30/07/2012 (Business Times) - Competition bettween trading countries may not give you heart-pounding moments like the fierce sporting events taking place at the Olympics London 2012 but it tells you one thing.

Preparedness is absolutely necessary to keep you in the league.

Warren Buffet, through his much followed annual notes to the shareholders of Berkshire Hathaway, loves to draw the moat analogy in reference to businesses looking for sustainable competitive advantage.

“In business, I look for economic castles protected by unbreachable ‘moats’,” is one of his popular quotes by which he refers the moat as a barrier to entry for other rival businesses.

Does competitive Malaysia have such an unbreachable moat?. The billion-ringgit oil palm industry, which has propped the Malaysian economy, does not seem to think so and wants the government to heed to the industry's pleas for help to strengthen the moat immediately.

It is a value chain which has five key areas ranging from plantations, milling and crushing followed by refining, storage and trading before you have the food applications and the non-food applications.

We have an important role to play in fulfilling the growing global needs for oil and fats sustainably. But it is also a role shared by other competing nations like Indonesia, which has overtaken Malaysia as the top producer in the world.

Comparatively, Indonesian players in the palm oil industry have been more successful in getting the government to pick up their suggestions. Its export duty structure which came into effect 10 months ago is testimony.

Its lower export taxes for processed palm oil products and higher taxes for CPO have been well designed to boost its downstream activities but this is hurting the competitiveness of Malaysian downstream producers real hard as Indonesian refiners have a feedstock cost advantage.

In terms of investments, Malaysia would be less attractive with the limited CPO supply which is now made available to its downstream industry. Worse still, it is prompting more Malaysian companies to move their refinery businesses so as to enjoy profit margins.

Having been a leader in the production, management, agronomy and breeding as well as marketing for the past five decades, we seem to have problems already taking the industry to the next level.

A concerned Tan Sri Lee Oi Hian, the CEO of plantation giant Kuala Lumpur Kepong Bhd or KLK — who is this year’s recipient of Palm Oil Industry Leadership Award — figures there are inherent problems and challenges.

Take the production area, for instance. We have been talking about improving the yield per tonne across the industry for years now but, with the exception of the big players, they still remain broadly stagnant at four tonnes per hectare.

The story is not the same with our neighbour where yield levels are known to surpass 20 tonnes! This has attracted more plantation companies, with the limited land usage for oil palm in Peninsular Malaysia, to head over to Indonesia.

Lower productivity levels have also become apparent in Malaysia despite the over-dependence on foreign labour and Lee gave one instance in Australia where only three people were required to work on a 10,000-acre (4,000-hectare) plot whereas a similar plot in Malaysia would have a large number of workers.

Again, it is the highly-dependent foreign labour which would soon pressure for high wages. It would be an easy case as plantation companies based in Indonesia have also upped wages, throwing in monthly and yearly fringe benefits.

There is no single solution to decrease the number of workers but surely we can reduce them gradually, said Lee.

For instance, the Cantas Harvesting can increase the productivity level by 25 to 30 per cent compared to the manual system.

If these concerns are not enough, there are other areas such as bud rot in crops which required close watch especially in research and development to lower the production costs.

Companies like KLK have got into the act, introducing features like its own bar code e-check roll system for on-site live data recording, as well as tracking and monitoring (of workers as well as crop quality control).

Industry players said although Malaysia is now number two in production, it has taken the lead in addressing issues in the sector including addressing the environment issue and attacks by the environment non-government organisations.

Unabating efforts to counter the proposed Australian legislation to label palm oil has led to its rejection and efforts are still under way to address the US Environmental Protection Agency's rejection of palm biodiesel's access to the US biofuels market.

The battle for market access in Europe continues, says Malaysian Palm Oil Council chairman Datuk Lee Yeow Chor, referring to Europe's new food labelling scheme.

In our earnest efforts to increase market access for our exports through various forums like the regular palm oil trade fairs overseas, MPOC has to be mindful that such efforts — in the wake of Indonesia’s new policy — could attract buyers to the Indonesian market.