Nation has cultivated and commercialised oil palm plantations long before the country gained independence, and 2017 marked the commodity’s centennial

By SHAHEERA AZNAM SHAH / Pic By MUHD AMIN NAHARUL

After 61 years of independence, Malaysia, which started as a low-income agrarian economy, became on of the largest producers of commodities in the world.

Throughout the years, Malaysia has transformed its agricultural roots into a world major exporter of commodities. The industry contributed 20% of the country’s total exports in 2017, slightly below the electrical and electronics sector at 37%.

Its contribution to Malaysia’s total export reached 30% during the peak of oil price in 2012. But challenges remain for key commodities this year.

Palm Oil Price Dips to 3-year Low
Malaysia is the second-largest producer of palm oil globally after its neighbour, Indonesia. Asian countries account for 85% of global palm oil exports and Malaysia is the second-largest exporter with a 32.6% market share, behind Indonesia which controls 51.7% of the global export market.

According to the Malaysian Palm Oil Council, the country accounts for 29% of world palm oil production and 37% of the world exports.

Malaysia has cultivated and commercialised oil palm plantations long before the country gained independence, and 2017 marked the commodity’s centennial.

The Department of Statistics Malaysia noted that the palm oil sector made up 46.9% of agriculture’s contribution to the national GDP in 2015.

The industry’s economy, which is heavily dependent on crop production, has been impacted by the world’s dry spell and the increasing exports activities of palm oil and related products from Indonesia.

In 2016, Malaysia produced 29.4% of the global palm oil demand from only 0.1% of global agricultural land.

Palm oil is the most consumed vegetables oil in the world, with 60.96 million metric tonnes consumed globally between 2015 and 2016.

However, the edible oil is projected to drop its production in 2018 as it has been trended to decline after a strong recovery at the end of last and lasted into May 2018.

At the end of November, the global crude benchmark Brent plunged to US$59 (RM247.80) per barrel from US$86.29 per barrel on Oct 3, 2018.

The plunge has been tracking by the two other declining major commodities such as palm and rubber.

Crude palm oil has traded at RM2,156 per tonne on Oct 17 and has bottomed to around RM1,900 recently.

The year 2018 started with the edible oil sold at RM2,468.50 per tonne, but has seen trended lower.

At the end of February, palm oil futures rose to a two-week high, recording a second straight session of gains, supported by the related edible oils and the firmer export demand.

After an uninterrupted decline for eight months, its futures sank to a more than three-year low in November since August 2015, affected by the dented crude oil price. The palm oil price had contracted to RM1,717.50 per tonne. Historically, palm oil had reached an all-time high of RM4,298 per tonne in March 2008 and a low of RM433 in March 1986.

The commodity, which is used as feedstock to make biodiesel, is influenced by the movement in crude oil price. Industry traders believed that the market was down on the high inventories and slowing exports activities.

According to a Reuters report, Malaysia’s palm oil exports dropped 10.9% between Nov 1 and Nov 20.

The gross exports of palm oil fell 15% in the first three quarters of the year and the drop to below RM2,000 per tonne had set off producers, while analysts warned that the decline could shake up the incomes of rural households.

The B10 biodiesel programme has been mandated to be phased in starting from December 2018 until it comes into full force in February 2019 which would boost consumption of palm oil to about 761,000 tonnes annually.

It would also allow 650,000 palm oil smallholders to enjoy more stable prices and an increase in their earnings.

Primary Industries Minister Teresa Kok said it is “timely” for Malaysia to start implementing a higher biodiesel mandate, in line with Indonesia’s biodiesel standard.

At the launch of the B10 biodiesel programme for the transportation sector recently, Prime Minister Tun Dr Mahathir Mohamad challenged the palm oil industry to pace itself along with Indonesia, which has already been using the B20 biodiesel, a blend of 20% palm methyl ester and 80% petroleum diesel, since January 2016.

He said industry players have to be bold to explore new markets and prove that Malaysia produces quality palm oil.

Dr Mahathir is expecting the stakeholders and industry players to be fully prepared in accepting the B20 biodiesel by the iconic deadline of 2020.

Rubber to Exceed Palm Oil Contribution
Malaysia, which is the fifth-largest producer and exporter of natural rubber, contributes 46% of the global rubber production and produces about one million tonnes of rubber annually.

Presently, 90% of the rubber plantations in the country are owned by smallholders with an average size of 20ha each. Plantation companies own about 10% from the total planted area.

The industry has grown from only 20 rubber manufacturers in the 1970s to more than 300 manufacturers in 2018. The Ministry of Primary Industries is expecting the rubber production sector to become the largest commodity contributor to Malaysia, surpassing palm oil contribution as the edible oil is facing headwinds in the global market.

In September, Kok said rubber and rubber products were the second largest contributor after palm oil.

According to the ministry which oversees the sector, the country’s export earnings from rubber and rubber products contributed RM32.1 billion to the national exports last year, an increase of 30.2% from 2016.

According to Malaysian Rubber Exchange, the SMR20, which is the country’s benchmark for measuring the rubber price, has trended steadily between a high of RM6.03 per kg and a low of RM5.11 per kg for the period of January-October 2018.

The rubber trading, which is also available in Tokyo Commodity Trading, rose ¥1.90 (seven sen) to ¥145.50 on Dec 12 from ¥143.60 in the previous trading session.

At the Japanese exchange, the commodity had reached an all-time high of ¥526.40 in February of 2011 and a record low of ¥132.10 in November 2018.

The commodity is being largely produced by countries such as China, Indonesia, Malaysia and Thailand, while others such as Papua New Guinea, the Philippines, Singapore, Sri Lanka, Vietnam, Cambodia and India have started to become a prominent player in the market after the rise in rubber price between 2010 and 2011.

Malaysia is also known for producing and exporting rubber gloves and had recently made its way as the top exporters of condoms and catheters globally.

These two commodities will continue to play a role in the country’s exports, despite the move to industrialisation and modernisation. The old sectors continue to be a force in the country.