Archive for April 2011

China will buy more palm oil from Malaysia

This was written by Melissa Goh and published in Channel News Asia.

KUALA LUMPUR : Chinese Premier Wen Jiabao has said China will continue its steady import of crude palm oil from Malaysia. He gave the commitment after meeting Malaysian Prime Minister Datuk Seri Najib Razak in Putrajaya on Thursday, on the second of his two-day working visit.

Both leaders witnessed the signing of a series of agreements ranging from trade, investment, education, infrastructure and telecommunication.

It is Premier Wen's second official visit to Malaysia. The 68-year-old led a delegation of 118 members, including four ministers. They were given a warm welcome by Prime Minister Najib at his office in Putrajaya.

The leaders met for over an hour and pledged to take bilateral relations to new heights.

Prime Minister Najib said: "We have every confidence that given his strong leadership, China will continue to prosper and provide very strong impetus in terms of global economic growth.

"I am also appreciative of PM Wen's commitment that China will continue to buy in big quantities Malaysian palm oil and palm oil products."

Last year, China imported 3.48 million tonnes of palm oil from Malaysia, 13.5 per cent less than 4.03 million tonnes in 2009. China is Malaysia's largest trading partner. Two-way trade reached US$75 billion last year. Malaysia, on the other hand, is China's top trading partner in ASEAN for three consecutive years."

Chinese Premier Wen said: "Eventhough China has long been running a trade deficit with Malaysia, we have no complaints. China agrees to continue steadily importing Malaysia's palm oil." Malaysia and China are developing countries facing economic development challenges. "Therefore, with deep co-operation, we can together deal with such challenges and fulfil our mutual interests," he said.

The two sides signed a series of agreements to expand and deepen bilateral economic and trade co-operation. Bank Negara of Malaysia will set up representative office in Beijing to facilitate transactions to be settled in local currencies, instead of the current practice of using the US dollar.

Premier Wen later opened a Sino-Malaysia trade and economic co-operation forum in Kuala Lumpur and met business leaders.

Fui Soong, CEO of the Centre for Strategic Engagement, said: "What people really want to see is a significant volume of trade increase between China and Malaysia, not just in commodities. What you see is the rise in trade between two countries is very centered on commodities, SMEs are not benefiting from the rise in trade."

China and Malaysia are also looking to co-operate in education, including a joint effort to establish a Chinese Studies Centre at Universiti Malaya.

Premier Wen visited the country's oldest university a day earlier and held a lively exchange with students there. During his time in Malaysia, Premier Wen also met up with former prime minister Tun Dr Mahathir Mohamad.

Need to step up agriculture research

KOTA KINABALU: As food prices escalate throughout the world, scientists say it is time for Malaysia to pay more attention to soil and crop research.

"The crisis of high food prices has never left us. Although food prices dipped in 2009 from 2008's high, they remain worryingly beyond the reach of the poor in developing nations," Malaysian Society of Soil Science (MSSS) immediate past president Dr Shahrakbah Yacob told Business Times in an interview recently.

Referring to the United Nations Food and Agriculture Organisation (FAO) price index of 55 food commodities, he said current food prices are almost 40 per cent higher than a year ago.

The magnitude of the food crisis in developing nations, is actually quite alarming. The spike in food prices has led to the deepening of poverty for 1.2 billion people who are already living below the extreme poverty line of US$1.25 (RM3.75) a day, and who spend a large share of their income on food.

Since June 2010, an additional 44 million people live below the poverty line set by the World Bank - US$1.25 per day. In its latest food security report, the bank proposes an expansion of the agricultural sector in developing countries. Among measures it highlighted to step up productivity is greater investment in agricultural research.

This is in line with FAO records that show since 1970s, rising yields alone accounted for 70 per cent of the increase in crop production in the developing world.

Malaysia and Indonesia both supply 85 per cent of the world's demand for palm oil, which is mainly consumed as cooking oil, margarine, soaps and biodegradable detergent. Therefore, the progress Malaysia can make in agricultural productivity will be crucial to continued security in the supply of palm oil for the world.

As Malaysia moves toward a knowledge-based economy, Shahrakbah said the agriculture sector will depend heavily on engineering, technology, biological and physical sciences.

Irrigation, drainage, conservation, sanitary engineering and mechanisation, each of which is important in successful farming, are some of the fields that require the specialised knowledge of engineers. Chemistry and biology deal with other important farming concerns, such as the application of fertilisers, pest controls, fungicides and soil nutrition.

In looking after crops planted in different blocks of agriculture land, Shahrakbah said soil and crop researchers assess the potential yields, fertiliser usage and manage disease outbreaks. 

Crop improvement, meanwhile, is spearheaded by plant breeders and biotechnologists. "This is the most time-consuming and expensive part in agriculture research. Generally, a life-time commitment is needed from the scientists before a new breed could be confidently planted on a large scale," he said.

Computer programmers, too, are enlisted by planters to collate and analyse huge amounts of data from the fields.

"Malaysia needs to pump in more money into agricultural research. Since we focused on industrialisation in the 1980s and 1990s, this sector had been left under-invested," he added.

A case in point is there are now some 50 practising agronomists looking after 4.85 million hectares of oil palm estates in Malaysia. 

But there are more than 500 scientists and engineers in the downstream activities of the palm oil industry, working on new and better use of palm oil, palm kernel oil, palm kernel shells and palm oil mill effluents.

"The oil palm industry is actually facing chronic shortage of qualified and experienced soil and crop scientists," Shahrakbah said.

He estimated that for one scientist in the upstream, there are at least 10 in the downstream of the palm oil value chain. "If we don't have enough researchers looking after the different kinds of soils and crop, how can we be sure the trees will be able to produce enough oil for downstream activities?" he asked.

Newly-elected MSSS president Dr Ahmad Husni Mohd Hanif, who was also at the interview, emphasised a need to revisit the significance of soil research in the interest of food security.

An associate professor at Universiti Putra Malaysia (UPM), Husni said there are far more students studying the downstream process of food processing compared to that of soil and crop science.

It is also a well-known fact that the ratio of female students to male at local universities, including UPM, is 65:35. That, according to Husni, could be a leaning factor where the fairer gender prefer to pursue a career in the downstream value chain of food processing, manufacturing or engineering, where the job is mostly in an air-conditioned environment and pays higher.

"Agriculture is often perceived to be dirty, difficult, sometimes dangerous and lowly-paid," he said.

It is time for all stakeholders to prioritise agricultural research as a crucial contributor to our economy, he said, adding that agriculture is essentially food production.

Has Asean lost that loving feeling?

This is written by my boss, Shahriman Johari. Although his view is squarely on what bankers themselves can do to achieve "a single market", my 2 sen worth opinion is ...Asean's agriculture sector actually deserves more say, due to its sprawling value chain.

In moving towards a single market, Malaysians need to stop under-estimating our neighbours strengths and treat our brother countries with due respect.

Many estate managers and agronomists from Malaysia are already recruited by Indonesian planters. The private sector of the agriculture community is the prime mover of quality goods and talent within Asean.

In emulating the spirit of Asean that planters practise, it is time for Malaysia's civil service to be more open to collaborative efforts and not go on governing with silo mentality. Malaysia's oil palm, rubber and timber industries, which raked in more than RM100 billion in exports last year, have much to gain (and nothing to lose) if our policymakers put aside their ego and prioritise closer brotherly ties with Indonesia and Thailand.

---------------------------------------------------------------

IT IS not easy to convince one government, let alone 10. But this is what Datuk Seri Nazir Razak, chief executive of CIMB Group Holdings Bhd, has been trying to do for the past few years.

It seems like he is on a lonely crusade. Although CIMB is what he calls a truly Asean organisation with its multi-Asean board of directors and large business presence in the region, Asean is not reciprocating.

There is no preferential treatment from Asean nations when CIMB wants to make the region its home market. It is still difficult to move people, capital and information between countries in the region. This is the context of Nazir's lecture at Universitas Indonesia in Depok, Jakarta, earlier this week.

The funny thing is, Asean actually wants to make life easier for business by creating a single economic market known as the Asean Economic Community (AEC).

It is a great vision. With 600 million people or almost 9 per cent of the world population, an economic size of US$1.8 trillion (RM5.4 trillion), and its strategic location, the AEC would be Asia's third largest economy. People, goods, and money can move around with little or no economic barriers.

The deadline is 2015, but the business community doesn't appear to be buying it.

Indonesian Glenn Yusuf, a CIMB group director, said there is a serious "disconnect" between Asean's plans and what business leaders believe. Nazir cited a survey where less than a fifth of businesses have any plans for AEC but more have plans for China.

Although he disagreed, I felt that his talk was rather scathing because he took aim at Asean, its business community and even the logo. "... let's face it, the 'hour glass' logo of Asean today is well past its 'sell-by date'; it's like seeing the Atari logo in a room of X-boxes".

He feels the Asean machinery is not ready, in need of a radical upgrade and a bigger budget. Again, he makes the call for a minister to promote Asean, an often misconstrued statement that people take to mean he has political ambitions.

While governments and logos make easy targets for criticism, Nazir also took a shot at his private sector brothers. Conventional thinking may place the responsibility of AEC squarely at the feet of governments, but it is actually Asean multinational companies that should be the change agents. Now, they are just bystanders to the AEC process.

"We cannot wait for the completion of multilateral agreements instituting an Economic Community before we invite businesses to come in. We need their cross-border activities and regional expansion to catalyse the economic integration planned and agreed by governments".

Truer words have never been spoken. Ask not what Asean can do for you but what you can do for Asean. The question is, who else wants to throw their hat in the ring?

The case against Australia's palm oil labelling bill

This is written by my colleague Rupa Damodaran.

CANBERRA: Malaysia raised its objection to Australia's Truth in Labelling-Palm Oil Bill yesterday, saying it is based on misleading claims and aimed at harming its largest agricultural export - palm oil.

Malaysian Palm Oil Council chief executive officer Tan Sri Dr Yusof Basiron, who appeared at a public hearing together with other officials, said the biggest impact of this bill will be to single out palm oil as the only product in Australia to mandatorily be labelled for reasons other than health or nutrition.

"It will also hinder the Malaysian government's attempts to utilise palm oil as a means for alleviating poverty in our country," he said at the consultation regarding the Truth in Labelling - Palm Oil Bill here yesterday.

"I wish to object to this bill firstly because it seeks to classify palm oil as a single generic product based on the environmental impact of production methods without differentiating between country of origin... this is extremely misleading and defeats the purpose of the bill," he said in a testimony to the Community Affairs Legislation Committee.

Several questions on deforestation claims in Malaysia as well as palm oil certification were raised by members of the committee, which included independent senator Nick Xenophon, who moved for the bill in late 2009. The committee is due to report back to the parliament on June 16.

According to the bill, some of the principal issues include allowing palm oil to be listed as a vegetable oil on food packaging, which is considered misleading to Australian consumers.

The impact of palm oil production on wildlife and sustainable production of palm oil as well as the use of Certified Sustainable Palm Oil (CSPO), are also the areas up for consideration under the bill.

Yusof, who is also representing the Ministry of Plantation Industries and Commodities, said: "Truth in labelling should be driven by health issues, not political expedience, which is behind some of the campaigns revolving around this bill," in reference to moves by Greenpeace and World Wildlife Fund.

The bill and the campaign, which has been associated with it, can potentially lead to a loss of jobs and the livelihoods of some 570,000 farmers.

As pledged at the UN Rio Earth Summit, two decades ago, to keep at least 50 per cent of its total land area under forest, Malaysia has exceeded the target with 56 per cent of its land under forests. For every hectare of oil palm, the country preserves 4ha of permanent forest.

The Sabah and Sarawak state governments have gazetted large tracts of virgin jungle known to contain higher populations of orang-utans as wildlife sanctuaries, national parks or forest reserves.

On the bill's recommended use of sustainable palm oil or CSPO marking to indicate sustainable oil as a differentiating factor between countries or modes of production, Yusof said it would be highly costly for smallholders. Currently, 43 per cent of oil palm plantations are owned by smallholders.

Apart from Yusof, other Malaysian officials were High Commissioner to Australia Datuk Salman Ahmad, Datuk Carl Bek-Nielsen from United Plantations Bhd and Datu Vasco Sabat Singkang of the Sarawak Land Consolidation and Rehabilitation Authority (Salcra).

Ta Ann reaping fruits of labour as palms mature

Kuala Lumpur: Ta Ann Holdings Bhd's move to aggressively plant more oil palms in the last five years is literally bearing fruit now.

"The palms are maturing and bearing more fruit bunches. This year, we are aiming to harvest 380,000 tonnes of fresh fruit bunches, about 25 per cent more than previously," said group managing director and chief executive officer Datuk Wong Kuo Hea.  "Currently, about half of our total planted area is of matured profile," he told Business Times in a recent interview.

The group will be investing RM50 million in 2011 to plant another 8,000ha with oil palms. "We've already secured our hybrid seeds for the year. We need to maintain the planting momentum to ensure Ta Ann's growth for the next decade," Wong added. 

Headquartered in Sibu, Sarawak, the group ventured into oil palm planting in 2000. Within 11 years, it has planted some 30,000ha or two thirds of its plantable landbank.

With cash reserves of more than RM100 million, Wong said Ta Ann is keen on expanding its oil palm business within the state. It is working with state-owned Land Custody and Development Authority (LCDA) to gradually build up its landbank to become a medium-sized oil palm player.

"Our first concern is Sarawak. We're working with LCDA and native customary rights landowners to help develop oil palm plantations by profit-sharing. Through regular consultations, the landowners gain a better understanding of the business and they're more than happy to extend full cooperation in the development," he said. 

Ta Ann has worked with Kuching Specialist Hospital's community outreach programme and sponsored health screening and care to villagers in Pulau Bruit, Daro.

A firm believer in sustainable agriculture and forestry, Ta Ann carries out high value conservation  assessments for its oil palm development and reforestation before entering a new endeavour - Riparian zones have been set aside for conservation and wildlife corridors.

As early as 15 years ago, Ta Ann had already been investing substantially in forest plantations. "As our business expanded, we needed more sustainably-produced wood. We've invested in forest plantations to reduce the need to source from the natural forest," Wong said. 

The Forestry Department defines forest plantations as being populated with specially-bred timber species that are of high commercial value. They are fast-growing, thick-trunk, tightly-grained and cylindrical.

This year, RM15 million has been allocated to plant up 4,000ha with fast growing timber species. To date, about 30,000ha have been planted with Acacia Superbulk, Acacia Hybrid, Sawi, Benuang and Kelampayan. In the long run, Ta Ann targets to plant up to 70,000ha in order to achieve a sustainable harvest cycle of 15 years at 4,500ha per year. 

"Wood output from forest plantations is more productive because the trees are specifically bred for opti-mum use," Wong said. "This year, we're harvesting 500ha of our trial plots," he added. 

Asked on Ta Ann's outlook for the year, Wong said should the current crude palm oil price continue to trade in excess of RM3,000 per tonne and plywood prices rise more than the current US$750 (RM2,265) per cu m, the company can expect a reasonably fat profit margin.

Last year, Ta Ann paid out 8 sen a share in dividends to shareholders. Asked if investors could look forward to more dividends this year, he said: "Of course. The higher our earnings, the more we'll pay out to shareholders".

KLK is No.1 nitrile latex supplier

Kuala Lumpur: Ipoh-based planter Kuala Lumpur Kepong Bhd (KLK) is now the world's biggest synthetic latex producer, via its 19 per cent British unit Yule Catto & Co plc. The business is also growing and it plans to build another plant at a yet-to-be decided location in Asia.

"The demand for nitrile latex has been on the rise in the last five years.

"We foresee there is a need for an additional 30,000 tonnes every year as more glove makers switch to nitrile," said Synthomer Asia managing director Dr Brendan Catlow.

Synthomer Group's polymers business, which is wholly-owned by chemical maker Yule Catto, runs a 130,000-tonne per year nitrile latex plant in Kluang, Johor.

Yule Catto, which is listed on the London Stock Exchange, became the world's biggest nitrile latex producer two weeks ago, after it completed the purchase of Germany's PolymerLatex Group.

PolymerLatex operates a 100,000-tonne a year nitrile latex plant in Pasir Gudang, Johor. "As an enlarged group, Yule Catto now controls 40 per cent of the world's demand for nitrile latex," Catlow told at a press conference yesterday.

Currently, the world annual demand for nitrile latex is around 550,000 tonnes. The world's six nitrile latex producers, including Yule Catto, are cashing in on higher demand from Southeast Asian glovemakers.

Earlier this month, nitrile latex prices rose by between 10 and 20 per cent to US$2,000 (RM6,045) per tonne.

Two days ago at the Invest Malaysia 2011 conference, KLK executive director Datuk Lee Hau Hian told Business Times the supply of nitrile latex will continue to rise as demand picks up.

Top Glove Corp Bhd chairman Tan Sri Lim Wee Chai, who was also at the conference, told fund managers and stock analysts that his company wants to step up nitrile glove production to half of its total installed capacity of 30 billion pieces. Currently, Top Glove's production ratio of nitrile to natural rubber gloves is only 20:80.

"About 64 per cent of our production cost is made up of natural latex. The volatile swings in latex prices have had an impact on our profits. In diversifying our risks, we've started to switch some of our lines to make nitrile gloves," Lim said.

Bouyant palm oil & rubber prices benefits KLK


KUALA LUMPUR: Kuala Lumpur Kepong Bhd (KLK) expects good results on prospects of continued buoyant commodity prices, said executive director Datuk Lee Hau Hian.

His optimism is underpinned by the current global demand for vegetable oils and natural rubber surpassing supply. 

In the first 15 weeks of this year, crude palm oil prices have been averaging at around RM3,400 per tonne. Natural rubber latex is now trading at a all-time price range of above RM10 per kg.

"We should be able to perform better this year, if palm oil and rubber prices remain buoyant," he told Business Times on the sidelines of Invest Malaysia 2011 in Kuala Lumpur yesterday. He then said the group's oil palm fresh fruit bunch output is expected to increase by up to 10 per cent this year to 3.5 million tonnes.

Asked on the group's oleochemical business, he replied the plants in Malaysia had recently added 250,000 tonnes in annual capacity. "The new facilities should start commercial operation towards the end of the year," he said.

Moving on to property development, Lee said the group plans to redevelop 405ha near Sg Buloh into a new township, called Bandar Seri Coalfields, with a gross development value of RM3.7 billion. The shophouses and residences will be built over 10 years.

KLK's retailing arm, Crabtree & Evelyn, which had undergone restructuring two years ago, is growing from strength to strength.

Crabtree & Evelyn gross profits improved by 13 per cent to US$17 million (RM51.51 million) in the first quarter ended December 2010, thanks to strong year-end sales. Lee noted that the US market, where some of the earliest stores are established, contributed to 21 per cent of Crabtree & Evelyn's gross profits, an improvement from a year ago.

The best performing stores are in Asia Pacific and Australia as they contributed to almost half of the Crabtree & Evelyn's profits. "There will be more product launches this year. We also expect store growth prospects to be in Asia," he added.

Felda Global plans sweet IPO

This is written by my boss, Shahriman Johari.

KUALA LUMPUR: Felda Global Ventures Holdings Sdn Bhd, the commercial arm of the Federal Land Development Authority, plans to list some of its businesses starting with its sugar operations this year.

The initial public offering (IPO) of wholly-owned Malayan Sugar Manufacturing (MSM) may raise more than RM1 billion, sources said. This could also make it one of the biggest IPOs for the year. "Felda Global plans to list five companies and it is already in talks with a few investment banks," said one source.

Bankers expect CIMB and Maybank Investment Bank to be in the running to arrange these IPOs.

The IPOs will help Felda Global to fund its expansion. Although its financial numbers could not be obtained, the figures for its unit, Felda Holdings Bhd, give an idea of the group's immense size.

Felda Holdings' pre-tax profits have more than doubled to RM804.3 million in 2009 from 2005 while revenue has jumped by almost two-thirds to RM11.8 billion in the same period, according to its website.

Felda Global is the world's biggest tropical plantation group by land, producing mainly palm oil, followed by rubber and cocoa. It is also one of the country's biggest palm oil refiners and controls some 70 per cent of Malaysia's sugar market.

Although Felda Global's oil palm operations cover some 850,000ha, it only manages them for the settlers and the Felda Authority. It now wants to expand by leasing land abroad like Indonesia and probably as far as Africa, where oil palm trees originally came from.

Sources said Felda Global now has a five-year plan and is even thinking about the next 50 years. Its most immediate concern is to improve productivity in its current operations and subsequently, raise funds for further expansion.

Felda Global bought MSM from Robert Kuok's PPB Group Bhd in 2009 for RM1.2 billion cash. It also bought half of Kilang Gula Felda Perlis Sdn Bhd for RM26 million and some 6,000ha of land in Chuping in Perlis for RM45 million.

For MSM, its IPO will help it grow its upstream business and eventually, its downstream business abroad. In Malaysia, the price of sugar is subsidised, which means it needs to look into other markets to grow. Sugar is priced at RM2.40 per kg versus RM3.50 in Indonesia, RM3.80 in Singapore and RM2.80 in Thailand.

Sarawak expects CPO output to grow 15pc

MEDAN (Indonesia): Sarawak expects 15 per cent output growth to 2.5 million tonnes of crude palm oil this year, as more oil palms mature and bear more fruits.

In an interview with Business Times, Sarawak Oil Palm Plantation Owners' Association (SOPPOA) chairman Datuk Abdul Hamed Sepawi said the association members should be able to harvest between 10 to 20 per cent more than last year. "Many of our members' tree profile is pointing towards favourable output in the immediate years. Malaysia's final expansion frontier is in Sarawak, he added.

Indeed, with some three million hectares of agriculture land yet to be cultivated, the growth story lies squarely on Sarawak. As at December 2010, the country's oil palm planted area totalled 4.85 million hectares.

Last year, the Malaysian Palm Oil Board's data show that both Peninsular Malaysia and Sabah's crude palm oil output fell by 6 per cent and 3 per cent to 9.5 million tonnes and 5.3 million tonnes, respectively. Sarawak's production, however, went up by 9 per cent to 2.2 million tonnes.

While the prospects for Sarawak planters look bright, Hamed noted the industry faces mounting challenge from well-funded environmental activists running campaigns blackballing the oil palm industry.

Last year, environmental activist Wetlands International claimed 20 per cent of Malaysia's oil palm plantations are grown on peatland. More recently, it released a report by SarVision claiming that more than a third of Sarawak's peatland and 10 per cent of the state's forests were cleared between 2005 and 2010, for oil palm plantations.

It also alleged oil palm planting on peat displaced orangutans, tigers and elephants and increased carbon emissions.

These claims are repeatedly argued to further its "no indirect land use change" agenda, which Hamed noted actually poses a serious threat to the world's supply of cooking oils and fats. This is in addition to the obvious impact of curbing efforts to raise living standards through oil palm cultivation for poverty stricken states like Sarawak.

Apart from Wetlands' failure to adduce any credible scientific evidence that can be verified, SOPPOA chairman noted SarVision's definition of 'forest' is in line with that of UNFCCC which state that trees taller than 5m are considered as forest.

"So, how can it be said there is deforestation when oil palms fits the United Nation's definition of forest plantations like fir and cone trees in Europe?

"How can it be said that planting oil palms is highly polluting when these trees, like any other forest specie, produce oxygen for us to breathe?" he asked.

Hamed said smear campaigns by environmental activists to unjustifiably restrict expansion of oil palm plantation in Sarawak are denying adequate supply of affordable and nutritious palm oil to the world, particularly developing nations.

He reiterated the oil palm is an economic security crop for Sarawak and the country. This is because Malaysia's annual US$20 billion (RM60.6 billion) palm oil exports support some two million jobs and livelihoods along the sprawling value chain.

The importance of the oil palm industry cannot be denied. "During the Asian financial crisis of 1997-98, palm oil was one of Malaysia's most important sources of foreign exchange," Hamed said.

He referred to the United Nations Department of Economic and Social Affairs head Prof KS Jomo's working papers attesting palm oil export earnings saved Malaysia during the crisis by spurring economic growth.