MARKET DEVELOPMENT
08-11-2001
Palm oil needs more non-traditional markets, says
(Soyatech.com)11/6/2001 - Go all out to seek non-traditional palm oilmarkets and strengthen existing ones. Pushing the final frontier in thisrespect underscores Primary Industries Minister Datuk Seri Dr Lim KengYaik’s agenda. Lim is still fired up about Malaysia’s golden crop. He justwants to ensure the industry does not wait for the mountain to come to itsfore. Rather, Lim wants the industry to go to the mountain - not only tostay afloat but also to lead, whenever possible. What is more, the recentBudget 2002 has given various perks to the industry. Undercutting,unrealistic quotas, tough tariff barriers and unpredictable governmentpolicies are making it tougher for the trade. However, this does not meanthe industry retreats into "dinosaurism".In short, Lim said it was a different ballgame in the oils and fats world.Are Malaysian businessmen in the palm oil trade not aggressive enough? Tohim, they have to give their best shot now, considering the current globalscenario and the competitive market. "We must be proactive in assessingand preparing for the future and should not take things for granted," Limemphasises.The world will be short of energy one day, maybe in 30 years or 50 yearsfrom now because fossil fuel is depleting fast and is not renewable. Butthis is definitely not the same case for palm oil which is renewable andedible – albeit the long replanting period of more than 20 years.Notwithstanding this, one should not take things for granted. Lim saidthere are several learning curves since the American Soybean Association(ASA) saga of the mid-eighties. Lim said drastic policy changes in keymarkets can affect our palm oil, i.e. the high import duties by India andChina’s shift from oil imports to oilseeds import, both which are at ourexpense.Another concern is that a similar trend could happen again in the futurein some of our non-traditional markets, said Lim, indicating that thelesson is very clear. India remains the single largest market for our palmoil, followed by EU, China, Pakistan and Egypt. The total palm oil exportsto these countries accounted for about 61.5% of Malaysia’s total palm oilexports for the past two years. This shows our palm oil export continuesto be highly dependent on these markets and we are equally vulnerable ifthere was a change of consumption pattern, Lim said.Thus, the lack of market diversity warrants serious consideration as anysignificant shortfall in imports by any one of these countries can dampenthe prospects for the Malaysian palm oil industry. Outlining thestrategies for a better foothold in the industry, Lim said refiners shouldcapitalise on the current low palm oil price by promoting more value-addedproducts such as double fractionated olein to expand further into theliquid oil markets such as West Asia and the Far East.The government has abolished the 5% export duty on processed palm oil incategories II, and I that include crude olein and bleached palm oil,beginning Sept 1 this year. The industry must take advantage of thisabolition to expand into new and niche markets for those products. To becompetitive in the international market, the industry has to work doublyhard to rise to the occasion, more so when our nearest competitor soybean,has been working hard to improve its yield and costs."We cannot rest on our laurels for, unless we can match its (soybean’s)productivity, it is a matter of time before it outbids our cost," Limcautioned. It is imperative that the industry goes back to basics.Issues regarding increasing cost of production, improving and developingnew products need to be revisited to sustain the viability andcompetitiveness. For palm oil refiners, there is a need to modernise andupgrade their refineries to maintain the competitive edge, to avoid thedinosaur syndrome.Elaborating on the various key Malaysian markets, Lim said the localindustry could not ignore the situation in Pakistan. Each year, Pakistanimports no less than one million tonnes, most of which is from Malaysia.With the Sept 11 terrorist attack in New York, there is likelihood thatimports of palm oil into Pakistan will be disrupted greatly, impactingsignificantly on our industry. "We can expect disruptions to the edibleoil logistics, especially shipping, not only in Pakistan, but in nearbymarkets, India and West Asia," Lim said. He added that many shipping lineswere loading heavy premiums on routes to Pakistan and India.Understandably so, but the shipping lines must also realise they too havea responsibility in times like this. If the premium is unreasonable, itwill compel the government to look for alternative arrangements. In anytrade, it must be a win-win situation for all parties. But there is stilla silver lining albeit the uncertainties. This concerns the anticipatedadmission of China into the World Trade Organisation (WTO) at theministerial meeting in Doha, Qatar, this month."We can expect our palm oil exports to China to register an increase,"said Lim.China’s WTO membership is certain by early next year, starting a processthat will transform its economy in ways that are already causinganticipation and anxiety among those who expect to be affected.Duties on imported agricultural products into China are to be reduced overtime to 17% from an average of 22% now, and the reduction will be evengreater than some American farm produce. Import quotas will be relaxed.China will not only allocate more quotas for palm oil, but will alsoinform earlier. It will phase out the quota after five years of membershipin the WTO.This will be a significant development for our palm oil industry that hasmade substantial contribution to Malaysia’s economic recovery during thefinancial crisis of 1997 and 1998. However, towards the end of 2000, theindustry faced a downturn and the price of palm oil touched bottom earlythis year. This was due to increased production, depressed export demandand huge stock build-up.With prices nearing the cost of production, the ministry has undertaken anumber of strategic policy decisions to reduce stocks and boost price.These include the burning of CPO as fuel oil at Tenaga Nasional Bhd powerstations and other industrial uses, the granting of special incentives toexpedite replanting of old palms and reducing the use of fertilisers toreduce the crop yield.Palm oil’s multiple uses include the production of methyl esters,carotenes and vitamin E. The methyl esters can be used for dieselsubstitutes and oleo chemical feedstock. This will provide a good safetynet because palm oil is a renewable energy resource. All said and done,Lim is still upbeat that palm oil will ride out the current storm as theindustry has proven in the past.
