09/11/2008 (iStockAnalyst), Putrajaya - Malaysia and Indonesia are joining forces to strengthen the price of palm oil.

Plantation Industries and Commodities Minister Datuk Peter Chin Fah Kui said under a joint communique he co-signed in Jakarta on Thursday, both countries outlined several measures to ensure crude palm oil (CPO) prices remained competitive.

They include accelerating the replanting of oil palm trees that were more than 25 years old - for which the Malaysian government had allocated some RM200 million.

"The replanting exercise is also a way to reduce supply of the commodity in the market and address declining palm oil prices," he said.

The two countries are also lobbying hard to increase the usage of biofuel and develop related downstream activities for the industry.

Chin said this would be done through the promotion and management of cross-border investment by both countries.

They would also manage their palm oil stock by exchanging data on production and stock levels.

Both countries hope CPO will fetch "a fair price" of between RM2,000 and RM2,600 per tonne. CPO is now traded in the RM1,600 plus range per tonne.

"Malaysia and Indonesia are also concerned over the non-tariff barriers for palm oil that are being imposed by major importing countries, including the European Union and the United States.

"These include the recent proposal by Germany on the exclusion of the use of palm oil for biofuel, despite efforts by the industry to produce sustainable palm oil under the framework of the Roundtable Palm Oil, which is supported by Malaysia and Indonesia."

The two countries account for 85 per cent of global palm oil production and 40 per cent of natural rubber production.

Pressure from non-governmental organisations, such as environmental groups, has reduced Malaysia's biodiesel exports to EU countries and the US by 20 per cent this year.

"We can produce 1.6 million tonnes of biodiesel and export it to the rest of the world.

"Because of issues of sustainability and the environment that are being played up by certain NGOs, the countries that used to buy from us are scared, so there are fewer orders," he said, adding that exports of biodiesel so far this year had reached a mere 80,000 tonnes, compared with 100,000 tonnes last year.

"Both countries are implementing policies that encourage increased domestic utilisation of palm oil in the biofuel and power generation sub-sectors," he said, quoting from the communiqu.

Chin said Malaysia and Indonesia would engage major importing countries of palm-based methyl ester in addressing non-tariff barriers.

He said both countries would cooperate and continue to adopt a common position on the European Union Directives in Renewable Energy.

"Their restrictive policies have created an uneven playing field and depressed the prices of palm oil compared with rapeseed oil."

On the strengthening rubber prices, he said both countries would accelerate replanting of old rubber trees as well as control the expansion of new planted areas.

Other measures include encouraging the increase of tapping frequency and providing opportunities in the cultivation of other cash crops.

Both governments would also support the Asean Rubber Business Council in blacklisting contract defaulters and denying price discounts.