Palm oil downturn could cripple Sabah

Sabah Chief Minister Musa Aman cannot afford to ignore the situation with the palm oil demand and prices given that it had invested so heavily in the industry.

LAHAD DATU: The plunge in palm oil demand and prices is threatening to cripple Sabah which boasts of having the largest area of oil palm plantations.

According to the Malaysian Palm Oil Board (MPOB) in 2009, Sabah was already a leading state in terms of acreage with oil palm cultivation taking up at 1.36 million hectares out of the national total of 4.69 million hectares (ha).

But what was a lucrative revenue generator then may now push the state and its farmers into dire straits.

Former Sabah Chief Minister Yong Teck Lee warned that the economic repercussions from the shake-up in the state’s mono-culture agriculture industry could be worse than the impact of the 1997 financial disaster if commodity remains at current rates long-term.

The market has seen demand for the commodity fall along with prices to less than half their previous high of up to RM800 per tonne and farmers in the state are struggling to sell their produce.

Yong said indications that the state’s golden crop was losing its lustre could be seen in the panicky scramble by smallholders to get their produce to the market first as supply has outstripped demand and collection centres had set a limit on purchase.

An industry source said that growers are racing against each other to get to the palm oil fruit collection centres first to ensure they can sell their produce as some are already being turned away as supply had outstripped demand.

Yong said the government could not afford to ignore the issue given that it had invested so heavily in the industry.

He said that while the 1997 financial crisis which quickly spread to Malaysia had bankrupted many, Sabah’s economy was cushioned from its effects by its agriculture-based economy.

“The crisis had little effect on Sabah, particularly in the east coast, because the palm oil industry was still going strong at that time. It is palm oil that saved Sabah during the financial crisis,” he said.

“Now businesses (that have grown up around oil palm) are facing problems, so what are we going to do if the industry collapses?”

Dire implications

Yong who is the president of the opposition Sabah Progressive Party (SAPP), said the party’s economic unit had monitored the industry in the east coast and is concerned with the spin-off effects.

The implications for businesses on both the east and west coast of the state with less palm oil money going around are dire, he said.

Yong noted how years ago companies were leery of investing in setting up bio-diesel plants in the Lahad Datu POIC due to the high price of oil palm at that time.

“Now the oil palm price has gone down drastically, if the BN government is sincere in helping the palm oil operators they should buy all the oil palm fruits and initiate the bio-diesel production.

“This can be the win-win solution for both parties,” he said.

The price of palm oil fruits is now trading at RM360-RM380 per metric ton from a previous high of between RM700-RM800.

Making things worse, collection centre operators have limited their take according to commodity prices per day since about two months ago.

“If we are late (to the closest centre) we have to find another centre to sell it off and bear the additional cost for extra miles. If we fail to sell then we had no choice but to bear the losses which include labour charge, fertiliser and transportation,” planter Alan Kia told FMT.

In Tungku, Silabukan oil palm estate smallholder Leksun Injil said the downturn had placed smallholder at the mercy of buyers and the prices offered the last two months was RM290 per metric ton.

“Normally when the factories silo is full the collection centre operators will impose limit or even stop collection of palm oil fruits as the factories have no place to store the processed oil,” he said.

Intake dropped by 50%

The same, he said, occurred in 2000 when factory operators said their silos were full forcing smallholders to burn their unwanted produce in the estate to prevent the fruits from growing.

Planters here reckon that the intake by collection centres is down by as much as 50%.

Yong said that the BN state government under Musa Aman appeared unwillingly to address the issue and are instead involved in property deals and buying out prime land around the state.

“The Sabah Railways will be relocated in Kimanis soon, but the existing 53 acres of land belonging to Sabah Railways had changed hands.

“The State Library will be relocated to Suria Building, while the KK central market too will be relocated to another location, all this golden prime lands will soon change hands,” he said.

The state government’s budget is currently boosted by over a billion ringgit derived solely from oil palm industry.

Yong made his remarks to about a hundred supporters during the party roadshow here this week.