Oil Palm industry crisis – urgent remedial measures needed

The Federal, Sabah and Sarawak state governments should immediately implement urgent and effective measures to help oil palm smallholders and industry hard hit by the two-thirds plunge in palm oil prices since March.

The price of crude palm oil (CPO) fell two-thirds from a March high of RM4,486 per tonne to current levels of about RM1,455 per tonne, creating a grave crisis for the oil palm industry.

On the one hand, oil palm fruits are being left to rot as mills are refusing to buy the fruits because of palm oil’s plunging price.

On the other hand, exporters are in a quandary as the global financial crisis and the plunge in CPO prices have led to many importers to default on their contracts as well as making it difficult for foreign importers to obtain letters of credit (LCs).

This is because prices of CPO quoted in contracts or LCs were much higher than the current market price of the commodity, making foreign banks in importing countries more cautious about extending credit facilities.

Many importers have opted to default on their contracts as the price of CPO had dropped sharply.
Whether banks or importers, nobody wants to receive goods that have lower current prices than that quoted in the LCs – especially when commodity prices are on a downward trend.

The urgent and effective measures the Federal, Sabah and Sarawak state governments should adopt to tide the oil palm smallholders and industry through their present crisis include:

• Sabah and Sarawak state governments should immediately withdraw the imposition of Sales Tax on CPO – Sabah at 7.5% per tonne while Sarawak at 5% per tonne.

• The Federal Government should intervene against the monopoly or cartelling in fertiliser prices which have been kept artificially high although there has been an almost two-third fall in the price of world crude oil prices during the same period.

• The Federal Government should actively promote and market palm oil and related products, including the mandatory implementation of palm-based biodiesel requiring the use of the B5 blend (five per cent biodiesel with 95 per cent regular diesel) not just for government vehicles from next Februrary, but for all industrial and transport sectors.

• Massive and aggressive replanting programme.

  1. #1 by pulau_sibu on Monday, 24 November 2008 - 1:37 pm

    Malaysian government has no brain, and even worse for the government of Sarawak and Sabah. We have had the lessons of rubber before, and also the world market on other agricultural commodities. When something is profitable, more countries will come up to produce the same items. Then overproduction will decrease the price and start to kill each other. It will end up as a loss in investment.

    Only those who rob away the native lands in Sarawak are making a gain. In other words, using oil palm plantation as an excuse to rob away the land of the Ibans/Dayaks. When can we stop these robbers who are like the Somalian pirates?

  2. #2 by melurian on Monday, 24 November 2008 - 1:52 pm

    we need “white men” to make use oil palm in their inventions. so white men din contribute, cpo no value-lah. our mardi and porim are so tak guna that they donno wat to do with cpo except minyak masak only (they keep saying low chrolestrol and vitamin E, I wonder if they can do better than that)……

  3. #3 by shortie kiasu on Monday, 24 November 2008 - 2:06 pm

    Palm oil price depends on the supply and demand in the world fat market and general economic situation, like all commodities.

    Reducing taxes and giving handout will not solve the problem that is beyond our control. It will create protectionist impression.

    Get China and India to buy more.

  4. #4 by Bigjoe on Monday, 24 November 2008 - 2:16 pm

    It was not long ago, there was this boasting of how Malaysia has a ‘diversified economy’ that was benefitting from the boom in commodity prices. Now those claims sounds incredibly hollow.

    As bad as it sounds now, its not going to be as bad as in the future when inflation will return to rear even uglier head as the govt now unprecedentedly reduces subsidies and increase taxes to make up for revenue shortfall.

  5. #5 by ch on Monday, 24 November 2008 - 2:21 pm

    Dear All,

    Two golden God-gifts to Malaysia (palm oil and petroleum) are now facing spiralling prices and income to the government is expected to wane substantially. The real effect will be seen next year as many plantation companies are and were reporting last’s fiscal figures where they had a good run on bullish palm oil prices. It was just only several months ago when our government had imposed windfall tax on plantation companies and has now back-pedalled the policy in view of falling prices. The point which am trying to put across is the failure of the government to devise a policy of reining on the market when we know that the prices were artificially moved up by speculators. Instead of doing so, by holding effective and meaningful policy discussions with plantation companies, the government were busy thinking of the amount of money to be made sharing on the apparent wind fall. Aren’t we fire fighting here? Slashing the 15% on fertilizer prices were met with disquiet response by the manufacturers and the government had yet to put in order an effective implementation and enforcement schemes on a policy which is seen to be so important on the survival of the palm oil industry in Malaysia. Lest that we have forgotten, Malaysia is now the second largest palm oil producer behind Indonesia, which is actively pursuing effective turn-around programmes along with the assistance of international edible oil players and associations. I have met an edible oil trader who has been on the trade for 30 years and his comment was that certain high profile individuals in the Malaysian authorities were too unwilling to admit mistakes and learn from others.

    The word crisis connotes danger and opportunity in Chinese. The famous Robert Kuok said that astute business person should fish in troubled waters. I wish to quote the famous sayings of Zhuge-Liang viz:-

    a) there are three avenuesof opportunity:, events, trends and conditions.

    b) when opportunities occur through events but you are unable to respond, you are not smart,

    c) when opportunities become active through a trend and yet you cannot make plans, you are not wise and

    d) when oppotunities emerge through conditions but you cannot act on them, you are not bold.

    Those skilled in generalship always achieve their victories by taking advantage of opportunities.

    You may want to ask which category are the Malaysian authorities in charge of palm oil industry are in? Similarly, the government may also use the same skills but applied differently for their own benefit.

  6. #6 by madmix on Monday, 24 November 2008 - 4:41 pm

    Palm oil like all commodities have their ups and downs. When the price was at record highs for quite a long time, the plantation companies and small holders were enjoying huge profits. They should have saved and build up their reserves for hard time like the present. when times were good, other than higher corporate taxes for the big timers and perhaps no income tax from the small holders, do they share their good fortune with others?

  7. #7 by duckweed on Monday, 24 November 2008 - 5:28 pm

    I’d agree with madmix saying that no one else shared the huge profit they earned earlier. And if they did/do not save for rainy days, who to blame? I think it’s human nature to play the ‘blame game’.

    The same thing goes to other business industries. When the government increased petrol prices, almost all businessmen from various fields reviewed prices of commodities and products. Now that the fuel prices have gone down, have these traders done anything to reduce the burden of consumers? Nope!

    And DPM has got the nerves to say that Malaysian government could not bring down petrol prices anymore. What the heck was he talking about? Don’t tell us that he’s not aware of the lowest ever global oil price now! HELLO! It’s not more than USD50 per barrel. Is our DPM trying to fool Malaysians? Or he’s actually seeing us as 3-year-old kids? Goodness!

  8. #8 by Loh on Monday, 24 November 2008 - 6:54 pm

    Sorry, off-topic

    ///UMNO will take more measures to check money politics which should be tackled in a more comprehensive manner, said Umno deputy president Datuk Seri Mohd Najib Tun Razak. ///–The Star 24 Nov 2008

    The DPM accepts that money politics is taking place in UMNO election. By suggesting a comprehensive approach to tackle it, the problems must have been quite rampant and widespread. It might also have been going on for a long while.

    There are 191 UMNO divisions and 10,000 branches throughout the country that conducted their meeting with the singular most important purpose of electing representatives at the branch, division and central delegate levels. It was said that in one Kubang Pasu election, two hundred ringgit was given to individual delegates not to vote a certain character. Money might have also been paid to vote for certain characters too. If there are 200 members in a branch, and if their attendance is paid by the party, then at 200 ringgit, the total expenses could exceed 40,000 ringgit. For all the branches, the cost might have been 400 million ringgit. This is not from the donation of UMNO members, and their membership fee is one ringgit a year. How does UMNO finance the meeting?

    The complaints against money politics relate only to UMNO members converting their voting rights to money. It is on a willing buyer, and willing taker basis, accepted in full market economy. The objection now raised in UMNO is because the party who used to have a bottomless pocket had the tap turn off, and yet they are still ambitious to create a dynasty. When money resources are not even, there is then no level playing ground in UMNO party election. Should there be money politics in UMNO. Of course not, because that is the cause and the effect of corruption. One wonders why only now the issue is raised when that phenomenon existed for the past decades. Money politics depends on easy money which flows in huge volume, and not time dependent as would the salary. So it is clear that people who pay to get a position in UMNO, and subsequently in the Cabinet did not do it to serve and earn only the salary attached to official positions. They want to be in the government so that they have the power to influence the approval of and to whom government projects would land. Since TDM did away with the open tender system, they have also done away with project assessment on whether the value of ringgit used by the government in government projects, be it the purchase of weapon of mass protection and transport, or building of white elephants, approximate the value of ringgit in open market.

    Not many years back it was revealed that a 30,000 ringgit budget for the renovation of a construction project in a Chinese school was rewarded with a 3,000 worth of work done. Using that as a guide, and on average, government money is not worth a fifth of its face value when used to purchase government projects. The remaining four fifth are probably soaked up from the process of project conception through to negotiation, contractors and ultimately with one fifth leftover for the sub-contractors who carried out the actual job. One wonders whether there is also a conduit from the project to UMNO fund, since their meetings are always in posh settings. Having asked that, it is possible that Tun Daim could be transferring funds from overseas out of UMNO’s investments. UMNO itself could own more share capital than other Malays put together.

    Money politic is bad because it makes aspiring politicians tender for party position. Like all tenders, the entrepreneurs cannot pawn the wealth of their ancestors for the game of it. The winners will have to recoup their investments. To do that they will have to ensure that the facilities which exist to make government projects conduit to transferring public funds to their private bank accounts intact. The vicious circle of the success story of tendering for the party post make the stake rise higher, and eventually leakages in government funds will turn to pours.

    TDM claims that money politics will make contenders of UMNO position forget to fight for the rights of the Malay race. I like to think that he is talking about basic human rights as included in the United Nations convention, which Malays are not really having total protection. But no, he is talking about the ability as Malay hero, and he thinks that he is the greatest. Running up to the 308 general elections, and in the earlier UMNO assemblies, there were UMNO leaders who saber-rattled against other races. They should then be proof that they had not been involved in money politics, based on TDM’s argument. Can we ever hope for racial harmony when UMNO leaders are out to prove that they were not involved in money politics based on TDM’s criterion?

    It is NEP which allowed official leakage of government funds to fund money politics in UMNO elections. It would serve the private agenda of those who are actively involved in money politics and come out winners of the game to insist that NEP should continue, and hence his source of war chest. That also earns them the status as defender of the Malay race and religion.

  9. #9 by robert wong on Monday, 24 November 2008 - 10:08 pm

    Only in State of Sabah peculiar thing happens:-

    Cost of production of 1 metric ton of CPO = Rm1800.00

    Sabah govt. enjoy 7.5% CPO sale tax when CPO price above RM1000.00 per metric ton.

    How can a state govt. enacted a law whereby planters are already suffering loses and on top of that they have to pay sale tax to the state govt ?

    The funny thing is that how this sale tax is being enforced is another issue.

    Musa Aman said the state government is only taxing the CPO millers on the 7.5% sale tax. But did he know that Millers has already included the 7.5% sale tax as their fixed cost when they buy fresh fruit bunch (FFB) from the planters ?

    Musa Aman and the sabah govt. may make his point if and only if there are no small planters ie only CPO millers with big plantations in Sabah. But does it ?

    Is there any country in the world that still impose taxes when the ventures are already in the RED ??

    Are our BN politicians sleeping or just playing dumb

  10. #10 by katdog on Tuesday, 25 November 2008 - 12:09 am

    The UMNOputra’s and their cronies are always experts at making excuses. When oil prices were high and the government was enjoying good payouts from Petronas, they say oil prices are too high to be covered by government. Now oil prices have dropped and therefore so has the governments income, they say cannot reduce oil price further as not enough income to cover the subsidy.

    These people are absolutely incompetent at managing the economy. Where do you think our country would be without the oil that contributes 44% of our governments revenue?

  11. #11 by arisemalaysia on Tuesday, 25 November 2008 - 12:53 am

    This is the time to take massive action to help the oil palm industry particular the small holders. Give them big subsidies in fertilisers, grants and soft loans. In particular teach them “how to fish”
    help the smallholders management skills, how to save costs, buy in bulk and market their product collectively to get better price.

    We can bounce and arise again

  12. #12 by monsterball on Tuesday, 25 November 2008 - 1:37 am

    Lim Kit Siang is like our Malaysians auditor..exposing crisis after crisis..by our employee….UMNO.
    LKS is doing a dirty job..no one wants.
    Unfortunately…we have a slight majority share holders….that do not think..or care….as long as they get bribed…from the very employees…the employ!!!
    Is that not weird?

  13. #13 by mendela on Tuesday, 25 November 2008 - 4:01 am

    On yoga ban, I like to make the following comments:

    Malaysia spends hundreds of millions of our hard-earn money to promote Malaysia to the world and to attract foreigners to visit Malaysia.

    In such economy tsunami, what we needed the least now is to have such negative publicity on world media about our yoga ban. Such negative publicity would easily turn away thousands of wealthy westerners or Japanese from visiting Malaysia in a split second!

    What an airhead Government we have!

  14. #14 by shortie kiasu on Tuesday, 25 November 2008 - 8:33 am

    We should not use good money to chase after the drop in price of palm oil price by any artificial means and manipulation.

  15. #15 by Oilman on Tuesday, 25 November 2008 - 8:46 am

    The plantations after making bonanza profits are using the fertilizer industry as their “red herring” for their inability to control supplies to match demand.

    For your information, the 3 main nutrients in fertilizers are N, P and K (for Nitrogen, Phosphate and Potash (Kali)).

    Prices for Nitrogen, basically derived from natural gas have plummeted from usd800+ to blewo usd400/mt cfr Malaysia basis.

    The other two minerals are mined.

    The producers for Phosphates (mainly in North Africa) have shut down their facilities as thoser in USA have also done. China has a more than 100% export duty on Phosphates and a qouta too.

    Potash deposits are basically in Canada and former Soviet Union and Germany. All the producers have announced production cuts of over 2.5million tons.

    Whilst producers of other commodities have almost immediately responded to the market (and to preserve margins), our oil palm plantations merely cried wolf. They should agree to set aside 5% of their palm oil production on a regular, longterm basis as at a special price for bio-diesel. This would encourage longterm usage, irregardless of crude oil and palm oil prices. That way we have an outlet to balance supply and demand. That way, palm oil prices need not be dictated by the buyers.

  16. #16 by madmix on Tuesday, 25 November 2008 - 10:28 am

    On Mendela’s point, the ban can be easily circumvented: Start a new type of practice based on yoga movements with modifications ( there is no copyright on yoga) to suit religious bigots. Call it Gooyah, the new art to a healthy lifestyle developed by the expert Dr Madmix.

  17. #17 by i_love_malaysia on Tuesday, 25 November 2008 - 12:46 pm

    Supply and Demand is the general rules of the economic games. Govt may come in as and when required to regulate the supply and demand, in order to keep the supply and demand in equilibrium.
    Govt should use all means to regulate the supply and demand; if the supply is too much at times, govt should find ways to absorb the excess e.g. keep it in reserved or to encourage consumption and when the demand is very high, govt should release the reserved or to discourage consumption through tax and other measures!!!
    Anything without control will only bring disaster to us sooner or later!!! We dont have to see very far to see all the bad eg. US subprime credit crunch, all the lost making GLCs in Malaysia, govt servants, ministries etc etc. all are very good e.g. of no control and free for all!!! Some one said this to me, “If you dont take, some one else will take it too!!! So just take it!!!”, No wonder there’s no shame for those who take it, because it is happening from head to bottom!!! remember APs !!!

  18. #18 by i_love_malaysia on Tuesday, 25 November 2008 - 12:58 pm

    What Najis is trying to tell us is that even if the oil is free, we still need to pay RM1.92 or more because refiner needs to process the oil at a cost and profit. Oil company needs to pay transporter to bring the free petrol from the refinery plant to the petrol station and there are overhead incurred plus the profit that the petrol station owner needs to make etc. – at the end, consumers still need to pay at this price!!! Please dont ask him how the figure is obtained as it will be violating the secret acts and other acts that the govt can think of to stop the rakyat from using their brains to think and reason!!!

  19. #19 by HJ Angus on Wednesday, 26 November 2008 - 12:51 pm

    Small-holders may need to form co-ops to become more cost effective and maybe the government can encourage the big companies and FELDA to buy their crop.
    Any reasonable price that is above the cost of harvesting and transport would be better than rottiing fruit.

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