Wednesday January 5, 4:07 PM KUALA LUMPUR (Dow Jones)--Palm oil producersin Malaysia need to take action to remain competitive as rising globaloilseeds production is expected to drag down edible oil prices further in2005, a top industry official said.

Carl Bek-Nielsen, vice chairman of United Plantations Bhd., renowned inindustry circles as one of Malaysia's most efficiently run plantationcompanies, said increasing crude palm oil production in Indonesia willalso put added pressure on Malaysian producers.

"It is important for CPO producers in Malaysia to rid themselves ofcomplacency. What is important is that producers must face the facts,whether they like it or not," Bek-Nielsen said in an interview with DowJones Newswires.

The facts, he said, are falling palm oil prices, rising production costsin Malaysia and stagnant yields.

"These three things put together aren't desirable. My great fear is thatproducers don't realize that these are very brutal facts that would have abig impact on all the people in the business of producing palm oil," hesaid.

In real terms, after adjusting for inflation, palm oil prices have beenfalling 3% a year on average between 1952 and 2003, he said.

CPO prices in Malaysia ended 2004 around MYR1,400/ton.

At the same time, the cost of production in Malaysia has been on an upwardtrend since 1982 or 1983 while oil yields haven't shown much improvement,Bek-Nielsen said.

The average oil yield in Malaysia has been more or less flat over the pastfew years, stuck at 3.5 to 3.8 tons of CPO/hectare, according to data fromthe Malaysian Palm Oil Board.

Weak CPO Prices May Be Prolonged

Bek-Nielsen's United Plantations is one of several plantation companiesthat have consistently outperformed average industry yields over theyears.

He said unless other laggard producers in the country also step up effortsto improve, they are likely to struggle when market prices for CPO spiraldownward.

Given the bearish global oilseeds supply situation, a prolonged downtrendin CPO prices may not be far off.

Analysts have projected record crops of soybeans this year in the U.S. andSouth America. Oilseeds output in other regions, including palm oilproduction in Southeast Asia, is also expected to be strong.

"There's a strong likelihood we will be heading towards lower commodityprices in the vegetable oil market," Bek-Nielsen said.

"It's still very early, but I fear that this could be a long cycle."

Palm oil production in Malaysia, the world's biggest producer, is expectedto be around 13.5 million to 13.8 million tons in 2005, Bek-Nielsen said.

He didn't provide the estimated total for 2004. The official forecast fromthe MPOB for 2004 production is about 13.7 million tons.

Indonesia, the No. 2 producer, is forecast to continue showing rapidgrowth to close its gap on Malaysia.

Indonesian output could reach 12.2 million to 12.5 million tons in 2005,up from about 11.5 million tons in 2004.

The country is on track to surpass Malaysia as the world's biggestproducer within the next few years, Bek-Nielsen said.

Producers Urged To Replant

Stiff competition from Indonesia, where production costs are typicallylower, and falling CPO prices underline the need for Malaysian producersto boost productivity now while times are still good.

Bek-Nielsen said the cost of production in Malaysia on a per hectare basiscurrently ranges from about MYR650/ton for the most efficient producers toaround MYR950/ton.

That means any repeat of a collapse in prices to below MYR800, as happenedin 2000-2001, would leave some producers really struggling.

"What producers need to do is to increase yields. This is the only way weare going to maintain our cost-competitive edge," Bek-Nielsen said.

Producers can increase yields by replanting unproductive areas with betterbreeding materials, he said.

Replanting would also have a positive impact on palm oil prices as itwould temporarily curb supply from areas being replanted