Sabah CPO price plunge inevitable

The economy of Sabah is now on its last legs; will the imminent crash of the palm oil industry spell its final collapse?

COMMENT

Two decades ago the people of Sabah had a vague idea about the potentials of palm oil; apart from it being used to make cooking oil and soap, nobody thought that it would become an indicator of Sabah’s economy.

In the mid-2000s, however, it became the undisputed economic barometer of the state amidst the rise of China and Russia, notwithstanding all the price oscillations.

With a current global consumption of more than 100 million metric tons annually, plantations have been heavily criticised for accelerating the total destruction of rainforest and pushing wildlife to the brink of extinction; but the challenges only fuelled more aggressive expansion by insatiable entrepreneurs, both local and from the Peninsula, whose wealth soared as demand kept knocking at their gates.

In Sabah where more than 70% of Malaysia’s palm oil output is sourced from, crude palm oil (CPO) prices influence government policies and options because it attracted hundreds of millions of investments. Thus it played an important role in her future, providing employment to a large number of foreign workers who are an economic force by themselves and livelihood to many smallholders in the rural areas in the north, east, and south of Sabah.

The prospects were so good that even the Sabah Rubber Fund Board was contemplating planting oil palm at one time.

For those who do not know how filthy rich the big planters are, they are the people who pushed up all the real property prices and rentals in all major towns of Sabah by buying up not just one but blocks after blocks because there is nothing else left to buy with their immense monthly millions.

The economy of Sabah is now on its last legs; will the imminent crash of the palm oil industry spell its final collapse?

Where are the effects of the Economic Transformation Programme (ETP) that is supposed to stop a disaster of this nature from happening? Whoever came up with this fanciful sounding project must definitely have not expected a debacle of this magnitude.

This is what happens when the government kept telling the people of Sabah delusional fibs that we are financially healthy and giving us the impression of non-existent growth with no thought of whether it is appropriate; but reality always has a way of exposing falsehood.

Seek professional help

Economics is all about supply meeting demand; no one in the industry including the government seemed to know that whatever goes up must also come down and vice versa.

When the times are good, everyone made money; nobody cared to save up or make provisions to tackle or cope with bad times. In short, it is like building your irrigation during good weather in anticipation of flooding during the monsoons.

There is really nothing that the government could do now that the palm oil price is plummeting.

What it should have done in the beginning was to make all the preparations to cushion or mitigate the fall before it actually happens.

The government has failed miserably in this aspect of governance and has lost touch with the people when it did not see this plunge coming.

Like the recession of the mid-1980s and the Asian Financial Crisis of 1997/1998, it will be a chain reaction; bankruptcies will rise by leaps and bounds when people could not repay their bank borrowings, but the government will be bailing the banks out instead of the people.

One of the reasons foreign buyers are getting their CPO supplies from Indonesia instead of Malaysia is because of better pricing and minimal bureaucracy.

Before the government can even think of a recovery, it should put aside its undeserved pride and first seek professional help from people with the real credentials to pillow this financial plunge if it really cares for the people as it claimed.

The writer is a member of the fading Sabah travel industry, loves food and speed, speaks to all sides of the political divide, and blogs at http://legalandprudent.blogspot.com/ giving no quarters.