 were matured and only 147,801ha or 10.4 per cent were immature.

Consequently, the low figure for the planted area in Sarawak indicated that the Sarawak state still had so much more in line for the future as pointed out by Mahbob.

“The remaining areas suitable for oil palm are not significant in size in Peninsular Malaysia or in Sabah. In Sarawak however this is not the case.

“There are large peat areas and I believe that one day most will be planted as we gain knowledge on increasing productivity in peat areas.”

“In addition planting of crops such as oil palm will do best on the NCR land in Sarawak because these areas have been settled by the inhabitants due to their local knowledge on the quality of the soil.

“I hope they will plant with oil palm in collaboration with large organisations as there is mutual benefit to be gained.

“I understand the suitable land for future planting can exceed one million hectares, and when developed, the state will have the biggest area in oil palm, and with the highest production,” he said.

(The Borneo Post)