Drones, clones and chocolate seen buoying palm oil planter
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.