22/03/2010 (The Star Online), Petaling Jaya - Sarawak oil palm plantation companies are currently battling increasing cost of production (COP), which is about 1.5 to two times higher than what their counterparts in Peninsular Malaysia face, industry players said.

The average COP among efficient oil palm plantation players in the peninsula is RM1,100 to RM1,200 per tonne, while that of new and smaller planters could be above RM1,900 a tonne.

The COP covers upkeep or cultivation expenses, fertiliser application, harvesting, transportation, other estate charges and labour costs.

Sarawak planters, as new entrants to oil palm cultivation, have the most challenging task because many are planting on peat land unlike their peninsula and Sabah counterparts, which plant on mineral soil.

Based on Malaysia Palm Oil Board’s (MPOB) data, the total area planted with oil palm in Sarawak is 750,000ha, of which more than 50%, or about 400,000ha, is peat land.

Timber and plantation group Ta Ann Holdings Bhd managing director Datuk Wong Kuo Hea told StarBiz the COP of Sarawak planters was higher as they needed to incur substantial capital expenditure (capex) in terms of infrastructure development, particularly roads and construction of drains, as well as maintenance works necessary for planting on peat land areas.

The COP in Sarawak consists of two main phases – development and maintenance cost before palm maturity and also the upkeep, maintenance and harvesting related cost after maturity.

Wong said that development cost was sensitive to fuel price while the upkeep and maintenance cost (after maturity) was affected by the fertiliser price and the amount of fertiliser applied.

“For both phases, labour cost is also a factor to be reckoned with,” he said.

Wong said Sarawak planters would face escalating COP soon given the expected increase in fuel and fertiliser prices as well as the higher cost of recruiting Indonesian labour, of which there was an acute shortage.

Asked whether Sarawak planters could still reap good gross profit margins like their efficient counterparts in the peninsula, he said: “At current CPO price of RM2,500 a tonne, assuming other factors remain status quo, Sarawak planters are expected to break even only after six years.”

“If they happen to borrow from banks (most estates will have to seek bank financing in view of the large capex involved), some 13 years’ payback period is expected (provided interest rate stays at current level),” he said, adding that “the profit margin will only come after six years (of planting) and at a much lower rate.”

Meanwhile, Sarawak Oil Palm Plantation Owners Association (SOPPOA) said Sarawak oil palm planters, despite their increasing COP, had diligently contributed to the MPOB’s CPO cess of about RM28mil in 2008 and RM26.5mil in 2009.

Vice-chairman Paul Wong said: “Our members believe that MPOB should support SOPPOA’s efforts in promoting and improving good agricultural practices in oil palm estates in Sarawak in a sustainable manner.”

MPOB should also extend the support and assistance given to oil palm planters in Peninsular Malaysia and Sabah, to Sarawak planters, who are mostly SOPPOA members, according to Wong.

He said SOPPOA hoped MPOB could assist the association in tackling several issues and matters pertaining to oil palm development on peat soil, such as:

·Conducting a study and developing a set of guidelines pertaining to sustainable oil palm development on Sarawak peat land;

·Conducting a study and performing sample tests on “carbon stock” on Sarawak peat land; and

.Identifying high conservation value land in Sarawak, especially on peat land before development of oil palm plantation is carried out.

The Sarawak Peat Unit, which is headed by Dr Lulie Melling, is currently undertaking studies on peat land.

SOPPOA members expect more studies on peat land to be carried out so that the data and statistics on peat oil palm plantation can be provided to counter recent harsh claims against the palm oil industry.

According to Ta Ann’s Wong, apart from its limited oil and mineral resources, Sarawak is heavily dependent on agriculture and forest products for its revenue.

Hence “oil palm cultivation will turn otherwise idle land into productive plantations offering employment opportunities to local residents.”

“Stopping development on these plots of land will leave the planters and workers with no income and a loss to state revenue,” he said.

An estimated annual production of 6.5 million tonnes of fresh fruit bunches (FFB) would generate an annual revenue of about RM3.4bil in Sarawak.

The state government is also planning to plant up to one million ha of oil palm plantations in the near future, which will further boost annual FFB production by 9.7 million tonnes and increase annual revenue by RM5.1bil.