MARKET DEVELOPMENT
Starts Planting High-yielding Oil Palm, Aims to Boost Output By 15%
Starts Planting High-yielding Oil Palm, Aims to Boost Output By 15%
27/04/2016 (Nikkei Asian Review) - Sime Darby, the world's largest palm oil producer by acreage, has initiated its first vast planting exercise of new high-yielding oil palms that could produce at least 15% more oil than its current best seeds.
Palm oil producers have been facing calls from activists and consumer groups to curb long-lasting environmental damage as they often resort to deforestation of tropical rainforests to add to palm planting land. Amid shrinking supply of new plantation land, the companies are seeking ways to boost productivity especially in Malaysia and Indonesia that collectively account for nearly 90% of world's palm oil supply. While repeated slash-and-burn and multiple re-plantings worsen soil conditions, palm producers are investing in developing new seeds that promise higher yield in challenging soil and weather conditions.
The so-called Genome Select palms can produce more than 11 tons of oil per hectare, resulting in average yields above 6.1 ton a hectare, Sime Darby said in a statement. That compares to its current Calix 600 seedlings that yield 5.3 tons of oil per hectare.
"The Genome Select palm will significantly deliver higher oil yields without having to increase our hectarage," said Sime Darby chief executive Mohd Bakke Salleh. "This is in line with Sime Darby's sustainability commitment to increase yields from the ground, minimising green and brown field expansions."
The company, which has a policy to replant between 4% and 5% of its land area in Malaysia annually, will have enough genome materials to meet all of its Malaysia replanting requirements by 2023, Sime Darby said. The company will begin planting the new palms at two 50-hecatre sites.
Analysts say the planting will help in increasing yields, along with earnings, in the long-term even as short-term output and lacklustre performance of non-farm business operations will weigh on the company's performance.
Apart from its mainstay plantation business, Sime Darby also develops properties, assembles passenger vehicles and sells industrial equipment.
"We view this positively, as it would help the group to raise productivity on existing land," said CIMB Investment Bank analyst Ivy Ng. "Furthermore, 24.8% of the group's estates in Malaysia are aged 19 years and above, and due for replanting over the next decade."
In the nearer term however, plantation companies will have to contend with the current heat wave and lingering effects of the El Nino weather phenomenon that will likely hurt production of the tropical oil used in everything from snacks to soaps.
"Last years' dry weather has negatively impacted fresh-fruit bunch production throughout the region, including Sime Darby which has exposure in all key palm oil producing regions," said Kenanga Investment Bank analyst Voon Yee Ping. She estimates that Sime Darby's fresh fruit bunch output could contract 10% this fiscal year and 1% in the following fiscal year.
"Meanwhile other segments are likely to see weak near-term performance as well," she said, noting that Sime Darby's property and automotive segments are currently witnessing weak domestic demand due to tighter lending policies, while upside potential at its industrial segment remains limited given weak commodity prices and a slowing China.
Shares of Sime Darby fell 2.8% to 7.73 ringgit on Tuesday while the benchmark FTSE Bursa Malaysia KLCI was down 1.3%.
Palm oil producers have been facing calls from activists and consumer groups to curb long-lasting environmental damage as they often resort to deforestation of tropical rainforests to add to palm planting land. Amid shrinking supply of new plantation land, the companies are seeking ways to boost productivity especially in Malaysia and Indonesia that collectively account for nearly 90% of world's palm oil supply. While repeated slash-and-burn and multiple re-plantings worsen soil conditions, palm producers are investing in developing new seeds that promise higher yield in challenging soil and weather conditions.
The so-called Genome Select palms can produce more than 11 tons of oil per hectare, resulting in average yields above 6.1 ton a hectare, Sime Darby said in a statement. That compares to its current Calix 600 seedlings that yield 5.3 tons of oil per hectare.
"The Genome Select palm will significantly deliver higher oil yields without having to increase our hectarage," said Sime Darby chief executive Mohd Bakke Salleh. "This is in line with Sime Darby's sustainability commitment to increase yields from the ground, minimising green and brown field expansions."
The company, which has a policy to replant between 4% and 5% of its land area in Malaysia annually, will have enough genome materials to meet all of its Malaysia replanting requirements by 2023, Sime Darby said. The company will begin planting the new palms at two 50-hecatre sites.
Analysts say the planting will help in increasing yields, along with earnings, in the long-term even as short-term output and lacklustre performance of non-farm business operations will weigh on the company's performance.
Apart from its mainstay plantation business, Sime Darby also develops properties, assembles passenger vehicles and sells industrial equipment.
"We view this positively, as it would help the group to raise productivity on existing land," said CIMB Investment Bank analyst Ivy Ng. "Furthermore, 24.8% of the group's estates in Malaysia are aged 19 years and above, and due for replanting over the next decade."
In the nearer term however, plantation companies will have to contend with the current heat wave and lingering effects of the El Nino weather phenomenon that will likely hurt production of the tropical oil used in everything from snacks to soaps.
"Last years' dry weather has negatively impacted fresh-fruit bunch production throughout the region, including Sime Darby which has exposure in all key palm oil producing regions," said Kenanga Investment Bank analyst Voon Yee Ping. She estimates that Sime Darby's fresh fruit bunch output could contract 10% this fiscal year and 1% in the following fiscal year.
"Meanwhile other segments are likely to see weak near-term performance as well," she said, noting that Sime Darby's property and automotive segments are currently witnessing weak domestic demand due to tighter lending policies, while upside potential at its industrial segment remains limited given weak commodity prices and a slowing China.
Shares of Sime Darby fell 2.8% to 7.73 ringgit on Tuesday while the benchmark FTSE Bursa Malaysia KLCI was down 1.3%.