Palm oil sec­tor de­serves a break

The Sun (Malaysia) - - SPEAK UP -

OVER­TAXED, un­der-ap­pre­ci­ated and dis­re­garded – will this cur­rent stance to­wards the oil palm sec­tor be in­cor­po­rated in Bud­get 2017? Among the mul­ti­ple taxes levied on plan­ta­tion com­pa­nies in­volved in palm oil, the most per­ni­cious is the wind­fall profit tax. When crude palm oil (CPO) prices ex­ceed RM2,500 per tonne in Penin­su­lar Malaysia and RM3,000 per tonne in Sabah and Sarawak, com­pa­nies lo­cated in the former must pay a 3% wind­fall profit tax and in the lat­ter 1.5%.

Why sin­gle out grow­ers of oil palms? Did oil com­pa­nies op­er­at­ing in this coun­try pay a wind­fall profit tax when prices ex­ceeded US$100 a bar­rel? Are com­pa­nies min­ing baux­ite and gold – ac­tiv­i­ties that de­plete the soil and could cause health prob­lems for com­mu­ni­ties liv­ing nearby – also sub­jected to a wind­fall profit tax?

This year, plan­ta­tion com­pa­nies’ prof­its have been ham­mered by sig­nif­i­cantly higher min­i­mum wages for work­ers and a marked jump in the levy for for­eign work­ers. Given ris­ing labour costs, shouldn’t the thresh­old for the wind­fall tax be pitched at a higher CPO price, for ex­am­ple at RM4,000 per tonne?

In the long-term, the oil palm sec­tor faces two sem­i­nal chal­lenges – lack of land and a short­age of work­ers. Fail­ure to re­solve these con­straints de­ci­sively could im­peril a sec­tor that con­trib­uted a stag­ger­ing RM45.6 bil­lion in the coun­try’s ex­port earn­ings last year, is the sec­ond largest em­ployer and is highly prof­itable.

For Fi­nan­cial Year 2015, net profit of com­pa­nies in Bursa Malaysia’s Plan­ta­tion In­dex to­talled a hefty RM3.16 bil­lion while four of the largest listed com­pa­nies by mar­ket cap­i­tal­i­sa­tion are plan­ta­tion com­pa­nies.

Both chal­lenges to the palm oil sec­tor are nei­ther new nor un­known. In­creas­ing con­ver­sion of agri­cul­tural land to high­er­value res­i­den­tial and com­mer­cial prop­er­ties has re­sulted in a paucity of hectareage to plant oil palms. To main­tain Malaysia’s po­si­tion as the sec­ond largest pro­ducer of palm oil, pol­icy mak­ers have two broad op­tions.

First, to in­crease out­put on ex­ist­ing hectareage, Bud­get 2017 should adopt a twopronged ap­proach. Through fis­cal and other in­cen­tives, plan­ta­tion com­pa­nies should be en­cour­aged to ag­gres­sively re­plant us­ing high yield­ing but high cost plant­ing ma­te­rial while mech­a­ni­sa­tion should be stepped up to re­duce the need for man­ual labour.

Sec­ond, bu­reau­crats in Pu­tra­jaya could ac­knowl­edge Malaysia doesn’t have a com­pet­i­tive edge in grow­ing oil palms and in­stead fo­cus on two ac­tiv­i­ties that hope­fully of­fer fat­ter mar­gins – pro­duc­ing for ex­port high-yield­ing plant­ing ma­te­rial and pro­vid­ing plan­ta­tion man­age­ment ser­vices in In­done­sia and else­where.

It should be noted that in the 19th and 20th cen­tury, although no oil palms or rub­ber trees were planted in the UK, Bri­tons were en­riched by own­ing and man­ag­ing plan­ta­tions in this coun­try and in other coun­tries.

Both ap­proaches aren’t mu­tu­ally ex­clu­sive and could be adopted ei­ther si­mul­ta­ne­ously or se­quen­tially.

If the sec­ond op­tion is adopted, uni­ver­si­ties and ter­tiary ed­u­ca­tional in­sti­tu­tions must gear up to of­fer more com­pre­hen­sive plan­ta­tion man­age­ment cour­ses. Be­cause plan­ta­tion man­agers to­day need to be all-rounders, they should be knowl­edge­able in agron­omy, able to un­der­stand fi­nan­cial state­ments and pos­sess good peo­ple man­age­ment skills.

Ad­di­tion­ally, Malaysian uni­ver­si­ties and ter­tiary col­leges should be tasked with of­fer­ing more cour­ses on plant ge­net­ics, biotech­nol­ogy and agron­omy, par­tic­u­larly re­lat­ing to oil palms.

Stu­dents should also be per­suaded to opt for a ca­reer in agri­cul­ture. This could be a mon­u­men­tal task. If newly-minted grad­u­ates are ad­dicted to so­cial me­dia and on­line games, they are un­likely to wel­come the prospect of work­ing in es­tates where ac­cess to the in­ter­net is ex­tremely lim­ited, in­ter­net speed could in­hibit on­line games and there are few like-minded young peo­ple to in­ter­act with.

Stu­dents should be made aware that work­ing in the plan­ta­tion sec­tor to­day isn’t lim­ited to wield­ing a “changkul” or other ba­sic im­ple­ments. Agri­cul­ture is in­creas­ingly high tech, re­quir­ing the use of test tubes and mi­cro­scopes to iden­tify and then de­velop high-yield­ing and dis­ease- re­sis­tant plant­ing ma­te­rial.

Many plan­ta­tion com­pa­nies now use ma­chines to col­lect fresh fruit bunches (FFB) and to spray pes­ti­cides and fer­tiliser. How­ever, har­vest­ing of FFB still re­quires man­ual labour – a ma­jor chal­lenge that needs to be over­come.

While much lip ser­vice has been paid to nur­tur­ing the Asean Eco­nomic Com­mu­nity, con­crete steps should be taken to fos­ter closer link­ages.

Since sev­eral Malaysian plan­ta­tion com­pa­nies have in­vested sub­stan­tially in var­i­ous is­lands in the In­done­sian ar­chi­pel­ago, more di­rect flights from other cities – apart from Kuala Lumpur and Jakarta – should be ef­fected.

For ex­am­ple, why isn’t it pos­si­ble to fly from Ban­jar­masin in Kal­i­man­tan to Sabah or Sarawak with­out hav­ing to tran­sit Jakarta and Kuala Lumpur?

Ad­di­tion­ally, if Malaysia as­pires to be a ma­jor pur­veyor of plant­ing ma­te­rial for oil palms, these items should be freely ex­ported from this coun­try and im­ported by other Asean coun­tries.

If Bud­get 2017 re­flects the cur­rent pol­icy to­wards the plan­ta­tion sec­tor (best de­scribed as bor­der­ing on ma­lign ne­glect), then Malaysia will con­tinue do­ing what it does best – mud­dling along.

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