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Perception versus reality: The dilemma of oil palm industry in Sarawak

Wednesday, 13 March 2013

KUCHING: The oil palm industry in Sarawak has emerged as one of the most dynamic industries for the state today in terms of employment opportunities, revenue earned, transfer of technologies and downstream development of many related industries, according to the Sarawak Oil Palm Plantation Owners Association Sarawak in a press release yesterday.

“Unfortunately, the perception of the industry is not as rosy and often many are swayed by ‘reality distortions’ views by NGOs and others that the industry is both destructive and environmentally unfriendly.

“It is most absurd to believe that our local investors would pour in millions of Ringgit in the oil palm industry to destroy the land and environment for an agricultural crop that has a life span of over 25 years and which can be perpetually replanted! Logic tells us that one does not kill the goose that lays the golden eggs but to nurture and grow the venture for the foreseeable future,” it said in the press release.

“One common perception of the industry is that it makes such enormous profits but gives little back. Nothing is further from the truth when one takes into consideration the huge investment capital needed for start-up before any profit is made. Land acquisition is a costly feature of any venture, even if it has been converted from other agricultural practices like rubber, cocoa or rice.”

Next is clearing of the land which can be as high as RM 10,000 – RM 15,000 per hectare, depending on locality and nature of land, preparations of the plots and in peat areas, proper water control facilities which can cost around RM 14,000 for the infrastructure facilities needed, the association said.

“Nursery for the young palm seedlings, maintenance and upkeep as well as fertilizers cost around RM 8,000 per hectare apart from buying these seedlings. All these activities can take from between 1-3 years with massive capital input without any revenue being earned yet but servicing of loans has also started.”

It explained that, taking into account the expenditures involved in the start-up, it therefore costs as much as RM 22,000 per hectare to clear, plant, maintain the young palms until maturity. On the 4th year the first harvesting average yield is about 8 tonne per hectare which comprise mainly lower C grade FFBs (Fresh Fruit Brunches) which is sold around RM320 per tonne.

Maintenance and upkeep is about RM750 per hectare and harvesters are paid RM80 per tonne which means there is a net loss of RM510 per tonne. Similarly, on 5th year with average yield of 13 tonnes of B grade FFBs netting RM350 per tonne against RM 462 for maintenance and RM 80 for harvesters resulting in net loss of RM192 per tonne, according to the association.

On the 6th year with average harvest of 18 tonnes of grade A FFBs fetching RM380 per tonne against RM 333 for maintenance and RM 80 for harvesters will again bring a net loss of RM 33 per tonne.

Only at the 7th year with proper maintenance and upkeep will yield around 22 tonnes of A grade FFBs which at RM 380 per tonne against RM 273 for maintenance and RM80 for harvesters results in a net gain of RM27 per tonne sold. Of course, these calculations are based on average yields, fixed CPO prices and no rise in cost of other expenditures like fertilizers, labour and taxes, it said.

“This is the most ‘governed’ industry in Malaysia as currently there are 25 laws/regulations for companies to adhere to when planting oil palm in Sarawak,” says Paul Wong, 1st Vice Chairman SOPPOA (Sarawak Oil Palm Plantation Owners Association). “As such, any discrepancy results in fines and even jail term for directors if not following the strict guidelines of the government like as reported in the newspapers.”

He reiterated that it is the government policy that oil palm can only be planted in designated areas approved by state authorities and also MPOB (Malaysian Palm Oil Board), the main authority for the industry in Malaysia.

“So the bottom line is that there is no discriminate planting of oil palm in the state and activities are being monitored regularly by the authorities concerned which include Labour Department, DOE (Department of Environment), DOSH (Department of Occupational Safety and Health), Health Ministry, Ministry of Plantation and Commodities, Ministry of Land Development, Fire and Rescue Department, Municipal Authorities and Customs and Excise (collection of taxes).

“On the taxes, the oil palm industry is the only agricultural crop which is ‘taxed before profit’ as millers, exporters of palm oil are taxed whenever the commodity is sold under Windfall tax, Stabilization Fund tax, Export Duty tax while a further 25 per cent corporate profit tax is levied on companies involved in the industry.

“We are grateful though that the government has now made the Foreign Workers levy to be paid by the workers and also exempted the estates from SPIKPA (health insurance scheme),” he adds.

“Presently, the estates have also eased the burden on the workers by giving them incentives to offset these extra burdens of levy charges while providing medical and other health care benefits in times of needs.”

Currently, the industry is handicapped by the shortage of workers and hence the need for foreign workers which is a major concern for companies as many producers are now emerging from other countries other than Indonesia like India, South Africa, South America and other Pacific Asian nations which will make sourcing for labour even harder.

“The oil palm industry here is a major contributor to the state revenue earned annually and also for gainful employment of thousands of people. In 2012, oil palm accounts for 57.3 per cent of commodity and commodity products export of RM 73.3 billion as stated by Tan Sri Bernard Dompok, Plantation Industries and Commodities Minister recently.

“In addition to the transfer of technology gained for locals, people here also benefited from the complementary supporting industries like food suppliers, real estate agents, drivers, insurance providers and entertainment establishments etc.

“Instead of looking at the industry negatively, we should see oil palm as a nation builder for the state as it contributes to very affordable food resources like cooking oil, numerous commodities made from combination of palm oil and making resourceful use of arable land in the state.

“The current cooperative mode between the private and public sector should be further enhanced to ensure that the industry continues to be progressive and sustainable and bringing progress to the state’s development,” he opined.

Taken from New Sarawak Tribune