On the one hand, palm oil contributed RM83 billion to Malaysia’s export revenues last year and is expected to match that this year. But on the other hand, the continued reliance on imported labour to harvest the palm oil fruits against the backdrop of rising demand for such semi-skilled labour back in Indonesia poses a clear challenge to Malaysian plantations. Couple this to the R&D challenge of applying better science and technology to the palm oil sector and it is evident that the palm oil sector is an exciting one. Can the challenges be met and new opportunities tapped?
Malaysia’s golden plant and gift to the world, that is how many people who are familiar with the upstream (planting and harvesting) and downstream (processing into oils and other value added products) value of the palm oil industry, describe it.
That is how Emeritus Professor Tan Sri Dr Augustine Ong Soon Hock describes the plant too when recognised by the Merdeka Awards this past October for his outstanding contribution to the research and development of the chemistry and technology of palm oil and for his significant role in advocating and promoting the Malaysian palm oil industry to the world.
It was shared in Parliament recently by Deputy Minister of Plantation Industries and Commodities Datuk Hamzah Zainudin that the industry contributed RM83.4 billion to export revenue last year, the highest ever. That made up 17 per cent of the country’s total exports.
Palm oil and the various downstream products made from it are exported to more than 150 countries with China as the major buyer last year, accounting for 19.1 per cent of total exports followed by Europe (12.3 per cent), Pakistan (7.5 per cent) and the United States (7.1 per cent).
The robust growth story has continued this year. Between January and August, export revenue from oil palm-based products (crude palm oil, processed palm oil and oleochemicals) totalled RM47.4 billion, with China still the main export market for Malaysia’s oil palm and palm oil-based products. The golden fruit indeed.
This is further borne by the fact that some of the most successful companies on Bursa Malaysia, the stock exchange of Malaysia, are palm oil-based. Among them are Felda Global Ventures Holdings, Kuala Lumpur Kepong, Sime Darby, IOI Corporation, United Plantations and many others.
And let’s not forget the 2011 National Biomass Strategy 2020 which is focused on how Malaysia can gain more revenue from the industry through development of new biomass sectors with the aim of creating higher value-added economic activities that contribute to Malaysia’s gross national income (GNI).
What is significant about the strategy is that it was not an isolated approach to drive more value from the palm oil sector but inclusive. It builds on previous efforts and more than 100 reports and publications including but not limited to the Biomass Roadmap prepared by the Ministry of Science, Technology and Innovation (MOSTI), the Climate Change Response paper by Malaysian Life Sciences Capital Fund (MLSCF), multiple research papers and statistical data sets of the Malaysian Palm Oil Board (MPOB) and material prepared for the Palm Oil NKEA and Economic Transformation Plan Chapter 9.
All these efforts provided a running start for the Biomass Strategy 2020. In addition, to get a current pulse of the situation on the ground, a survey of palm oil mills and plantations was conducted to obtain input from the over 170 plantations and 70 mills.
If successful in its execution, the National Biomass Strategy could translate into an incremental RM30billion in GNI and an additional 66,000 new jobs by 2020.
However, as the conclusion of the Biomass Strategy points out, achieving its full potential will require significant coordination and cooperation among multiple stakeholders. For instance, the development of partnerships and cooperative structures among plantation owners is critical to mobilise the biomass, and to this end, Entry Point Projects (EPP) are being used to accelerate this opportunity.
Two new EPPs have already been defined for pelletisation capacity and the launch of an industry consortium to catalyse development of conversion technologies. Agensi Inovasi Malaysia has been tasked with the responsibility to oversee the successful execution of these two EPPs.
In addition, two existing palm oil EPPs have been expanded in scope. In supporting these efforts, a set of Government policies have been put in place to reduce the risk to the private sector as it drives the realisation of this opportunity.
Opportunities aside, there are challenges too. While in the past these were related to health and environmental concerns around palm oil, today the greater challenge looms in the form of the labour makeup of the palm oil sector.
It is estimated that around 80% of the labour pool is Indonesian. With the rapid development of Indonesia’s own palm oil sector and mandated minimum yearly salary rises there, it can only be a matter of time before the skilled labour pool of this highly manual sector, starts to decrease.
Despite the best efforts of industry, where many of the plantation companies have their own R&D labs, the industry remains highly manual, especially the harvesting of the precious fruits.
There are urgent efforts to develop a reliable a mechanised harvesting technology but so far, a breakthrough eludes the industry and nothing can yet beat manual labour, despite many years of research.
But associated with concerns over this manual labour issue is the hard realisation that even skilled and professional labour is now scarce in the Malaysian plantation sector.
For example, the plantations are all crying out for more agronomists. The reality is that our university system is no longer producing the workforce needed by the plantation sector, and not just palm oil.
Hence the calls for a specialised university to be built to cater to the needs of the entire plantation industry. Nothing has come of these calls yet.
Meanwhile, there is also a need for more sophisticated monitoring technology including use of remote sensing. Such advanced technology will be invaluable in ensuring optimum soil conditions and even when the palm oil bunches are ready for harvest. They are also more effective in spotting diseases. For instance, the bud rot disease can be effectively dealt with if spotted early enough but if discovered late, can be ravaging.
Mimos, the National R&D centre under Mosti, already is working on some sensors to be used in palm oil plantations with pilot programmes ongoing and with early results showing great promise, according to Mimos.
Clearly, there are many opportunities still in the palm oil sector and efforts are ongoing to tackle the problems but more urgency is needed.
Tomorrow, Business Circle looks at the efforts of an investor from Europe on their oleochemical plant investment in Malaysia and what brought them here.