Malaysia has allowed duty free exports of crude palm oil for this month and next. A further extension in duty-free exports would help it reduce stockpiles but also put pressure on rival top producer Indonesia to consider similar measures.
Indonesia has allowed duty free exports for October in response to the Malaysian duty structure.
“If prices remain at the current level, then Malaysia could allow duty free exports in November and December,” said Felda Global Ventures Holdings Bhd (FGV) chief executive officer Mohd Emir Mavani Abdullah told Reuters yesterday.
Both Malaysia and Indonesia set export taxes on a monthly basis. In August, Malaysia’s export duty for crude palm oil was five per cent, while Indonesia has set its September rate at 9 per cent compared with 10.5 per cent in August.
Malaysian palm oil futures settled at RM2,177 per tonne last Friday, after hitting a 5-year low at RM1,914 on September 2.
Palm oil has fallen a quarter since its March peak of RM2,916. The duty free exports have been helping in bringing down stockpiles in Malaysia, Mohd Emir said.
FGV is planning to enter India, the world’s biggest importer of palm oil, by setting up a port-based refinery with a local partner, said Mohd Emir, who was in Mumbai for a Globoil India conference. “We are examining a couple of proposals now.”
India’s palm oil imports in the 2014/15 marketing year starting in November are forecast to surge to nine million tonnes, compared with 2.6 million tonnes in 2005/06.
Meanwhile, editor of the Hamburg-based newsletter Oil World Thomas Mielke said palm oil price could rise as much as 10 per cent to US$750 per tonne in January-March 2015 because of dry weather.
“Oil palm growing areas are suffering from dryness in Indonesia and Malaysia. If there is continuation of dryness in October, then the oil palms will be stressed. This could reduce the number of fruit bunches in the coming months.
“I think vegetable oil prices have bottomed out … the growth in palm oil production would most probably be just 2 million tonnes … the lowest in 5 years, in 2014/15,” Mielke said. “Crude palm oil could rise up to the range of US$730 – US$750 per tonne, in the first quarter of 2015 from US$680 per tonne now,” he added.
AS far as sustainable farming goes, some practices are something to hoot about. For 30 years, Sime Darby (SD) Plantation has successfully run a Barn Owl programme in its estates.
“Work is in progress for us to bring the owls to our estates in Sarawak, and later in Liberia,” said SD’s head of research and development Dr Mohamed Nazeeb Ali Thambi on a visit to its oil palm estates on Carey Island and Jomalina refinery.
SD Plantation first started to consider the viability of barn owls as a sustainable and environmentally friendly method of pest control on its oil palm plantations in the early 1980s, when commercial-scale trials proved their effectiveness in the biological control of rats.
|Oil palm planters grow the beneficial turnera subulata to give
shelter to bigger insects that feed on bagworms, nettle
caterpillars, rhinoceros beetles and termites.
“Encouraging the presence of more beneficial predatory insects, parasitoids and entomo-fungi help eliminate leaf defoliating insects in oil palm estates, while cultivating beneficial plants and flowers that provide shelter and supplementary food like nectar will encourage the population of predators and parasites.”
NEW YORK: Prime Minister Datuk Seri Najib Razak told the UN Climate Summit, yesterday, that Malaysia is committed to cut carbon emissions but said rich nations should also keep to their promises.
He said at the one-day summit ahead of the annual meeting of the UN General Assembly that Malaysia was on track to cut the emissions intensity of the gross domestic product by 40 per cent, in six years, as promised.
He said the pledge made at the 2009 Copenhagen UN climate change conference was made on the understanding that parties would honour their commitments to assist developing nations in financing and technology transfer.
“That target we set in Copenhagen was conditional on finance and technology transfer from Annex I (developed) countries.
“Yet neither condition was met. We did not receive the assistance we were promised under Article 4.7 of the Convention,” he said.
“Our Copenhagen pledge was made in good faith; on the understanding that parties would fully honour their commitments to assist developing nations.
“Yet Malaysia continued to cut its emissions intensity of its economy by more than 33 per cent, for the sake of our people – and our planet.
“This time must be different. This time, all countries should commit to an ambitious deal to reduce emissions. And they must follow-up that commitment with consistent action,” he said.
Najib said, since 2009, Malaysia had implemented new national policies on climate change and green technology.
“We (also) passed a Renewable Energy Act establishing a feed-in-tariff for renewables. We made adaptation and mitigation central to our water resource management. And we gazetted new forest reserves, reaffirming our commitment to a pledge we made at the 1992 Rio Earth Summit,” he said.
He said Malaysia had also taken steps towards a cleaner future besides having a more balanced energy mix.
“But this progress came at a cost. In allocating finite national resources, we have had to make painful decisions. We had to choose between adaptation and mitigation.
”Malaysia has spent nearly US$2.6 billion in the last decade adapting to more frequent floods. This is money we could have invested in green industries, or used to slow climate change,” he said.
Najib said Malaysia would continue to act on climate change by having new policies to promote energy efficient vehicles, a new corporate greenhouse gas reporting programme, a building sector energy efficiency project and a low carbon city framework.
THE Minimum Wages Order 2012, which took effect from January last year, requires employers with six employees and above to pay a minimum wage of RM900 a month in Peninsular Malaysia or RM800 a month in Sabah, Sarawak and the Federal Territory of Labuan.
As the government seeks to propel Malaysia into a high-income nation by introducing minimum wages, the blanket implementation of this figure to “basic rate” instead of “take-home pay” across all sectors had given foreign workers more money to send back to their home countries.
In an interview with Business Times, Malayan Agricultural Producers Association (Mapa) executive director Mohamad Audong said the blanket implementation of the minimum wage policy, rising bank borrowing costs and falling palm oil and rubber prices have resulted in planters being hit from all sides.
“While there is a 20 per cent increment in the basic wages, this has resulted in almost 40 per cent more money outflow from Malaysia last year. In theory, this law is supposed to help the oil palm industry become more productive. In reality, however, planters are badly hurt,” he said.
Mohamad pointed out that in 2012, foreign workers in the agriculture sector remitted around RM8 billion to their home countries. After the Minimum Wages Order 2012 was implemented last year, foreign workers sent back around RM11 billion. This year, Mapa estimates this figure to surpass RM15 billion.
He explained that planters are facing higher production costs. This is mainly due to more expensive foreign worker recruitment fees, higher fuel and utilities, such as diesel, electricity and water.
There are also various new fees and tax hikes to be imposed by the federal and state governments. On top of that, oil palm planters also have to pay cess of RM13 per tonne to government agency Malaysian Palm Oil Board.
The bleak outlook, Mohamad said, is compounded by Bank Negara Malaysia’s raising of interest rates. This means costlier bank loans to rubber and oil palm planters.
Since oil palm planters are price takers, their earnings are at the mercy of pricing in the world’s commodities markets. On Monday, the third month benchmark palm oil futures contract on Bursa Malaysia derivatives market added RM15 to close at RM2,099 per tonne.
“Don’t forget many of our planters borrow money from the banks and issue bonds, of which bankers and insurance companies are subscribers.”
Depending on the year of planting, Mapa calculated that palm oil production cost of these heavily-geared planters ranges between RM1,300 and RM3,000 per tonne.
“The minimum wage policy works best if commodity prices are on the uptrend, not when prices are falling,” Mohamad said.
As the government seeks to review the minimum wage ruling at the end of this year, planters appeal for a more judicious implementation of the Minimum Wages Order 2012.
“We’re not opposing the minimum wage law. It is the way the salary is being packaged. It would be more practical if the government amends the RM800 and RM900 per month minimum figure to that of take-home pay instead of basic rate. This would streamline the Minimum Wages Order 2012 to the main thrust of existing labour laws as that interpreted by the Industrial Court for many decades,” he said.
Mapa represents close to 200 plantation companies in Peninsular Malaysia, with estates spanning across a million hectares. These oil palm planters employ some 125,000 workers in the fields, of which 80 per cent are foreigners.
In their 2015 Budget wishlist, oil palm planters are appealing for the government to streamline the minimum wage rate with existing labour laws. They also want the government to abolish the windfall profit levy and rationalise cooking oil subsidy.
Meanwhile, Malaysian Estate Owners Association (MEOA) president Datuk Boon Weng Siew concurred that oil palm planters endure severe financial burden with the spectre of taxes and new ones to be introduced. “For every RM1 we earn, we have to pay almost 45 sen to the federal and state governments in taxes,” he said.
“Planters are not required by law to provide accommodation, schools, clinics and places of worship, but many do so as part of their corporate social responsibilities.
“When you factor into these amenities and benefits to workers, such as housing, water, electricity, medical care, transportation… it amounts to about RM450 per month per worker,” Boon added.
“Now, there is a new tax called Property Assessment Tax imposed by local authorities at between RM5 and RM100 per hectare. “This burden is increasingly painful on our members,” he said.
Apart from the minimum wage ruling of unintended higher money outflow, oil palm planters’ subsidising of cooking oil is also seeing huge wastage in the form of rampant smuggling to neighbouring countries.
Under the Cooking Oil Subsidy Scheme, palm cooking oil is capped at RM2.50 per kg.
Boon put things into perspective when he highlighted cooking oil sold in Malaysia is priced at 65 per cent discount of global market pricing.
“In other words, the same 1kg of cooking oil sold in Malaysia for RM2.50, if shipped out of the country, would fetch US$2.50 (or RM8.03). Exporters could price it three times higher in neighbouring countries,” he said, adding that the billion-ringgit subsidy that goes into cooking oil sold, here, is being funded by a windfall profit levy imposed on oil palm planters.
It has been reported that this levy is unfair because it is imposed on assumed profit and not on actual profit.
The levy is activated when palm oil exceeds RM2,500 a tonne. Planters in Sabah and Sarawak pay windfall tax when the prices cross RM3,000 per tonne.
MEOA, which represents 153 small- and medium-sized estates of more than 40ha, is appealing to the government to review the cooking oil subsidy, which benefits restaurant operators, traders, smugglers and people across the border more than the hardcore poor.
The price of palm cooking oil should be allowed to float in the open market, he suggests, and vouchers can be issued to hardcore poor households to mitigate the impact on them.
“I am often asked these days if oil palm plantation and palm oil processing company equities should be bought. My answer is a resounding yes,” Mistry said two days ago, without identifying the stocks.
“You invest in plantations when palm oil prices are low. I prefer processing companies which manufacture speciality fats, oleochemicals, biodiesel and own consumer brands. Upstream companies will benefit when the price cycle turns.”
Mistry, who has traded palm oil for more than three decades, joins Standard Chartered Plc in recommending investors buy plantation stocks to profit from a anticipated rebound in prices.
Palm oil fell to a 5-year low, two weeks ago, as output from Indonesia and Malaysia, the biggest producers, topped demand amid a glut in global cooking oil supplies, including soyabean oil.
Global palm consumption increased 81 per cent in the decade to last year as rising incomes lifted demand, the United States government data show.
“Long-term demand for palm oil is very supportive of the sector and that supports the case for recovery in crude palm oil (CPO) prices,” said Alex Fergusson, a fund manager at Singapore-based Woodside Holdings Investment Management Pte, referring to a period of five to 10 years.
Growth in per capita gross domestic product and populations in emerging markets are the drivers for demand, said Fergusson.
Prices will drop in the next few weeks towards the cost at which growers in Asia produce the world’s most-used cooking oil, said Mistry at an oils and fats conference organised by the Malaysian Palm Oil Board and Malaysian Palm Oil Council, in Shanghai, recently.
The world is awash with vegetable oils. Futures will drop to about RM1,900 a tonne, he said. That is 9.6 per cent below Monday’s close of RM2,099 per tonne on the Bursa Malaysia Derivatives and would be the lowest price since March 2009.
“It is almost impossible to forecast a bottom at this stage of the production cycle,” Mistry said. “However, producers are still very much in the money and I do not foresee prices going below cost of production.”
Palm oil prices are expected to strengthen next month onwards on lower production, and there is a better outlook for 2015 as biodiesel demand may increase, RHB Investment Bank Bhd said in its September 10 report to investors.
The bank said it remains “overweight” on plantation stocks in Indonesia and Singapore. CPO prices dropped 21 per cent this year to RM2,101 a tonne on Monday. Prices fell to a five-year low of RM1,914 on September 2, then rebounded after Malaysia scrapped an export levy for this month and next month.
Full-year output in Malaysia, the world’s second-largest grower, will probably be in the region between 19.7 million tonnes and 19.9 million tonnes, Mistry said.
In the first eight months of this year, supply was 12.76 million tonnes, 991,000 tonnes more than a year ago, while exports dropped 6.6 per cent to 10.99 million tonnes, he said.
Stockpiles will continue to rise and peak in December. Reserves in Malaysia jumped 22 per cent to 2.05 million tonnes last month from July, the biggest percentage gain since October 2009, Malaysian Palm Oil Board data show.
Maicsa president Chua Siew Chuan told Business Times that the government can incentivise good governance among corporate Malaysia by according tax breaks in the form of tax deductible expenses under the 2015 Budget.”
“Expenses incurred in ensuring transparent and ethical ways of doing business will result in sustained participation from investors and stakeholders,” she said on the sidelines of the Maicsa 2014 conference last week.
Corporate governance is about how company directors make decisions and put them into action. Measures to enhance ethical business practices include the setting up of a whistle blowing department within the company, strengthening of internal audit and appointment of chief governance officer.
Since 2012, the Malaysian Code on Corporate Governance had placed greater emphasis of good governance on public-listed companies.
Good corporate governance is integral in balancing the interests of the many stakeholders in a company, namely shareholders, management, customers, suppliers, financiers, government and the community.
“We’re no longer confined to the traditional passive job of preparing the minutes of meetings. We’re a lot more proactive since Bank Negara began to recognise company secretaries as gatekeepers of good governance,” Chua said.
“Nowadays, company secretaries are expected to guide their board of directors in ‘walking the talk’ on integrity and transparency in their daily business decision-makings,” she said, adding that corporate directors have increasingly turned to company secretaries for advice on procedural and regulatory requirements. Company secretaries also help the chairman in determining the annual board plan.
In view of the expanded role being undertaken by company secretaries, she said it is timely for the government to consider introducing a dedicated set of laws for this profession.
“Many countries already have a Company Secretaries Act, including India, Bangladesh and Pakistan. It would be timely for Malaysia to have a dedicated set of laws to give due recognition and properly regulate this profession,” said Chua.
Established in 1959, Maicsa is part of The Institute of Chartered Secretaries and Administrators (ICSA) headquartered in the United Kingdom, which has 36,000 members in more than 70 countries.