Malaysia: economic transformation advances oil palm industry by Choo Yuen May
September 2012
Malaysia is currently the world’s largest exporter of palm oil although it is the second-largest producer of the oil after neighboring Indonesia. With a humid tropical climate and temperature ranging from 24°C to 32°C throughout the year, coupled with ample sunshine and an evenly distributed annual rainfall of around 2000 mm, Malaysia is now home to the West African palm first introduced to Malaysia (then known as Malaya) as an ornamental plant in 1875. Commercial planting of oil palm did not take place until 1917. The rapid expansion of oil palm in the 1960s was encouraged by the Malaysian government, which recognized its potential as a complementary crop to rubber.
The main palm product exported until the 1970s was crude palm oil (CPO). At that time taxation and incentive policies were introduced to encourage the export of refined palm products. The importance of the palm oil trade to the Malaysian economy was affirmed with the founding of the Kuala Lumpur Stock Exchange (KLCE) for price setting, hedging, and disseminating market information to reduce market risk in the trading of palm oil. Currently, Bursa Malaysia Derivatives Bhd. (BMD) is the sole exchange operator for the futures and options market in Malaysia, and the CPO Futures Contract is the flagship contract of the BMD launched in 1980 by the KLCE.
The most significant change/trend in the past year two years
Formerly, the industry was mainly concentrated on upstream activities such as cultivating palms for production of fruit bunches in plantations, processing fresh fruit bunches (FFB) in mills for CPO and palm kernel oil, producing refined palm oil (RPO) from CPO, and fractionating palm oil (both crude and refined) to obtain liquid olein and solid stearin fractions as well as oleochemical products. This traditional approach was changed when the Malaysian government introduced the Economic Transformation program (ETP) in September 2010. The ETP is a comprehensive effort that outlines a 10-year economic roadmap to energize Malaysia toward becoming a high-income nation by 2020. The implementation of the ETP gave the oil palm industry a new focus after it was identified as one of the 12 National Key Economic Areas (NKEA) to drive the nation’s economy. The palm oil sector NKEA is aimed at improving upstream productivity and increasing downstream expansion, while focusing on the sustainable development of the oil palm industry. To overcome regulatory restrictions and limited land bank for development of new plantations, the government will focus on downstream activities such as processed food, biodiesel, second-generation biofuel, oleo derivatives, and phytonutrients. Further, plantation owners will be encouraged to look farther afield for upstream expansion and to enhance productivity toward the targeted CPO yield of 6 metric tons per hectare per year (MT/ha/yr).
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