Malaysia's measures to stabilise commodity prices

The government has taken sufficient measures to address the temporary decline in the prices of palm oil and rubber, according to Minister of Plantation Industries and Commodities, Tan Sri Bernard Dompok.

In a statement from Putrajaya, Dompok explained that the government would not relent in its efforts to strengthen the palm oil and rubber commodity sectors as both are among the main sectors under the National Key Economic Area (NKEA) contributing to the government's goal of transforming Malaysia into a high-income nation.

Dompok stressed that his Ministry would continue to monitor the price trend for both commodities to ensure that planters and smallholders would not be badly affected by its declining prices. He also assured commodity stakeholders that proactive measures would be taken to ensure price stability.

In general, Dompok said that commodity prices are influenced by the supply of other vegetable oils and demands in major importing countries such as China, the European Union, Pakistan, United States and India.

In 2012, these countries, including the European Union accounted for 60 percent of Malaysia's palm oil exports. However, decline in domestic production and slower economic growth in the European Union in the third quarter of 2012 directly affected the import of Malaysian palm oil products.

The declining prices of rubber in the country, on the other hand, are affected by the drop in demand for raw rubber due to the global economic slowdown.

The value of exports for palm oil in 2011 amounted to RM83.4 billion, with the average CPO price of RM3,219 per tonne. However, demand from major importing countries has substantially declined in recent months causing the average CPO price for the period between January and November 2012 to drop to RM2, 844 per tonne.

As a result, the total export value for the same period has dropped to RM65.9 billion.

To counter the sluggish demand from overseas markets, Dompok said that the government has taken several steps to strengthen the CPO price.

"This is reflected with the increase in CPO price from RM2, 065 per tonne in October 2012 to RM2, 235 per tonne as of January 3rd 2013," he said.

The measures include the acceleration of the implementation of B5 (a 5 percent blend of palm methyl ester with diesel) nationwide, promoting the use of palm oil-based biofuel up to 10 percent in other sectors and the use of palm oil plants power generation, especially in Sabah. With the expansion of the B5 programme, domestic consumption is expected to increase up to 500,000 tonnes of oil per year.

The government has also allocated a sum of RM100 million for the purpose of cutting down palm trees over the age of 25 years under the Replanting Incentive Scheme. Through the scheme, the government provides incentives of RM1,000 per hectare of oil palm plot that has been replanted to Felda settlers and smallholders.

According to Dompok, this measure is expected to reduce the supply of CPO in the local market, which is currently at 350,000 tonnes annually, and strengthen the CPO price. This step will also reduce palm oil stocks and contribute to increased palm productivity in the long run for the country.

The government also assists smallholders managing less than 40.46 hectares of plantation in replanting programmes by allocation RM9,000 per hectare in Sabah and Sarawak and RM7,500 per hectare in Peninsular Malaysia. This assistance by the government includes the cost of tree felling and replanting.

Through the programme, the government allocated RM300.2 million last year and RM432.8 million this year.

In order to reduce the heavy reliance on foreign labour, the Ministry of Plantation Industries and Commodities encouraged mechanisation and automation such as the use of a motorised harvester or CANTAS. Research shows that the use of CANTAS has improved harvest by almost two-fold from 1.4 tonnes of bunches to 2.7 tonnes of bunches per day.

Harvesting with the use of CANTAS can cover an area of 35 hectares as compared to just 21 hectares by sickle, which is an improvement of nearly 70 percent.

To encourage widespread usage of CANTAS, Dompok said that the Ministry provides a RM1,000 cash incentive for every one unit purchased.

In the case of the rubber industry, Dompok said that the lowest price recorded for Standard Malaysian Rubber (SMR) was RM7.99 per kilogramme in August 2012 . However the price has gone up to RM9.21 per kilogramme as of January 3rd 2013.

According to Dompok, this increase is due in part to the various government initiatives including the incentive to encourage replanting , which is aimed at cutting down supply.

In 2012, the government allocated a sum of RM184.52 million to replant an area of 40,000 hectares. Under the programme, cash incentives of RM14, 000 is provided for every hectare in Sabah, RM13, 500 in Sarawak and RM9, 230 in Peninsular Malaysia.

Nationally, Malaysia has co-operated with a few of the world's main players in the palm oil and rubber industries in a bid to stabilise and monitor the price trend for these commodities.

For palm oil, Malaysia has signed a bilateral co-operation framework with Indonesia, which led to the holding of ministerial meetings annually to strengthen cooperation in the development of upstream and downstream industries, to deal with non-tariff barriers as well as to strengthen market expansion through the issuance of techno-economic advantages of palm oil.

Together, Malaysia and Indonesia produce about 85 percent of the world's palm oil.

In the rubber industry, Malaysia is also involved in co-operation with other main producing countries like Thailand and Indonesia. Together, Malaysia, Thailand and Indonesia produced 68 percent of the world's raw rubber.

Under the framework of the International Tripartite Rubber Council, Malaysia, Thailand and Indonesia implemented the Agreed Export Tonnage Scheme in a bid to balance the supply of raw rubber in the world market. - Insight Sabah