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Thursday, May 8, 2014

A young player amid giants

Publication: NST
Date of publication: May 5, 2014
Section heading: Business Times
Page number: 005

Question: How has the Sabah palm oil industry evolved?

Answer: I did a presentation at ISP National Seminar in Kota Kinabalu in 2010 and my research revealed the following early agri-transformation in Sabah.

Before oil palms, agriculture in Sabah was very much into collecting rattans from jungles, padi planting, tobacco planting, harvesting Manila hemp and venture into cocoa plantation later.

My research revealed that first trial planting of oil palm in Sabah was in 1957 using seeds collected from the jungle in Mostyn estate, Tawau. This was later expanded to the first 200 acres of commercial oil palm planting in 1959.

Sabah's upstream oil palm planting reached its first 100,000ha by 1981. Within the next two decades, it reached its milestone of one million hectares.

The latest 2013 figures from the Malaysian Palm Oil Board showed Sabah gas 1.48 million hectares planted with oil palms, equivalent to 28 per cent of the total area planted with oil palm in Malaysia.

It is the largest palm oil-producing state in Malaysia.

Last year, Sabah's midstream and downstream activities comprised 124 palm oil mills, 13 palm kernel crushing plants and 12 refineries.

Question: How significant is the crop's contribution to the state?

Answer: The crop has provided a sustained flow of income to entrepreneurs and has benefited the state in many ways.

An important source of revenue for the state is derived from the sales tax amounting to 7.5 per cent for crude palm oil (CPO) gross prices (above the threshold CPO price of above RM1,000 per tonne ).

In 2013, Sabah produced 5.78 million tonnes of CPO, or 30 per cent of Malaysian production of 19.22 million tonnes.

Using the national annual average CPO price of RM2,371 per tonne in 2013 as reference, the estimated sales tax worked out to be RM1.027 billion.

Sabah is expected to continue collecting revenues from the State Sales Tax (SST) even after the goods and services tax (GST) is implemented in 2015 as SST is a resource under the jurisdiction of the Sabah and Sarawak governments, as stipulated under the Federal Constitution.

Question: How has the rakyat benefited?

Answer: In Sabah, jobs were created for the rakyat across the palm oil supply chain.

These include areas covering research, nurseries, estates, mills and other downstream activities; and many other aspects of service-provision jobs, such as administration, purchasing, human resource, information technology, training, sales and marketing, logistics and others.

The oil palm business along the supply chain has also created numerous multiplying effects and spinoff businesses, which have also benefited the rakyat.

In short, the rakyat has been incorporated as relevant stakeholders - both directly and indirectly - in the palm oil supply chain in Sabah.

Question: What more can be done?

Answer: One must appreciate that palm oil is a commodity and as such is "a price taker and not a price maker".

The venture is also a long-haul one and will be subjected to the vagaries of extreme weather, low start-up yields and other biological interactions.

The business game for sustainability is to derive a comfortable margin between the derived commodity price and the escalating cost of production.

Over the years, various parties have called for a restructuring of the SST on CPO via a revision of the threshold price upward from the present RM1,000 per tonne to RM2,000 per tonne in the light of rising production cost and other statutory charges being levied on the growers, such as windfall levy, charges and cesses.

A two-tier sales tax system has also been advocated, similar to the practice adopted in Sarawak based on equity taxation, which is deemed more accommodative vis-a-vis the fluctuating CPO commodity prices.

Question: What are IJM's contributions towards Sabah's palm oil industry?

Answer: IJM Plantations Bhd is but a smaller and younger player amid the many giants like Felda, IOI, Sime Darby, Wilmar, Kuala Lumpur Kepong and Sawit Kinabalu in Sabah.

Since our humble plantation saga back in 1985, our contribution to the palm oil industry in Sabah is set against our strong fundamentals already in place, where the group continues to augment the business activities based on its core competency - namely in oil palm cultivation, research and advisory and midstream milling processes.

Today, we are proud to be among the best in the Malaysian plantation fraternity in terms of productivity and good plantation practices.

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