4/2/2006 (Business Times)  -  THE proposed palm oil pact between Malaysia and Indonesia, the world's first and second largest producers respectively, will curb price undercutting and spur research and development (R&D) activities.

A Malaysian Palm Oil Association official said the alliance could help stem undercutting carried out by Indonesian exporters who are known to sell their palm oil by at least US$10 (US$1 = RM3.75) a tonne cheaper.

"The partnership will also help monitor the Indonesia palm oil industry which has no regulatory body of its own such as the Malaysian Palm Oil Board (MPOB)."

"The pact may also spur Indonesia to undertake its very own R&D activities and not just follow the trail blazed by other R&D organisations such as the MPOB and the world's universities," said the official who declined to be named.

The Malaysia-Indonesia Business Council and the Indonesia-Malaysia Business Council said the private sectors of both countries have also agreed to encourage market players to consider the formation of a new joint entity.

In a joint statement, both councils said industry players may form a joint body to help promote the development of a long-term contract pricing mechanism.

Malaysia was represented by council chairman Tan Sri Dr Ahmad Sarji Abdul Hamid and Indonesia by Tanri Abeng.

Members of the Malaysia-Indonesia Business Council include Kumpulan Guthrie Bhd, Sime Darby Bhd, Golden Hope Plantations Bhd, Telekom Malaysia Bhd, Tenaga Nasional Bhd, and Petroliam Nasional Bhd.

Kuala Lumpur and Jakarta also agreed to encourage market players to cooperate in R&D and discover new usages for palm oil.

Both countries also agree to strengthen market intelligence, improve trading capabilities, facilitate fair trade practices and participate in business or investment missions.

Malaysia and Indonesia jointly account for some 80 per cent of the world's palm oil production at some 28 million tonnes. Other major producers include Nigeria, Ghana and Colombia. Indonesia is expected to equal or surpass Malaysia's pole position in three to four years.