Sunday, January 30, 2011

Mature plantation companies expanding abroad

THE insatiable global demand for palm oil, coupled with the lucrative crude palm oil (CPO) prices have made it inevitable for mature oil palm plantation companies to invest in new plantation land overseas.
They are going to Indonesia, Papua New Guinea and some African and South American countries to stay ahead of the competition.
United Plantations Bhd vice-chairman and executive director Datuk Carl Bek-Nielsen says acquiring good agricultural land in Malaysia has become increasingly difficult and costly.
Datuk Carl Bek-Nielsen says acquiring good agricultural land in Malaysia has become increasingly difficult and costly.
“Companies are therefore compelled to look outside Malaysia if they wish to expand unless they wish to risk buying marginal soil which is less inclined towards sustaining higher yields.”
On minimal efforts being made to improve CPO production, Bek-Nielsen says: “My personal view is that when you expand beyond a certain size, you lose sight of your palms and more importantly, your people. It is not about being the biggest, it’s about being the most efficient.”
While many oil palm planters are enjoying good returns from the bullish CPO prices, they should also be prepared for the rainy days.
According to Bek-Nielsen, high CPO prices will often result in complacency. “In times of high prices, oil palm planters should remain focussed on improving their cost base and increasing yields. Nothing can reduce one’s costs of production faster than increasing yields and vice versa.
“Planters should also focus on increasing their productivity in most field operations by enhancing supervision or through newer practices such as mechanisation,” says Bek-Nielsen. He says replanting must not be neglected in times of high CPO prices.
“This unfortunately is a highly contagious ‘plantation disease’ as high prices often discourage replanting.
“However the same unfortunately applies when commodity prices decline as many companies suddenly find that there is not enough cash to replant.
“This is a disastrous recipe as age will deteriorate yield, which is exactly one of the reasons for our country’s stagnating yields. So the message is clear – have a disciplined replanting policy or perish,” adds Bek-Nielsen.
There are challenges for the local oil palm planters.
“Most problems in our industry are related to acute labour shortage. “With Indonesia’s palm oil industry growing, we will see it becoming increasingly difficult to secure a reliable source of labour from there.
“This issue is exacerbated by the fact that the wage gap between Malaysia and Indonesia is narrowing very rapidly. In many regions in Indonesia, wages in the plantation sector have increased by more than 80% over the last five years, which is alarming.
“If this trend continues, and there are no signs on the wall that it will not, Indonesian plantation workers’ wages will most probably exceed those in Malaysia in the next three to five years,” he says.
An alternative source of adaptable and motivated foreign workers from Bangladesh, for example, should strongly be considered if the industry’s economic viability is to continue, he says.
Simultaneously, the industry must embrace and continue to explore all rational avenues of mechanising its operations.
“It is unacceptable that the bulk of the planters produced only 50% of what their peers can produce per hectare. This is depriving the country of extra tax revenues. If we can’t be the biggest producer, then let us at least be the most efficient producer in the world.”
One oil palm plantation player that has actively tap into renewable energy from biomass and biowaste from oil palm as well as selling carbon credit is Kim Loong Resources Bhd.
Managing director Gooi Seong Hin says oil palm planters should seriously look into producing renewable energy from oil palm related biomass, palm oil mills effluent and palm fibres.
“Operating a biogas plant that can be converted into power and the possibility of selling it to the national grid will provide lucrative revenue for planters. Some companies could generate between RM2mil and RM3mil per year depending on the size of the plant while those selling carbon credit could fetch an extra income of about RM1mil to RM2mil a year,” says Gooi.
Kim Loong has invested RM13mil in three Clean Development Mechanism projects. Its first biomass plant in Kota Tinggi with 60,000 tonnes per year capacity could generate RM2mil in revenue via the sale of carbon credit. Gooi says the second 45,000 tonnes per year biomass plant in Keningau would be operating soon while the third plant in Sandakan is still in the pipeline.
According to a recent report, carbon trading business in Malaysia is worth between RM3.2bil and RM6.4bil over the next five years.
The Malaysia Energy Centre estimates that the country has up to 100 million tonnes of carbon credit potential from 2006 to 2012.
The Government is giving companies involved in renewable and environment-friendly energies a tax exemption of 10 years, investment tax allowances and import duty and sales tax exemptions on equipment.

Source: Star Online, 29 Jan 2011

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