MARKET DEVELOPMENT
22-04-2002
Oil palm growers must take ‘new way’
Sunday, April 21, 2002 (The Star) - ADMITTEDLY, Australian entrepreneurSteve Kyle is not an expert in the oil palm industry. Nor is he directlyinvolved in the production of palm oil.But his ideas on how to solve the problems facing the industry in Malaysiaseem logical and worth considering.He believes there is a need to change the mindset of the producers thatthe “old way†of doing business is now outdated and the “new way†ofadapting to high technology is a must to survive in an impending,inevitable stiff competition from other countries.Moreover, with such a change, they are likely to gain a bigger slice ofwhat he says is a US$30bil global market.Kyle, 48, who graduated from Curtin University in Applied Science focusingon geographic information systems in 1991, was giving his views on lastweek’s article in which PPB Oil Palm executive director Khoo Khee Mingoutlined the importance, challenges and threats facing the industry.The threats to Malaysia come from what Khoo describes as “the increasingscarcity of two essential inputs – land and labour.â€But Kyle believes that a bigger threat looms not only from Indonesia wherevast tracks of forest are being cleared for oil palm cultivation, but alsofrom India, Bangladesh, Africa and South America, which are also planningto grow their own oil palm.He warns that Malaysia, which now has almost a monopoly on palm oilexports, cannot be complacent or it would lose its lead in the industry.Its producers must look for new markets rather than concentrate mainly onAsia and Africa.“They have to break down the invisible wall that they have built to defendtheir present positions,†he argues.“They do not, in general, make much effort to accommodate buyers,particularly small and new markets, preferring to isolate themselves fromthem by a multi-tiered distribution system of middlemen.“So a system exists where small or new markets are satisfied by adistributor network that the major producers control by supply.Unfortunately, I believe the existing distribution network is not strongat satisfying new markets.“Typically, the distributors don’t seem to have the international skillsto facilitate market-making with new international buyers. I am convincedthat this is why the market for palm oil is showing growth only throughnation-to-nation initiatives, such as those with the Chinese Government orwith former communist-bloc countries.â€Kyle says that the present situation is not straightforward and simple.There are many reasons that “dictate the way it is.â€Increasingly, Indonesia, Africa, South America and other countries in thefuture will offer alternate supply paths. As their production increasesover the next few years, he says, a “price-cutting war†may result.He believes the Malaysian Government is aware of this and is trying toform an alliance with the Indonesian Government on the marketing of palmoil.In the past four years, Kyle has made extensive studies of the oil palmindustry of many countries and their future plans. He has attendedconferences and talked to people in the industry.When he first started his inquiries, he was “quite astounded†to find thatpalm oil has more nutritional value than any other oils in the world. Butnone of the producers has taken full advantage of these values to improvetheir products and market them in the West.“We pay double the price for margarine when palm oil is cheaper with thesame nutritional values,†he says.“To me, it is crazy that the producers are not making new products out ofpalm oil to attract the American market. All they are doing is to sellcrude palm oil as cheap cooking oil to countries like India, Pakistan,Bangladesh and China.“There is a big market in the West for products with nutritional values,especially in the health category,†he adds.Kyle believes that Malaysia was lucky not to have lost its dominance inthe industry two years ago. It was saved by the crash of technology sharesin the stock market.Otherwise, American companies would have set up portals focusing onparticular industries. These portals would provide a centralised and easyway to find all participants.If buyers accept this model, which represents a more efficient andcost-effective marketplace, then suppliers will be forced to participateor risk losing new business.“So Malaysia producers will find this marketplace a challenge if they areunwilling to adapt their existing business processes,†he says. “As withany market, there is a definite ‘first mover’ advantage.“In this case, those producers who grab the opportunity to use technologywould be able to build new relationships with less competition andstreamline existing processes to reduce costs. By using a system that letsthem deal directly with smaller or new customers, they would be more pricecompetitive.â€That is why, Kyle says, he has registered the name “oilpalm†which isgeneric to the industry.It is easy for people to search for the website when they want to buy palmoil or to know more about the industry. It now has 6,000 members from 145countries.Companies that know how to apply computer technology in their businessdealings will be hugely rewarded, says Kyle, who owns Technology FleetManagement in Perth.But to have a good technological strategy is not simply setting up awebsite, he explains. There are many technical grounds to cover before itbecomes a vehicle with which to make deals.“It costs a lot of money to set up industry portals because none of thetools is readily available,†Kyle says. “That is why we are seekinginvestors to join us.“We have members from all over the world and we get postings regularlyfrom people wanting to buy palm oil. Some want 5,000 tonnes a month; oneis looking for 60,000 tonnes a month.“At the moment, we allow members to contact each other to complete thedeals. We don’t have the software yet to run the whole transactionsourselves.“What we need is a stock market-type of system where buyers put in anorder and if the price matches that of the sellers, the transaction goesthrough.“It is a very complex behind-the-scene transaction system. It opens a newavenue for marketing palm oil, especially to the smaller enterprises.â€He believes that Malaysia is still in a position where it can activelyinfluence the “shape†of the new market environment. Its production sideand even product challenges can be overcome if there is a resolve toabandon the ‘this is the way it’s always been done’ mentality, he says.“Khoo Khee Ming is right. The Malaysian palm oil industry is at thecrossroads. The seemingly safe and comfortable status quo path leads tothe same place that rubber has found itself while other, initially moredisruptive, paths lead to the future.â€By Jeffrey Francis
