‘Sabah oil palm sector must remain resilient’
This is written by my colleague Zaidi Isham Ismail.
PROVEN OPTION: Policymakers’ support vital, says IJM Plantations chief
IJM Plantations chief executive officer and managing director Joseph Tek Choon Yee said in order to move forward, Sabah will require the same pioneering spirit and dedication that started the industry many decades ago.
“It
will need the same amount of perseverance and resilience amid the
multitude of challenges and opportunities confronting the palm oil
industry in a number of ways.
“Sabah’s economic well-being may swim or sink with oil palm as it is the only proven option to date of a sustainable tropical plantation crop,” Tek told Business Times in an interview.
As such, he said, continued support from the policymakers, along with the thorough know-how of the industry and other authorities, is pivotal in moving the industry forward.
Tek said if the successes of the past and present are to be used as a benchmark in moving forward, then all the key players, including government bodies, the private sector across the palm oil value chain and the smallholders, must be galvanised to work together.
“For Sabah to nurture a sustainable palm oil enterprise along the palm oil supply chain, its competitive edge must be sustained by balancing its economic sustainability and other socio-environmental aspects.”
Established in 1985, IJM is a medium-sized plantation company that has entered into a joint-venture agreement with Koperasi Pembangunan Desa to develop Desa Talisai.
Starting with 4,000ha of Desa Talisai estates, the area under oil palm cultivation has risen sevenfolds to about 30,000ha presently, all in the Sandakan and Sugut region in Sabah. The group has also expanded its oil palm cultivation activities into Indonesia.
Question: How has the Sabah palm oil industry evolved?
Answer: I did a presentation at ISP National Seminar in Kota Kinabalu in 2010 and my research revealed the following early agri-transformation in Sabah. Before oil palms, agriculture in Sabah was very much into collecting rattans from jungles, padi planting, tobacco planting, harvesting Manila hemp and venture into cocoa plantation later.
My research revealed that first trial planting of oil palm in Sabah was in 1957 using seeds collected from the jungle in Mostyn estate, Tawau. This was later expanded to the first 200 acres of commercial oil palm planting in 1959. Sabah’s upstream oil palm planting reached its first 100,000ha by 1981. Within the next two decades, it reached its milestone of one million hectares.
The latest 2013 figures from the Malaysian Palm Oil Board showed Sabah has 1.48 million hectares planted with oil palms, equivalent to 28 per cent of the total area planted with oil palm in Malaysia. It is the largest palm oil-producing state in Malaysia. Last year, Sabah’s midstream and downstream activities comprised 124 palm oil mills, 13 palm kernel crushing plants and 12 refineries.
Question: How significant is the crop’s contribution to the state?
Answer: The crop has provided a sustained flow of income to entrepreneurs and has benefited the state in many ways. An important source of revenue for the state is derived from the sales tax amounting to 7.5 per cent for crude palm oil (CPO) gross prices above the threshold CPO pricing of more than RM1,000 per tonne. In 2013, Sabah produced 5.78 million tonnes of CPO, or 30 per cent of Malaysian production of 19.22 million tonnes.
Using the national annual average CPO price of RM2,371 per tonne in 2013 as reference, the estimated sales tax worked out to be RM1.027 billion. Sabah is expected to continue collecting revenues from the State Sales Tax (SST) even after the goods and services tax (GST) is implemented in 2015 as SST is a resource under the jurisdiction of the Sabah and Sarawak governments, as stipulated under the Federal Constitution.
Question: How has the rakyat benefited?
Answer: In Sabah, jobs were created for the rakyat across the palm oil supply chain. These include areas covering research, nurseries, estates, mills and other downstream activities; and many other aspects of service-provision jobs, such as administration, purchasing, human resource, information technology, training, sales and marketing, logistics and others.
The oil palm business along the supply chain has also created numerous multiplying effects and spinoff businesses, which have also benefited the rakyat. In short, the rakyat has been incorporated as relevant stakeholders — both directly and indirectly — in the palm oil supply chain in Sabah.
Question: What more can be done?
Answer: One must appreciate that palm oil is a commodity and as such is “a price taker and not a price maker”. The venture is also a long-haul one and will be subjected to the vagaries of extreme weather, low start-up yields and other biological interactions. The business game for sustainability is to derive a comfortable margin between the derived commodity price and the escalating cost of production.
Over the years, various parties have called for a restructuring of the SST on CPO via a revision of the threshold price upward from the present RM1,000 per tonne to RM2,000 per tonne in the light of rising production cost and other statutory charges being levied on the growers, such as windfall levy, charges and cesses. A two-tier sales tax system has also been advocated, similar to the practice adopted in Sarawak based on equity taxation, which is deemed more accommodative vis-a-vis the fluctuating CPO commodity prices.
Question: What are IJM’s contributions towards Sabah’s palm oil industry?
Answer: We are but a smaller and younger player amid the many giants like Felda, IOI, Sime Darby, Wilmar, Kuala Lumpur Kepong and Sawit Kinabalu in Sabah. Since our humble plantation saga back in 1985, our contribution to the palm oil industry in Sabah is set against our strong fundamentals already in place, where the group continues to augment the business activities based on its core competency — namely in oil palm cultivation, research and advisory and midstream milling processes. Today, we are proud to be among the best in the Malaysian plantation fraternity in terms of productivity and good agricultural practices.
PROVEN OPTION: Policymakers’ support vital, says IJM Plantations chief
SABAH’S
palm oil industry must maintain the same pioneering spirit that is
partly responsible in positioning the state into what it is now —
Malaysia’s largest crude palm oil (CPO) producer.
IJM Plantations chief executive officer and managing director Joseph Tek Choon Yee said in order to move forward, Sabah will require the same pioneering spirit and dedication that started the industry many decades ago.
“Sabah’s economic well-being may swim or sink with oil palm as it is the only proven option to date of a sustainable tropical plantation crop,” Tek told Business Times in an interview.
As such, he said, continued support from the policymakers, along with the thorough know-how of the industry and other authorities, is pivotal in moving the industry forward.
Tek said if the successes of the past and present are to be used as a benchmark in moving forward, then all the key players, including government bodies, the private sector across the palm oil value chain and the smallholders, must be galvanised to work together.
“For Sabah to nurture a sustainable palm oil enterprise along the palm oil supply chain, its competitive edge must be sustained by balancing its economic sustainability and other socio-environmental aspects.”
Established in 1985, IJM is a medium-sized plantation company that has entered into a joint-venture agreement with Koperasi Pembangunan Desa to develop Desa Talisai.
Starting with 4,000ha of Desa Talisai estates, the area under oil palm cultivation has risen sevenfolds to about 30,000ha presently, all in the Sandakan and Sugut region in Sabah. The group has also expanded its oil palm cultivation activities into Indonesia.
Question: How has the Sabah palm oil industry evolved?
Answer: I did a presentation at ISP National Seminar in Kota Kinabalu in 2010 and my research revealed the following early agri-transformation in Sabah. Before oil palms, agriculture in Sabah was very much into collecting rattans from jungles, padi planting, tobacco planting, harvesting Manila hemp and venture into cocoa plantation later.
My research revealed that first trial planting of oil palm in Sabah was in 1957 using seeds collected from the jungle in Mostyn estate, Tawau. This was later expanded to the first 200 acres of commercial oil palm planting in 1959. Sabah’s upstream oil palm planting reached its first 100,000ha by 1981. Within the next two decades, it reached its milestone of one million hectares.
The latest 2013 figures from the Malaysian Palm Oil Board showed Sabah has 1.48 million hectares planted with oil palms, equivalent to 28 per cent of the total area planted with oil palm in Malaysia. It is the largest palm oil-producing state in Malaysia. Last year, Sabah’s midstream and downstream activities comprised 124 palm oil mills, 13 palm kernel crushing plants and 12 refineries.
Question: How significant is the crop’s contribution to the state?
Answer: The crop has provided a sustained flow of income to entrepreneurs and has benefited the state in many ways. An important source of revenue for the state is derived from the sales tax amounting to 7.5 per cent for crude palm oil (CPO) gross prices above the threshold CPO pricing of more than RM1,000 per tonne. In 2013, Sabah produced 5.78 million tonnes of CPO, or 30 per cent of Malaysian production of 19.22 million tonnes.
Using the national annual average CPO price of RM2,371 per tonne in 2013 as reference, the estimated sales tax worked out to be RM1.027 billion. Sabah is expected to continue collecting revenues from the State Sales Tax (SST) even after the goods and services tax (GST) is implemented in 2015 as SST is a resource under the jurisdiction of the Sabah and Sarawak governments, as stipulated under the Federal Constitution.
Question: How has the rakyat benefited?
Answer: In Sabah, jobs were created for the rakyat across the palm oil supply chain. These include areas covering research, nurseries, estates, mills and other downstream activities; and many other aspects of service-provision jobs, such as administration, purchasing, human resource, information technology, training, sales and marketing, logistics and others.
The oil palm business along the supply chain has also created numerous multiplying effects and spinoff businesses, which have also benefited the rakyat. In short, the rakyat has been incorporated as relevant stakeholders — both directly and indirectly — in the palm oil supply chain in Sabah.
Question: What more can be done?
Answer: One must appreciate that palm oil is a commodity and as such is “a price taker and not a price maker”. The venture is also a long-haul one and will be subjected to the vagaries of extreme weather, low start-up yields and other biological interactions. The business game for sustainability is to derive a comfortable margin between the derived commodity price and the escalating cost of production.
Over the years, various parties have called for a restructuring of the SST on CPO via a revision of the threshold price upward from the present RM1,000 per tonne to RM2,000 per tonne in the light of rising production cost and other statutory charges being levied on the growers, such as windfall levy, charges and cesses. A two-tier sales tax system has also been advocated, similar to the practice adopted in Sarawak based on equity taxation, which is deemed more accommodative vis-a-vis the fluctuating CPO commodity prices.
Question: What are IJM’s contributions towards Sabah’s palm oil industry?
Answer: We are but a smaller and younger player amid the many giants like Felda, IOI, Sime Darby, Wilmar, Kuala Lumpur Kepong and Sawit Kinabalu in Sabah. Since our humble plantation saga back in 1985, our contribution to the palm oil industry in Sabah is set against our strong fundamentals already in place, where the group continues to augment the business activities based on its core competency — namely in oil palm cultivation, research and advisory and midstream milling processes. Today, we are proud to be among the best in the Malaysian plantation fraternity in terms of productivity and good agricultural practices.
Costlier oleochemical exports
KUALA LUMPUR: Oleochemical
exports will be more costlier following the natural gas’ price hike
effective yesterday, said Malaysian Oleochemical Manufacturers’ Group
(MOMG) chairman Tan Kean Hua.
Effective May 1 2014, those using natural gas of more than two million standard cu ft per day (mmscfd) pay RM19.65 per million metric British thermal unit (mmBtu). This is about 20 per cent more than RM16.45 mmBtu previously.
“There
has been and will be inflationary pressure on oleochemical exports.
Just like feedstock price increases in the last six months, we had no
choice but to pass on the cost increases to clients,” he said in a
telephone interview yesterday.
The main feedstocks for oleochemical manufacturers are crude palm oil and crude palm kernel oil, whose prices have risen by about 15 per cent since November 2013. These feedstocks on average make up between 80 and 90 per cent of oleochemical pricing.
The oleochemical industry consumes quite a fair bit of natural gas compared with other manufacturers as they use it for fuel and as a component for their products. Tan estimates that this year, MOMG members’ annual gas bill would rise by about RM350 million. Their natural gas and electricity bills represent more than 50 per cent of their total production cost.
Asked if the natural gas price hike would have a negative impact on MOMG members’ earnings, Tan replied, “we’re a cost-plus business and oleochemicals are a necessity. It is present in household cleaning products, toiletries, cosmetics, industrial and pharmaceutical items we use everyday”, he said.
“Our members have over the years made concerted efforts in using energy-efficient equipments. Some are considering putting up co-generation units in the near term. We’re in the business of making renewable chemicals. It’s only logical for us to incorporate energy-saving methods and more affordable components in walking the talk of sustainable development,” he added.
MOMG members churn out 25 per cent of the world’s 10.8 million tonnes of oleochemical demand. There are 18 local oleochemical firms with a combined annual capacity of 2.7 million tonnes.
In the first three months of this year, the Malaysian Palm Oil Board data showed the country exported RM2.78 billion worth of oleochemicals, 25 per cent more than a year ago.
Effective May 1 2014, those using natural gas of more than two million standard cu ft per day (mmscfd) pay RM19.65 per million metric British thermal unit (mmBtu). This is about 20 per cent more than RM16.45 mmBtu previously.
The main feedstocks for oleochemical manufacturers are crude palm oil and crude palm kernel oil, whose prices have risen by about 15 per cent since November 2013. These feedstocks on average make up between 80 and 90 per cent of oleochemical pricing.
The oleochemical industry consumes quite a fair bit of natural gas compared with other manufacturers as they use it for fuel and as a component for their products. Tan estimates that this year, MOMG members’ annual gas bill would rise by about RM350 million. Their natural gas and electricity bills represent more than 50 per cent of their total production cost.
Asked if the natural gas price hike would have a negative impact on MOMG members’ earnings, Tan replied, “we’re a cost-plus business and oleochemicals are a necessity. It is present in household cleaning products, toiletries, cosmetics, industrial and pharmaceutical items we use everyday”, he said.
“Our members have over the years made concerted efforts in using energy-efficient equipments. Some are considering putting up co-generation units in the near term. We’re in the business of making renewable chemicals. It’s only logical for us to incorporate energy-saving methods and more affordable components in walking the talk of sustainable development,” he added.
MOMG members churn out 25 per cent of the world’s 10.8 million tonnes of oleochemical demand. There are 18 local oleochemical firms with a combined annual capacity of 2.7 million tonnes.
In the first three months of this year, the Malaysian Palm Oil Board data showed the country exported RM2.78 billion worth of oleochemicals, 25 per cent more than a year ago.
GST may pose cash-flow woes
SUBANG JAYA: CASH-STARVED palm oil refiners, especially small cooking oil repackers, may face cash-flow problems if the Customs Department’s payment of claims under the goods and services tax (GST) is not carried out in a timely manner.
"This means, we are expected to make our monthly tax claims to the Customs and we’re promised of refund within two weeks,” said Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohamad Jaaffar Ahmad, here, yesterday.
He gave an example of a typical refinery buying 20,000 tonnes of CPO from the miller in a month. At the current price of RM2,500 per tonne, the purchase works out to be RM50 million monthly. So, the six per cent GST on RM50 million worth of CPO is RM3 million.
“That’s RM3 million a month stuck in the system for every refiner. Compared to oil palm planters who make reasonably good profits, the refinery business is very much a play of margins. Sometimes, when CPO prices jump, we’ve no choice but to tolerate negative margins,” he said.
“Come April 2015, if the Customs collection and refund system is not robust enough to execute timely payments, the financially weaker refiners among us will definitely face cash-flow problems. Time is money and refiners operate on tight margins,” Mohamad Jaaffar told Business Times.
It was reported that Customs director-general Datuk Seri Khazali Ahmad said his agency would be using a new software to facilitate the GST implementation. Known as MyGST, it was developed at a cost of about RM100 million.
“The MyGST system will be integrated with the National Registration Department and the Companies Commission of Malaysia. Later, it will also be linked to all the banks in the country,” Khazali reportedly said.
Last month, Deputy Finance Minister Ahmad Maslan announced the government had allocated RM150 million in subsidy for small and medium enterprises to purchase GST-compliant accounting software. He also said the GST will allow the government to reduce its reliance on income tax and petroleum earnings.
It was reported that the Customs is expected to reap RM22 billion per year when GST is implemented, about 40 per cent more than the RM16 billion collected from the sales and services taxes currently.
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