Palm oil sector deserves a break
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.