Palm oil is the single largest contributor to Sabah’s gross domestic product, speculated to grow in line with mechanisation, higher yields and better oil extraction rates. BizHive Weekly uncovers how Sabah plans to steer the development of this crucial industry.
KUCHING: “If Sabah were an independent country, it would be the world’s third largest producer of palm oil.”
Such a statement from OBG was indicative of how important a role palm oil played in its growth to date — and what was in store to come.
According to the Malaysian Palm Oil Board (MPOB), in 2009, Sabah had the largest area under oil palm cultivation of any state, at 1.36 million hectares (ha) out of a national total of 4.69 million.
Yields, too, were generally stronger at an average of 4.3 tonnes per ha in 2010 — the highest of any state in the federation.
OBG noted Eastern Sabah as being an extremely good location for oil palm.
“This area is where most plantations and smallholders are located, with two major downstream projects providing increasingly sophisticated downstream services for the sector,” said the publishing and consulting group.
Palm oil, being one of the federal government’s NKEA, meant that this sector would receive special attention via incentives, and programmes in the years ahead.
The NKEA covers everything from growing trees to sophisticated downstream industries like oleochemicals, alongside increasing the number of applications for what were once seen as waste products like empty fruit bunches.
Tackling issues
Expanding the sector further would mean tackling some major challenges, however. Issues such as the scarcity of land in Sabah, challenges in seeking skilled workers, lack of mechanisation and so forth were hampering the growth of this sector.
To combat this, several key initiatives have been put in place under the NKEA via entry point projects.
An obligatory replanting scheme was under way. Through this scheme, all trees over 25 years of age must be replaced with younger versions. The MPOB would provide financial support for smallholders to do this, with the new trees to be new strains, further boosting yields. Around RM1 billion had been earmarked for this purpose.
In addition, smallholders would be encouraged to form cooperatives and cluster their output around the nearest mill. Better harvesting equipment would be supplied to smallholders via a private funding of RM765 million.
A byproduct of the milling process, biogas, would also be shown support and would be used in electricity generation.
The ETP foresaw most of the funding for this transformation to come from the private sector, with government-linked companies likely to provide a big slice of the investment.
“The projected cumulative growth in plantations for the next five years is eight per cent. The emphasis should be on higher productivity balanced with environmental preservation. To achieve this, adopting new technology, such as precision farming and improvised planting materials, needs to be a priority,” said Jhuvarri Majib, general manager of Sabah Land Development Board.
All in all, Sabah’s oil palm industry seems set for major new developments that are set to impact industry players from growers to exporters.
Downstream focus
Downstream processes was another segment under palm oil which was receiving great focus.
According to the chief executive officer of Palm Oil Industrial Cluster Sabah Sdn Bhd (POIC), Pang Teck Wai, palm oil was crucial as the government derived between 40 to 50 per cent of the entire state budget from the sales tax it imposed on palm oil.
“With the price of palm oil reaching record levels in 2011 and expected to stay at the top end of the scale, both investors and the state government look forward to reaping the benefits,” highlighted Pang.
“However, the importance of the palm oil industry to Sabah cannot be merely measured by the direct revenue stream it produces as it has much more wide-reaching and important contributions to the state,” he forewarned.
“The palm oil industry will have to take a leading role because of the linkage it has with other sectors — from energy to construction and manufacturing — and of course, due to the sheer size of the industry compared with all others in Sabah.”
It is without doubt that these POICs are a integral part of Sabah’s ongoing industrial development plans.
OBG affirmed that these industrial areas dedicated to the processing of oil palm aimed at producing more value within Sabah, rather than seeing raw materials exported for value addition somewhere else.
“Both groups are now being asked to focus more on their supply on Sabah’s two POICs — Sandakan’s SAWIT POIC and Lahad Datu’s POIC,” revealed OBG.
“These are themselves both focusing on using this supply as feedstock for downstream processes and products such as oleochemicals, phytonutrients, plywood biofertilisers, and even electricity generation from oil palm waste.
“In short, the POICs are well positioned and have every reason to be optimistic about their chances.”
As a matter of fact, OBG noted that both foreign and Malaysian investors were planning at least six biodiesel plants at the site, with a combined capacity of more than one million tonnes per year.
POIC Lahad Datu was also promoting industries that would use the large volume of biomass generated from Sabah’s oil palm plantations.
One particular independent power producer had taken the initiative towards making POICs more environmental friendly by signing up to generate power and steam on site using biomass, thereby overcoming a thorny issue in eastern Sabah which was access to a reliable source of electricity.
“Investors such as these thus solve two problems for POICs: providing a reliable source of power and making use of the many forms of waste by palm oil processing.”
As a result, Sabah’s POICs should therefore be able to look forward to investors of many stripes knocking on their doors in years to come, in addition to adding value to the palm oil industry in their own backyards.