Drones, clones and choco­late seen buoy­ing palm oil planter

The Star Malaysia - StarBiz - - News -

KUALA LUMPUR: One of this year’s best-per­form­ing Malaysian palm oil plan­ta­tion com­pa­nies is look­ing to drones, clones and even other crops to over­come chal­lenges from labour short­ages and price volatil­ity.

“We started mit­i­gat­ing that risk two years ago – we went all-out for mech­a­ni­sa­tion,” said Peter Ben­jamin, chief ex­ec­u­tive of­fi­cer of United Malacca Bhd. “That has helped us cush­ion all these labour is­sues. It also helped us a lot as far as the re­cov­ery of the crop is con­cerned.”

Palm oil com­pa­nies in Malaysia, the world’s se­cond-big­gest grower, have been grap­pling with a tepid re­bound in pro­duc­tion from the 2015-16 El Nino as well as an in­dus­try-wide short­age of skilled plan­ta­tion work­ers. Palm oil fu­tures ral­lied 15% this half on lower-than-ex­pected sup­plies.

Out­put in most of Malaysia prob­a­bly peaked in July while pro­duc­tion growth is also slow­ing in In­done­sia, ac­cord­ing to Go­drej In­ter­na­tional Ltd di­rec­tor Dorab Mistry.

United Malacca shares have climbed 11% this year, com­pared with the 2.6 gain in the Bursa Malaysia Plan­ta­tion In­dex. The stock is the sev­enth-best per­former in the 40 com­pany in­dex.

A lack of plan­ta­tion work­ers means fruit can’t be har­vested on time, low­er­ing ex­trac­tion rates and oil qual­ity. United Malacca uses me­chan­i­cal grab­bers to col­lect fruit bunches, a typ­i­cally la­bo­ri­ous task in hot and hu­mid con­di­tions. It has also mech­a­nised fer­tiliser and her­bi­cide ap­pli­ca­tion while drones are used for aerial sur­veil­lance.

The com­pany is also boost­ing out­put through clones and hy­brid va­ri­eties that yield more oil, Ben­jamin said. It has planted about 1,000 ha in In­done­sia with clones and will plant a fur­ther 6,000 ha with clones and hy­brids over the next three years.

While the pro­gramme is ini­tially ex­pen­sive, “the higher yield and oil ex­trac­tion rate off­sets what­ever cost you put in the be­gin­ning. The pay­back is faster,” Ben­jamin said.

The grower ex­pects to boost yields to an av­er­age of 19 tonnes of fresh fruit bunches a ha in 2018 from 17 tonnes this year and to 24 tonnes by 2025. The cost of pro­duc­tion is ex­pected to be RM1,500 to RM1,600 a tonne by the end of April.

United Malacca plans to di­ver­sify into crops in­clud­ing co­coa, cof­fee, co­conut and ste­via in In­done­sia, Ben­jamin said, as it seeks to mit­i­gate risks from be­ing an up­stream busi­ness and cap­ture rising de­mand for those com­modi­ties. The com­pany ac­quired a 60% stake in PT Wana Rin­dang Les­tari to help widen its earn­ings base and re­duce its de­pen­dency on palm oil.

The com­pany started with 460 acres of rub­ber in 1910 be­fore di­ver­si­fy­ing into palm oil in 1966 and re­mains an in­dus­try min­now with 49,000 ha in In­done­sia and Malaysia, about 70% of which is planted with palm oil. That com­pares with a com­bined plan­ta­tion area of about 1.1 mil­lion ha at Sime Darby Bhd and Golden AgriRe­sources Ltd, about the same size as Ja­maica.

United Malacca is also bet­ting that its young trees will boost prof­its into 2019, ac­cord­ing to Ben­jamin. Oil palms typ­i­cally start pro­duc­ing fruit at the age of three, with yields peak­ing when trees are be­tween 10 years and 18 years old then grad­u­ally de­clin­ing, he said. Most of United Malacca’s trees are nine to 10 years of age, he said.

Pro­duc­tion that was curbed by El Nino will fully re­cover and re­turn to nor­mal next year, Ben­jamin said. Fresh fruit bunch out­put will in­crease by 12% to 15% in the year end­ing April 30, with an 8% to 10% in­crease across its Malaysian es­tates and 16% to 18% growth in In­done­sia. Earn­ings this fi­nan­cial year will be “rea­son­ably good” as the rise in out­put will cush­ion the im­pact of soft­en­ing prices in 2018, he said.

Ben­jamin ex­pects fu­tures to hold at cur­rent lev­els in the next few months and av­er­age be­tween RM2,600 and RM2,700 a tonne this year. Prices on Bursa Malaysia De­riv­a­tives closed Fri­day at RM2,817 a tonne.

— Bloomberg

Us­ing ma­chines: Work­ers us­ing mech­a­ni­sa­tion at the Bukit Seno­rang palm oil plan­ta­tion, owned by United Malacca Bhd in Pa­hang.

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