11/03/2009 (Bernama), Kuala Lumpur - The government should consider arranging soft loans for oil palm smallholders to further spur replanting activities, Sime Darby Plantation Sdn Bhd's managing director Datuk Azhar Abdul Hamid said today.

Given the nature of the industry with a long gestation period, he suggested that the soft loans have a low interest rate and longer repayment period.

Azhar said smallholders needed special attention from the government to ride out the current economic downturn as the present replanting cost could go up to RM12,000 per hectare over the three-year immature period.

According to him, the current RM1,000 subsidy given to smallholders is not sufficient.

"With a little research and development, low mechanisation and poor economies of scale, their cost of production is higher than those of large corporations," he said at the Palm and Lauric Oil Conference here.

Azhar said the present situation may hinder the industry from achieving the replanting target, especially among smallholders who are producing as much as 30 to 35 percent of Malaysia's palm oil currently.

He said with crude palm oil (CPO) prices having dropped sharply from a peak of RM4,312 per tonne last year, the big and small players have to prudently manage their costs while at the same time maintaining productivity and efficiency.

"As I said earlier, the lucrative profits earned last year look unlikely to be repeated this time round," he added.

Azhar said based on recent projections of CPO prices of between RM1,800 and RM2,000 per tonne, most plantation companies should be able to comfortably register a profit.

"Perhaps in the spirit of brotherhood, some level of sharing between large corporations and smallholders can be considered," he said.

According to him, the sharing of efficient management practices may result in positive net effect to the national palm oil export figures.

Azhar also called on the industry to undertake an aggressive marketing and branding campaign to enhance demand for the commodity.

"While it is most economical edible oil to produce relative to its alternatives, there is potential to blend palm oil with other oilseeds to create cheaper and wider variety of customised products," he said.

Such efforts, Azhar said, will enable the industry to have greater market access and create new niche markets.

"Thus, we should take advantage of the fact that we can use palm oil to produce oleochemicals, a more sustainable alternative to petrochemicals," he said.