Economics

Oil Palm industry crisis – urgent remedial measures needed

By Kit

November 24, 2008

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.