26/11/2008 (My Sin Chew Online) - With the continued slide in international oil prices, CPO prices are also dragged along and have now touched a low of RM1,400 per tonne. Many smallholders are sent to the brink of bankruptcy.

In view of the pressing situation, it is imperative for the government to hold out a helping hand to deliver smallholders out of the current doldrums.

The ministry of plantation industries and commodities said in August that if CPO prices fell below RM2,000 a tonne, the government would intervene.

In less than two months, CPO prices breached the RM2,000 level from RM2,500 per tonne, and were quoted at RM1,500 on 24 October.

In other words, CPO has lost RM1,000 in only two months, and more than two thirds of its worth compared to the all-time high of RM4,489 registered in March.

In utter shock, plantation operators have looked to the government for help, but so far we have not seen any move from the government.

The government has instead blamed the freefall in CPO prices on the peak production season from September through November, while predicting a gradual crawl in prices as production slows from December to February.

Besides, the authorities have also named sudden increases in palm oil inventory as one of the reasons for the slump. This has given the buyers an opportunity to bargain, and the reluctance of producers to sell at lower prices has caused the inventory to climb, and thus depressed prices.

The authorities even push the responsibility to the banks, claiming that importers need the order forms issued by banks to place their orders, and with some banks now encountering financial problems, orders have been deferred, thus affecting the overall sale of Malaysian palm oil.

While the reasons given above do sound rational, the government should honour its words now that it has pledged to intervene and salvage the commodity market.

First of all, the government must take the initiative to lower the selling prices of fertilisers and agricultural chemicals as well as harvesting and transportation costs through tax reduction or exemption in a bid to relieve the pressure of plantation operators.

Although the prices of agricultural chemicals have somewhat come down, the drop has been insignificant. Take the yield of a tonne of palm oil for each acre of planted land, the monthly expenditure on fertilisers, agrochemicals and transportation could run up to RM280. And if we take in wage deductions, there wouldn't be much profit left for the growers. They may have to face the destiny of bankruptcy if palm oil prices continue to slide.

The government must instantly abolish the windfall taxes on oil palm growers. The 26% company tax and 7.5% state government tax should be more than sufficient to fatten the national coffers.

In order to maximise the effort of salvaging the market, the authorities must work in collaboration with the country's largest plantation conglomerates such as IOI Corp, Sime Darby, KL Kepong and United Plantations to support CPO prices during this crucial period.

If the companies above are willing to support the CPO prices and adopt unanimous actions, it is believed that they will effectively stabilise CPO prices.

As for long-term programmes, although the government's initiative to allocate RM200m as incentive to encourage smallholders to replant trees which are 25 years or older is a very timely move, it may result in near-term reduction in palm oil production.

Having said that, in view of the existing downtrend in CPO prices, it is now the best time for replanting, so that the new trees will move into production phase when CPO prices have later stabilised, not to mention better yields from improved species.

On top of that, beginning next February, the government's official cars will lead in the use of 5% palm oil biodiesel as fuel, which is poised to promote the use of biodiesel resulting in greater domestic demands for palm oil.

Besides, Malaysia should also work with Indonesia to reduce stockpile to stimulate the recovery of prices. The palm oil stockpile currently stands at 1.9 million tonnes, anticipated to top two million tonnes in October.

In the face of the current global financial crisis, Malaysia and Indonesia, as the world's largest producers, should strive to reduce stockpile in order to stabilise the prices within the RM2,000 to RM2,500 range.

Besides, both countries should also strive to expand domestic demands, develop downstream industries and through replanting cut stockpile and supply, in the end stabilise CPO prices.

Be it expanding domestic demands, cutting inventory or replanting, we need some time, but in the immediate future, plantation operators still need the helping hand of the government.

If the government is not going to actively intervene, who else is coming to the growers' resuce? (Translated by DOMINIC LOH/Sin Chew Daily)