Sabah palm oil industry at crossroad

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DAP Sabah Palm Oil Issue Committee, Chan (middle), DAP Sabah assistant organizing secretary cum Batu Sapi chairman George Hiew (left) and DAP Elopura chairman Calvin Chong.

TAWAU: The state government’s failure to develop the downstream industry at the Lahad Datu’s Palm Oil Industrial Cluster (POIC) coupled with falling demand and prices has placed the Sabah palm oil industry at a crossroad.

Sabah Democratic Action Party (DAP) publicity chairman Chan Foong Hin said Sabah recorded RM16.75 billion in palm oil exports for the first nine months of 2011 and the oil palm industry contributed more than 30 percent of the country’s total exports last year.

He said the industry’s significant contributions could be seen in its export value and revenue as well as other direct and indirect contributions to the state economy. The rapid expansion of Sabah’s oil palm industry in the last decade had also contributed greatly to the revenue of the state, especially Tawau, Lahad Datu and Sandakan in the east coast.

Currently, there are 124 palm oil mills, 11 palm oil refineries and 14 palm kernel crushers in Sabah as well as palm oil downstream industries.

He said in view of the industry’s positive contribution to the economic growth, the state government had taken up strategies and programs in developing the downstream industries. Development of the POIC in Lahad Datu was one of the state government’s efforts.

However, after DAP Sabah together with a local think tank, Topinai Strategic Research Center, exposed the current abandoned condition of the POIC a few months back, the state government tried to cover up their failure in developing downstream industries there by painting a glossy picture of high investment figures being committed to the Sabah Development Corridor projects this year, he said yesterday.

Chan said when palm oil prices went down 20 percent since January, due to increasing supply by Indonesia and slower economic growth in India and China – countries that used to be the main palm oil importer – the plunge in palm oil demand and prices could not be covered up anymore.

He said the market had seen demand for the commodity fall along with prices of palm oil fruits, from a previous high of between RM700-RM800, to now trading at between RM360-RM380 per metric ton.

Furthermore, smallholders/planters are having difficulties selling their crops, as the collecting centers and palm oil mills have set limits on purchasing/receiving of the crops. Limit was set due to record high inventory stocks of Crude Palm Oil (CPO) in the market.

As a consequence, millers cannot sell their CPO product to the refineries and once CPO storage tanks at the in mills are full, planters cannot sell their crops to the mills. Eventually, smallholders/planters have no choice but to bear the losses including labour charges, fertilizer and transportation. Planters on the ground reckon that the intake by collecting centers and palm oil mills is down by as much as 50 percent.

And Chan said, making the scenario even worse was when the Malaysian Palm Oil Board (MPOB) imposed fines at collecting centres on planters found trading unripe crops. Earlier in August this year, MPOB tried to impose a new policy which provides a jail term of up to three years, a fine of up to RM200,000 or both on those caught selling unripe crops.

He said the way MPOB officials were chasing after smallholders/planters on the unripe crops issue, had angered the industry players.

MPOB as the government agency entrusted to serve the industry, should not punish the industry by implementing unreasonable and illogical policy. When the smallholders/planters suffer from the plunge in demand and prices, where was MPOB? he asked.

Furthermore, he said Indonesia’s rapid development in palm oil plantation and mills posed a long-term structural issue for Malaysian palm oil industry. It is an open secret that plantation estates in Malaysia are facing labour shortages and the industry is heavily reliant on foreign labour, he said.

Chan said Indonesia’s announcement of a minimum wage hike at the end of November, made it more difficult for Malaysia to address its labor shortage issues. Adjustment of between eight per cent to 49 per cent for 15 provinces in Indonesia, the highest hike being for East Kalimantan, will continue to erode Malaysia’s attractiveness as an employment destination for foreign workers.

Plantation estates in Malaysia will now find it even more difficult to retain and recruit Indonesian workers, especially for estates in Sabah (as it borders East Kalimantan).

Chan said the recent downturn of palm oil prices would hurt Sabah’s economy if no immediate action is taken by the relevant authorities. Despite the fact that Sabah contributes the biggest share in the palm oil industry, be it from the aspect of CPO production or acreage planted by oil palms, Sabah BN government appears to be indifferent to the once lucrative revenue generator.

Keeping smallholders/planters happy should be the key for the ruling government which is headed for re-election within six months from now. It bewilders DAP Sabah that none of the government officials, from MPOB to State Industrial Development Minister Datuk Raymond Tan, Federal Ministry of Plantation and Commodities, seemed to care about the issues faced by the palm oil industry, he said.

He said DAP Sabah is of the view that the government should regulate the palm oil prices in order to stabilize the market. The government cannot afford to ignore the problems faced by the palm oil industry, as the state invests heavily in this mono-crop agricultural industry.

Chan said crisis always provided opportunities and steep falls in palm oil prices were making it more attractive than other vegetable oils for use in biodiesel production.

According to sources like traders and refiners, the lower prices have already triggered more demand from the biodiesel industry in the European Union, he said.

It is the best timing for Sabah to develop its biodiesel production. The Land Below the Wind, which is abundant with both raw materials for biodiesel production, mineral diesel and palm oil, should be the most strategic place to develop this industry, he said.

He said the failure of biodiesel production that was set up in POIC since 2005, could be rectified thanks to the low prices of palm oil now.

If the BN government is sincere in helping the palm oil industry players, from estate owners to millers, then the government agencies should buy all the unsold Fresh Fruit Bunch (FFB) in the market and rejuvenate the biodiesel production, he said.

He said there are three biodiesel factories at POIC, and another one in Sandakan. They could not start up their operation before due to high CPO price at that time. Currently the factories are just being abandoned and the State Industrial Development Minister has no idea on how to help them. By matching the needs of both sides, supply side planters and demand side biodiesel operators, a win-win situation could be achieved. Eventually, it would bring benefits to the state.

Chan said according to a biodiesel industry insider, the current price for biodiesel in Malaysia is RM2,625 per ton, with the production cost estimated at RM2,500 per ton. It means that biodiesel producer can earn a margin at RM125 per ton. Furthermore, the federal government encourages more biodiesel to be used in the market. Sabah definitely cannot miss this opportunity to grab the market.

He said DAP Sabah is therefore urging the MPOB, Raymond Tan and Federal Plantation and Commodities Minister Tan Sri Bernard Dompok to consider its suggestion seriously. In the name of the public interest, partisan consideration should be put aside.