“The GSP status accorded by the donor countries to developing nations is unilateral. It is not negotiated,” said Ministry of International Trade and Industry (Miti) secretary-general Datuk Dr Rebecca Fatima Sta Maria.
She said Malaysia graduated from the GSP status with the United States in 1995. As with the European Union (EU), it will expire at end of this year and with Canada, at the end of June 2014.
“The moment Malaysia’s gross development product (which is the sum of goods and services) reaches a certain level, that preference will be taken away,” she told Business Times on the sidelines of a seminar, here, recently.
Rebecca was responding to a query on the predicament faced by Malaysian palm oil exporters once the GSP status accorded by various developed nations expires. Miti is the government agency tasked to negotiate regional and bilateral trading arrangements to complement the multilateral approach to trade liberalisation.
Six months ago, Kuala Lumpur Kepong Bhd chief executive officer Tan Sri Lee Oi Hian highlighted that from January 2014, Malaysia’s oleochemicals shipments entering the EU will be taxed between four and six per cent.
The EU had announced that the current GSP status accorded to Malaysia will expire at the end of this year.
Last year, the Malaysian Palm Oil Board data revealed that Malaysia exported 2.22 million tonnes of palm oil to EU countries. This is about 13 per cent of the 17.58 million tonnes of palm oil shipped out from Malaysian shores.
“This is a very big problem for us in Malaysia because Indonesia is still considered a developing country,” he said, implying that Indonesia’s exports to the EU will continue to be tax-exempted.
“With losing GSP, if we don’t tackle it well, it could be another nail in the coffin for us.
“I would like to urge the government to put the free trade agreement discussions with the EU on a faster burner and try to resolve some of these issues,” he added.
Lee was speaking at the first edition of Global Malaysia Series titled “Fuelling the Economy – The Business of Palm Oil”, organised by Performance Management and Delivery Unit (Pemandu) of the Prime Minister’s Department in March 2013.
When queried on Miti’s stance with regards to barriers to palm oil trade, Rebecca said: “We are aware and it will be part of the free trade-agreement negotiations under the technical trade barriers segment.
“Palm oil trade barriers are not the only issue to be addressed at the meetings. We will try to get, or at least, minimise the barriers or bring the tariffs down to zero.”
Oil World executive director Thomas Mielke said palm oil prices are likely to slide further as global edible oil stocks are set to increase sizeably in the next few months.
As some 200-odd participants settled in at the seminar hall here, Mielke struck a sombre note among vegetable oil producers when he said prices are expected to trade rangebound with downward pressure in the next three months.
Founded in 1958 by Mielke’s father, Siegfried, Oil World is now recognised worldwide as the authoritative information provider for oil seeds, tropical oils and animal feed.
Mielke said global production of 17 oils and fats has doubled in the last 20 years to 189 million tonnes this year. Crude palm oil (CPO) alone makes up 56.5 million tonnes, or 30 per cent of the total, clinching the top spot.
“By year-end, Malaysia is set to produce 19.2 million tonnes of CPO while the volume in Indonesia is expected to touch 29 million tonnes,” Mielke said on the sidelines of the seminar.
“We are seeing a major recovery in the supply of soft oils, particularly those extracted from sunflower grown in the Black Sea region. Since the start of this month, sun oil has been offered at US$850 per tonne, below that of soya and rapeseed.
“Global supply of sun oil has risen by 1.6 million tonnes. This is set to rise even more sharply in the next few months. This will have an impact on CPO prices,” he said.
“Global palm oil stocks, particularly from Malaysia and Indonesia, have reached their low levels. We think these levels will start to rise again, possibly by another 2.2 million tonnes until the end of the year. This is likely to put pressure on CPO prices, which are currently averaging at RM2,350 per tonne,” he added.
Yesterday, the third month CPO benchmark on Bursa Malaysia Derivatives Market rose RM9 to close at RM2,309 per tonne.
Asked if the additional volume of edible oils in the market could press CPO prices to below the psychological low of RM2,000 per tonne, Mielke shook his head. “No, I don’t think the forecast decline in palm oil prices would be that drastic.”
LMC International Ltd chairman Dr James Fry, who was also present at the POTS series, took on a more optimistic view.
He said the price gap between crude petroleum and CPO favours more consumption of palm biodiesel. The current CPO price of RM2,300 per tonne works out to be US$85 per barrel cheaper than crude petroleum. “We’re back to where we were nine months ago.”
The Malaysian Palm Oil Board’s data shows that for the first eight months of this year, biodiesel exports rose sixfold to 114,414 tonnes, compared with the same period a year ago.
Since production of palm biodiesel is profitable, oil companies in Indonesia and Malaysia have started to mop up CPO from the local market to blend with regular diesel.
“This has helped to bring down stocks. Currently, CPO prices are trading near the bottom. If crude oil (price) doesn’t change from the current levels, I don’t see CPO prices settling further. If Asia’s biodiesel usage were to go up, CPO prices may well rise in the months ahead,” he said.
Godrej International Ltd director Dorab Mistry, in his paper, concurred with Fry that current vegetable oil prices are closely linked to fuel prices, but questioned how long this trend would hold up.
Dorab said CPO prices has bottomed out at RM2,137 per tonne since two months ago.
In his forecast, Dorab identified weather as the most important factor in agricultural commodity prices. “We’ll need another El Nino or a La Nina for a new bull market.”
Russia, which has a population of more than 140 million people, is an emerging market for palm bakery fats and deep fry oil.
While Russians are familiar and comfortable with homegrown sunflower oil, the food industry there is getting acquainted with the culinary flexibility of palm oil and its nutrition.
In between interviewing stakeholders of the Russian oils and fats industry and celebrity status vegetable oil analysts Thomas Mielke and Dr James Fry, there was break time of a few hours for us to visit the Red Square, located near the hotel we stayed in.
The roads in Moscow are very wide; six lanes on either side. In order to get to the other side of the road, one must use the underground passage way. There were many little tuck shops scattered throughout the well-lit and ventilated maze of tunnels.
When we finally got to Red Square, we saw a lot of matryoshkas or Russian stacking dolls displayed on moveable carts.
I learnt that these “must buy” item on the gift list of most tourists visiting Moscow are made from the same tree so that the dolls respond to heat and humidity uniformly.
Carving and painting these dolls is an elaborate affair, with the artisan having to ensure that all the dolls are precisely sized.
The dolls must fit together and the shell of every doll should be thin enough to accommodate the dolls that are inside. These dolls usually range from a set of three to 24.
I tagged along with KL Maritime Sdn Bhd managing director Richard Goh and Palm Oil Refiners Association of Malaysia (Poram) chairman Wan Mohd Zain Wan Ismail in exploring the local arts and culture shops.
These gentlemen proved to be good bodyguards [against potential pickpockets] and excellent bargain hunters 🙂
State-controlled PTT is one of several Thai companies that expanded aggressively in recent years, but which have since scaled back investments because of a slump in Southeast Asian exports in recent months.
PTT slashed this year’s budget by 46 per cent and most of its cutbacks involved planned foreign investments.
Charoen Pokphand Foods pcl, Thailand’s largest meat and animal feed producer, also cut its five-year investment budget by a third, while Thai Union Frozen Products pcl , the world’s largest canned tuna marker, cut investment this year by 17 per cent.
“We are in the process of selling the oil palm plantations in Indonesia,” said a PTT official.
“It’s a business that needs a lot of attention and is more suitable for locals, while PTT does not have much experience in running oil palm plantations,” he said.
The deal is likely to attract interest from planters such as Singapore’s Wilmar International Ltd and Malaysia’s Sime Darby Bhd, a source familiar with the deal said.
PTT, the third-biggest listed oil and gas firm by market value in Asia Pacific, bought stakes in oil palm oil plantations and processing operations in West Kalimantan in 2008 as part of a plan to expand into green energy businesses.
It set up a wholly-owned unit PTT Green Energy Pte Ltd to buy a 95 per cent stake in PT Mitra Aneka Rezeki for US$14.7 million in 2008. The Indonesian firm has licences to operate about 14,000ha of palm oil plantations in west of Kalimantan Island.
In April 2008, PTT bought a 95 per cent stake in PT Az Zhara, which owns licences to operate about 40,500ha of oil palm plantations and processing facilities in central Kalimantan.
The Thai energy giant also has interest in coal businesses in Indonesia. It withdrew from an investment in Egypt in 2011.
It owns stakes in oil and gas assets in Southeast Asia, Australia, Algeria, Canada and Mozambique.
Established in 1966, Felcra was previously known as the Federal Land Consolidation and Rehabilitation Authority.
Instead of opening up new land settlements for agriculture, as in the case of Federal Land Development Authority (Felda), Felcra empowers existing landowners in rural areas to better manage their crops through economies of scale.
Last year, Felda gained global branding when the public listing of its unit, Felda Global Ventures Holdings Bhd, raised RM10.5 billion.
When asked on Felcra’s plans for an initial public offering, chairman Datuk Bung Mokhtar Radin said Felcra is not like Felda because the 60,000ha oil palm and rubber plots managed by Felcra belong to smallholders.
“Felcra does not own the land. We only manage the crops for a fee and in return, we accord dividends to the landowners. Lawyers have advised us that it would be difficult to lease the land from smallholders.”
Asked if Felcra still wants to participate in the capital market, Bung Mokhtar said: “We are still at the analysis stage. We are identifying a subsidiary for listing.
“We don’t want to be totally dependent on the oil palm and rubber business. We want to diversify into property development. We have land in Kuala Lumpur, Perak and Langkawi.”
Bung Mokhtar was speaking after Rural and Regional Development Minister Datuk Seri Mohd Shafie Apdal witnessed the signing of a corporate integrity pledge between Felcra and the Malaysian Anti-Corruption Commission. Also present was Felcra chief executive officer Datuk Ramlee Abu Bakar.
“We’re looking to partner with a developer from the private sector to develop a 1.8ha land along Jalan Semarak in Kuala Lumpur,” Ramlee said.
He noted that this mixed development near the Kuala Lumpur City Centre has an initial gross development value of up to RM900 million. “We are awaiting approval from the Finance Ministry. Once we secure the approval, we hope to start working with a partner.”
“Our main concern is better access of our commodity exports into these markets. I’ll bring up this matter in Cabinet,” the minister told reporters here yesterday after hosting a dialogue with various stakeholders in the palm oil industry.
Malaysia earns some US$20 billion (RM65.2 billion) from palm oil exports every year.
The Ministry of International Trade and Industry, while currently negotiating a free trade agreement with EU, is also involved in the Trans-Pacific Partnership Agreement (TPPA) talks.
The TPPA, conceived in 2010, is a free trade pact among the US, Mexico, Canada, Peru, Chile, Malaysia, Singapore, Brunei, Australia, New Zealand, Vietnam and Japan.
Apart from import duties imposed on palm oil in consuming countries, barriers to trade include smear campaigns against the commodity.
In the last 15 years or so, Western environmental activists had launched many campaigns alleging that the expansion of oil palm plantations destroyed rainforests, threatened many endangered wildlife and robbed indigenous peoples of their land.
Indeed, this sits oddly with the fact that oil palm is one of the world’s most sustainable crops.
Oil World, a Hamburg-based trade journal, noted that the oil palm tree is the world’s most efficient oil crop because one can harvest five tonnes of oil per hectare. This is 10 times more productive than soyabeans planted in the US and five times more than rapeseeds, Europe’s main oil crop.
By criticising the virtues of oil palm planting and ignoring the evidence that economic development leads to better environmental protection, it is questionable whether these activists’ true commitment is to the environment or to erection of trade barriers to benefit rapeseed farmers who are already heavily subsidised by the EU government.
This hand-in-glove fit is also seen in the activists’ campaign against palm oil imports, especially for biofuels, which is very much aligned with the EU’s Renewable Energy Directive that seeks to discriminate against palm biodiesel.
Malaysia, in its TPPA negotiation, is expected to seriously address such barriers to palm oil trade because almost a million jobs are at stake. The sprawling palm oil industry also supports some two million livelihoods in the economy.
Meanwhile, Uggah said the Malaysia Sustainable Palm Oil (MSPO) certification scheme, to be implemented in 2014, is a tool to overturn smear campaigns against palm oil.
“The Roundtable on Sustainable Palm Oil certification scheme is very costly and their goalposts keep changing. It’s time we set our own standards. Hopefully, the MSPO can yield some premium for planters,” said Uggah.
During the industry dialogue, oil palm planters once again appealed against the myriad of taxes they have to pay to the federal and state governments.
Today, oil palm planters in Peninsular Malaysia pay a windfall tax when the average crude palm oil (CPO) price surpasses RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak, however, only need to pay a windfall tax if the price crosses RM3,000 per tonne.
Oil palm planters argued that the formulation of the windfall tax is flawed because it is based on the CPO selling price instead of actual profits.
Palm oil is already the world’s most heavily taxed vegetable oil, with oil palm planters having to pay 26 per cent corporate tax, cess amounting to RM13 per tonne of crude palm oil, 7.5 per cent and 5 per cent sales tax in Sabah and Sarawak, respectively. Also, there are varying import duties in consuming countries.
When compared to businesses in other sectors that just pay 25 per cent of corporate tax, oil palm planters is seen to pay more.
This is because when all the cess and taxes are added up, planters in Peninsular Malaysia pay an effective tax rate of 26 per cent. In Sabah and Sarawak, it is even more punishing. For every RM1 an oil palm planter in Sabah earns, he pays 40 sen in total cess and taxes, while in Sarawak, the amount is 37 sen.
OIL palm planters invest a lot of money in heavy machinery to clear the land, compact the peat soil and dig up canals.
This process keeps the peat soil moist, so that the oil palm trees can grow properly and yield to their potential. Incidentally, it also makes the soil less flammable and hinders fire from spreading.
“The canal depth depends on the topography of the field and planting density, but the primary objective is to keep the water levels at 50cm to 75cm from the surface at most times,” said Sime Darby head of plantation operations for Sumatera region Karpanasamy Rengasamy.
This is achieved through a series of stops, weirs and water-gates. Periodic flushing of the acidic and excessive storm water during the rainy season is also carried out, he added.
When asked the inevitable question if Sime Darby had carried out open burning and caused air pollution two months ago, the planter replied: “Our oil palm plantations in Riau are of mature ages. Why would we want to burn our productive trees?”
He also confirmed that Indonesia’s Kementerian Lingkungan Hidup & Kepolisian and other local authorities had visited Sime Darby’s estates late June 2013 in Riau and found no evidence of open burning. Also present was Sime Darby general manager of estates in South Sumatera Ahmad Sahfengi Mohd Salleh.
Asked to comment on satellite pictures showing many hot spots across Sumatera as indicative of fiery blaze around the plantation companies’ land bank, Sahfengi replied: “We must take note that in Indonesia, 20 per cent of plantation land bank is usually occupied by local villagers. They are scattered within our concessions and at the border of our estates.”
Oil palms have always been planted on managed peat where the soil is properly compacted and kept moist in a network of canals.
On the other hand, small farmers usually plant their cash crops on unmanaged peat. Unknown to many, unmanaged peat is highly flammable during droughts.
In a recent visit to Sime Darby’s Nusa Lestari estate, which is part of oil palm concession held under PT Bhumireksa Nusasejati, reporters from Malaysia, Singapore and Indonesia’s Bisnis Indonesia, Kompas and Antara news agencies experienced first hand the difference between a well-managed peatland and one that is not.
Our feet sank with every step we took into the middle of a spongy, razed field. “I’m sinking. The soil is so soft!” a reporter shrieked.
An agronomist, who is familiar with Sumatera’s soil profile, noted that it is a typical characteristic of unmanaged peat. In a separate interview at a coffeeshop, he explained the difference between unmanaged and managed peat.
He drew an analogy by comparing the cross-section profiles of a traditional Indonesian sponge cake called bahulu and that of a dense layer cake.
He bit into the bahulu and pointed to the cross section of the sponge cake. He asked, “Can you see the big holes? This is like the profile of unmanaged peat.”
He then flattened the sponge cake between his palms. “When there is considerable soil compaction by heavy machinery, the big holes in the peat become small holes and the top soil layer is compressed and become dense like a layer cake.
“The compaction enhances capillary rise, resulting in higher water-filled pore space in the peat. That means the water from the bottom of the peat seeps up and moisten the top soil, therefore making it less flammable,” he said.
“So, even if there was an accidental fire ignited by carelessly thrown cigarette butts in times of drought, it is unlikely to spread because the compacted peat soil is moist,” he said.
After a break, the media entourage moved on to another plot of unmanaged peat outside Sime Darby’s estates.
This time, a corn farmer named Suswono, 45, was present to answer media queries when we docked from our mini-speedboats by the side of the canal.
He admitted that the field of maize he was tilling was cleared by open burning three months ago. He then added that it was his friend’s doing and not his.
Asked if he knew that fire on unmanaged peat spreads and smoulders underground, his eyes widened.
It then became apparent that it is timely for Sime Darby to intensify its communication campaign to surrounding villagers in Riau on the extensive damage of open burning.
The corn farmer listened attentively as Sahfengi explained that Sime Darby had formed a volunteer group named Masyarakat Peduli Api (MPA) or Community Against Open Burning.
Volunteers among the villagers are recruited to spread the word against open burning. Sahfengi said Sime Darby’s team of firefighters will continue to engage with MPA volunteers to spread the word on the health dangers and extensive damage of open burning.
“We set up MPA last year and in the years to come we’ll intensify the campaign to neighbouring villagers on the dangers of open burning to health. We hope to also raise awareness on best practices in peat agriculture among the community here,” Sahfengi said.