MARKET DEVELOPMENT
13-11-2001
Agro sector likely to register 3.5% growth
Monday, November 12, 2001(The Star) - Farming, forestry and fishing -usually seen as supporting acts to their more famous cousin themanufacturing sector – appear to be sharply incongruent with the image ofa country aspiring towards developed nation status.The oft-touted tagline has it that knowledge, and not physical toil, willpropel the economy to greater heights.But, the manufacturing sector, long the mainstay of the Malaysian economy,has been looking somewhat less than slick these days.Its fortunes have been affected especially after its biggest market, theUS, was sent reeling following the Sept 11 attacks. And now, thepossibility of an ongoing conflict with Afghanistan does not bode well forthe American economy.Manufacturing activity in Malaysia is clearly down. In September, themanufacturing sector index shrank 12.8% year-on-year to 195. About 75.6%of the 29,837 jobs shed from January to September this year were from themanufacturing sector.According to think-tank Malaysian Institute of Economic Research, themanufacturing sector is expected to contract 5.5% this year. Theagriculture sector, on the other hand, is likely to register a 3.5%growth.The agriculture sector, which has been receiving insufficient focus fromthe government, could provide a measure of support to the domestic economynow, said PPB Oil Palms Bhd executive director Khoo Khee Ming.“The country’s strength now lies in commodities,†Khoo said in aninterview in Kuala Lumpur.He stressed that agriculture, although not the main pillar of theMalaysian economy is an important sector.The palm oil industry, in particular, could be a catalyst for growth. Likeall other plantation players, palm oil producers have to contend with thevagaries of nature. However, their fortunes are largely dictated by theprice of crude palm oil (CPO) that, in turn, is subject to cyclicalswings.Hopes now abound that a possible upswing of CPO price is in store. Theprice of CPO seems to have found its way to firmer ground recently, afterhaving been mired in painfully low levels earlier this year.For the most part, this has been a year that palm oil producers wouldprobably rather forget. The price of CPO plummeted to a low of RM695 pertonne in February this year due to a glut in the oils and fats market. Itthen strengthened to RM1,215 per tonne in August before slipping to RM998a month later.It did not help that the level of palm oil production was up this year.According to the government, production this year is expected to increaseby about one million tonnes or 8.9% to hit 11.8 million tonnes. This isattributed to a 6.4% increase in yield to 19.5 tonnes per ha compared with18.3 tonnes per ha last year.Another 158,200 hectares of planted area, mainly from east Malaysia, willalso come into maturity. This will bring the total mature hectarage to 3.1million hectares.Khoo however is looking forward to rosier prospects next year, largelybecause of an expectation of a lower production level leading to betterprices.He projected that CPO production would be flat or register a 1% to 2%growth next year.“There won’t be a very big surge in production due to natural trends andthe fact that a big area had been felled for replanting. The effects ofthis will be seen next year,†said Khoo.He said the natural trends could be explained by the reduction in input bysome producers who cut fertiliser application and upkeep during the lasttwo years.To encourage replanting, the government is undertaking a replantingprogramme of 200,000 ha of oil palm by year’s end. It has also allocatedRM300mil in grants to spur more producers to replant.Palm oil producers received a much-needed spot of good news late lastmonth. News that India, the world's biggest consumer of palm oil, hadreduced customs duty on CPO to 65% from 75%, cheered producersconsiderably as it sparked hopes of an increase in demand.Producers are also tapping other markets to cushion themselves. Inaddition to the traditional core markets of India, Pakistan and China,there is a concerted effort to explore the African, Middle Eastern andEuropean Union markets, Khoo said.He added that demand from Pakistan, which is now in a very volatile regiongiven the US strikes on Afghanistan, had not dropped significantly.In recognition of their susceptibility to CPO price swings, producers likePPB Oil Palms are run in a “very lean†fashion, with low production costsand small management teams.“We take a longer view of things as we’re here for the long-term. We feelthat there are opportunities for prices to improve,†Khoo said.Supply and price aside, he believes that the relatively low price of CPOwould continue to stimulate demand.PPB has the advantage of a relatively young estate. According to Khoo,close to 40% of PPB’s oil palms are between five to 10 years old. As theaverage fruit-bearing life of oil palms is 25 years, this indicates thestrong potential for future production growth.
