Malaysian oil palm firms may have to venture abroad

It may soon become both more cost-efficient and logical for big Malaysian palm oil firms to cultivate the crop in nations like Ecuador or Colombia. This has a lot to do with ensuring their own survival.

Experts say operational cost in Malaysia will be the most compelling reason why plantation companies must go abroad as very soon Malaysia will no longer be a cost effective country for them to operate in.

In fact, major oil palm industry players envisage Malaysia becoming the least cost-efficient producer of the commodity by 2010. While Malaysia remains today the number one producer of palm oil, it is becoming increasingly cheaper for its own plantation companies to operate outside of the country.

Players say by setting up base overseas, plantation firms could also get a better grasp on the marketplace, have the upper hand in market intelligence and could save shipping time.

The increasingly limited availability of land in Malaysia has also been another push factor which in the past few years had often been quoted by plantation companies as one of the primary factor which led them to start planting else where.

Firms such as Kuala Lumpur Kepong Bhd, PPB Oil Palms Bhd, Kulim (Malaysia) Bhd, Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd have aggressively expanded overseas, particularly in Indonesia, where land is ample and labor is cheap.

While Indonesia has become a preferred destination for palm oil plantation companies, there are other countries being looked into.

These include Ecuador and Columbia which are perfect vantage points to capture the US market, a fast-emerging buyer, and Gabon, a platform to widen the commodity's market in Africa.

A Malaysian Palm Oil Association member said : "Plantation companies which have yet to go abroad should consider doing so because a customer in the European Union (ELJ) who wants to buy a truck of palm oil would want to have a ready supply. So you have to be near your customers and set up operations wherever they are and not have them come all the way to Malaysia or let them wait for shipments to arrive. Palm oil demand as an edible oil will also continue to grow from traditional markets such as China, India, Pakistan and the EU, in line with rising affluence. By the year-end, up to three bio-diesel plants will be ready in Malaysia, and others will also enter the fray such as in the EU, the US and South Korea. Once they are in the picture, the plants will take away the rapeseed oil and there will be palm oil surpluses in 2007. The industry must add value to its products and improve marketing and distribution activities and not just focus on the upstream sector."