MALAYSIAN PALM OIL ASSOCIATION
M P O A - A PROFILE
BACKGROUND • Promote the future growth and profitability
of the industry.
In 1999, a rationalization exercise of the various
associations, advisory bodies and councils of the • Support members by providing specific sup-
plantation industry saw the birth of a single um- port services.
brella entity - the government supported Malaysian
Palm Oil Association (MPOA). In its wake, three ROLE & FUNCTION
large plantation sector organizations, namely the
Rubber Growers Association (RGA), the United MPOA will serve to:
Planting Association of Malaysia (UPAM) and the
Malaysian Palm Oil Growers Council ( MOPGC) • Provide representation for the industry at
were dissolved. An immediate benefit of member- both the domestic and international levels.
ship of these associations in MPOA is a reduction in
membership fees. • Lobby the special interests and needs of the
industry.
MPOA has been tasked with the important function
of balancing the needs and interests of the various • Provide long term strategic thinking and
sectors for synergy and development of the planta- direction.
tion industry as a whole. Though a crop specific
body that will focus on oil palm, MPOA will also • Shape R & D policies and priorities.
serve the interests of other plantation tree crops
such as rubber, cocoa, tea, coconut and bananas, • Support national marketing and promotion
and including non-crop issues relating to land, la-
efforts
bour, trade and pricing.
• Disseminate industry-relevant information to
As an integrated single, powerful voice, MPOA is
members.
expected to represent the complex needs of the
plantation industry more effectively particularly now
There are a host of issues and challenges facing
that the economy is being rapidly globalised.
the industry. High on the agenda are escalating
costs, growing complexity of commercial compe-
OUR MISSION tition and the increased need to focus on R & D.
At the micro level, MPOA has specifically tar-
MPOA’s mission is to ensure the long term geted the following as priority issues:
profitability and growth of the Malaysian palm oil
industry and other plantation crops including rub- • Labour shortage
ber, coconut, sugar cane, cocoa, tea, banana and • Yield improvement
pineapple. • Labour relations
• Wages and benefits
OBJECTIVES • Mechanization
• Pricing
To ensure MPOA achieves this mission, objectives
• R&D
consistent with its endeavour have been drawn up.
• Pest control
These are to:
• Production cost control
• Act as the single united voice of the Malaysian • Plantation security
oil palm and other plantation tree crop indus- • Sustainability and environmental concerns
try. • Marketing and promotion
• Represent oil palm and other plantation crop • Land matters
interests to government, various statutory • Taxation, cess and duty structures
bodies, stakeholders and external parties. • Shipping terms
Annual Report 2003 1
MALAYSIAN PALM OIL ASSOCIATION
CONTENTS
Notice of the Fifth Annual General Meeting 3
MPOA Activities in Pictures 4-5
Report of the Council 6 - 24
Roundtable on Sustainable Palm Oil (RSPO) 25 - 28
Budget Memorandum - 2004 30 - 41
Organisation Structure 44 - 61
Financial Statements for 2003
64 - 73
Malaysian Palm Oil Association
Financial Statements for 2003 76 - 91
MPOA Security Services Sdn. Bhd.
Membership Directory for 2003 94 - 108
Annual Report 2003 2
MALAYSIAN PALM OIL ASSOCIATION
ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the FIFTH Annual General Meeting of Malaysian Palm Oil Association
will be held at Dewan Persidangan, 1st Floor, Bangunan Getah Asli ( Menara ), 148 Jalan Ampang, 50450
Kuala Lumpur on Tuesday, 27 April 2004 at 10.00 a.m. for the purposes of considering the following
business:-
AGENDA
1. MINUTES
To confirm the minutes of the fourth Annual General Meeting held on 22 April 2003.
2. MATTERS ARISING
To discuss matters arising therefrom.
3. ANNUAL REPORT
To consider, and if deemed fit, to pass the Annual Report of the Council on the activities of the
Association during the year 2003.
4. ANNUAL ACCOUNTS
To consider, and if deemed fit, to pass the Financial Report of the Association, duly audited, for
the year 2003.
5. POSTAL ELECTION RESULT
To announce the election results for the new term: to declare elected the members of the
Council for the term 2004/2006.
6. SPECIAL BUSINESS
To transact any special business of which due notice in accordance with Article 13.5 of the
Constitution shall be given.
7. ANY OTHER MATTERS
By Order of the Council
M R Chandran Kuala Lumpur
Chief Executive 31 March 2004
Note: Except with the prior written approval of the Council no other person other
than the Registered Representative or the Alternate Registered Representa-
tive shall represent or act on behalf of the Member.
Annual Report 2003 3
MALAYSIAN PALM OIL ASSOCIATION
MPOA DIALOGUE WITH THE HONOURABLE MINISTER
DATO’ SERI DR. LIM KENG YAIK
Chairman MPOA Tan Sri Dato’ Abdul Khalid Ibrahim
stresses a point. He is flanked by Mr. Boon Weng Siew,
Vice Chairman, MPOA and Mr. M.R.Chandran, CEO The Dialogue Session in Progress.
MPOA. Mr. Roy Lim member from KLK looks on.
PESTA SAWIT SABAH 2003
Official Launch of the Sabah Palm Oil Fest by Guest of The Guest of Honour is under the safe hands of Chef
Honour YB Datuk Abdul Rahim Ismail. Mr.E.M.Khoo, Florence Tan, while Dato’ Haron Siraj, CEO MPOPC
Chairman MPOA Sabah is at the far left. prefers to be an observer.
SECOND DEFENCE DRIVING COURSE CONDUCTED BY JPJ AT
HANNAY CLUB, JOHORE LABIS ESTATE ON 22ND FEB 2003.
A cross-section of the participants which includes estate Tn. Haji. Azman Samsuri from JPJ Johore
managers, assistants, conductors and drivers. conducts his segment.
Annual Report 2003 4
MALAYSIAN PALM OIL ASSOCIATION
MPOA GALA DINNER
AND PALM OIL AWARENESS CAMPAIGN 23 MAY 2003
YB Minister, Dato’ Seri Dr. Lim Keng Yaik strikes the gong to Mr. Boon Weng Siew, Vice Chairman MPOA wishing
launch the Palm Oil Awareness Campaign. On stage with him are good night to the Minister as he is about to leave. On
Tan Sri Dato’ Khalid Ibrahim, Chairman MPOA and the various the far left is Dato’ Dr. Abdullah Tahir, KSU - KPU.
MPOA Branch Chairmen.
Palm Oil does taste good… The Golden Hope And now we pray for good palm oil prices…..The
Table. Guthrie table.
The Sikhs have taken over from the Scots.
The United Plantations and MPOB Table.
Mr. Norman Santa Maria, Dr. Chan Kook Weng
and Mr. Loh Hang Pai are all engrossed.
Annual Report 2003 5
MALAYSIAN PALM OIL ASSOCIATION
REPORT OF THE COUNCIL
The Council of the Malaysian Palm Oil Association Some key economic statistics :-
is pleased to present herewith its report on the
activities of the Association for the year 2003 2002 2003p 2004 f
together with the audited financial statement for
the year ending 31st December 2003. Population (million per- 24.5 25.1 25.6
sons)
Malaysian Economy 2003 Real GDP (RM billion) 219.3 230.7 244.6
The real gross domestic expanded by 5.2% in 2003 Per Capita Income 13,683 14,592 15,376
exceeding official forecast of 4.5% . Growth in (RM )
2003 was broad based and balanced across sec- Real GDP growth (%) 4.1 5.2 6-6.5
tors.
Unemployment rate (%) 3.5 3.5 3.4
The manufacturing sector grew by 8.2% on the
back of strong production growth, both in the ex- Consumer price index 1.8 1.2 1.5
port-oriented and domestic-oriented industries.
Source: Bank Negara. p - preliminary; f - forecast
The agriculture sector recorded the strongest
growth in 11 years against a backdrop of robust
exports and high prices. Value added growth sub-sector as a result of the completion of several
picked up to 5.5% driven mainly by significant in- privatised projects. On the other hand strong de-
creases in crude palm oil and rubber output. mand for housing sustained activity in the residen-
Growth was also supported by increases in pro- tial construction segment.
duction of saw logs and, to a lesser extent, other
agricultural commodities, namely vegetables, fruits, In 2003, GDP growth was private-sector driven.
livestock and fish, reflecting the positive effects of Private expenditure contributed 2.5 percentage
measures taken by the Government to increase points of the 5.2% growth rate. Both households
domestic sources of growth through increased and the corporate sector benefited from rising dis-
food production. Meanwhile, cocoa output de- posable incomes, the improving terms of trade fro
clined significantly during the year. Given the sub- commodities and strengthening external demand.
stantial increases of between 11- 42% in the prices While household incomes increased as a result of
of major commodities during the year and im- growth in wages and higher commodity prices, the
proved export volume, export receipts from agri- corporate sector generated higher profits and cash
cultural commodities rose significantly by 28.1%. flows from rising productivity and higher earnings.
Thus, the share of agriculture exports to total ex-
ports rose from an average of 6.5% in the period The ringgit continues to be pegged to the US dol-
2000-2002 to 8.4% in 2003. lar amid volatility in the foreign exchange markets
and debates on effects of the volatility of major
The mining sector grew by 4.8% largely derived currencies on the ringgit peg, thus fulfilling the gov-
through higher prices. Higher prices and improving ernments’ intended objective of supporting expan-
external demand conditions led to the strong sion of trade and investments in Malaysia.
growth in exports of primary commodities
(30.4%). However the government has indicated that it will
keep an open mind on the ringgit peg and would
The service sector, in the first half, experienced seriously consider a review if the US dollar weak-
the greatest impact from uncertainties notably the ens to US$1.40/Euro and to less than
impact of the severe acute respiratory syndrome 100Yen/US$1.
(SARS) outbreak on tourism and travel-related
activities. Fortunately, the impact of SARS proved The outlook for 2004 has become increasingly
transitory and most sub-sectors recovered rapidly optimistic, following the strong upturn in the sec-
in the second half. As a whole this sector ex- ond half of 2003. This has in turn revised most
panded by 4.1% for the year. growth projections upwards. For 2004, world
output and world trade are projected to grow at a
Growth in the construction sector moderated to faster pace of 4.1% and 5-6% respectively.
1.9% due to slow growth in the civil engineering
Annual Report 2003 6
MALAYSIAN PALM OIL ASSOCIATION
ASSOCIATION AFFAIRS Commodity Price Outlook
As at end December 2003 membership stood at If at this time last year I was seeing brightening
106 members covering 1,636,023 ha. During the faces coming out of the poor 2000/2001 crude
course of the year eight new members joined and palm oil (CPO) prices, now I am dazzled by the
four members resigned. To note that Pamol Plan- satisfied faces of the relatively good 2002 prices.
tations Sdn. Bhd merged with IOI Corporations Or do I see a shadow here and there from the un-
Bhd. and TH Ladang ( Sabah & Sarawak ) Sdn Bhd certainty of 2003 prices and beyond, not to men-
merged with TH Plantations Sdn. Bhd. tion those cast by wars and epidemics? And is the
CPO price shadow because we are uncertain
1. FOURTH AGM whether we are on a bumpy plateau, or on a ter-
race before moving up again or on the opposite
The fourth AGM of MPOA was held on 22nd April side of the crest that began in 2001? I did quote,
2003. at about this time last year, that a year can be a
long time, even in a century old industry like ours,
The full text of the Chairman’s speech at the AGM just as a day is in politics. Palm oil prices and the
is produced hereunder: events that shaped them in recent years are my
witnesses. And, of course, by this time next year
Ladies and Gentlemen, we will know what happened to prices in 2003,
and the other events that influenced the industry,
Malaysian Economic Performance 2002 as it grew older by another year.
But the problem with all this is that it is merely
The economy strengthened in 2002, with the real
hindsight. As they say it is easy to be wise on
GDP growth of 4.2% compared with 0.4% in 2001.
hindsight. The problem with hindsight is that look-
The steady export performance and the sustained
ing behind, when going forward, sometimes invites
pace in domestic demand contributed to the im-
a fall. While the occasional glance over the shoul-
proved economic growth in the year under review.
der maybe reassuring and reason for pride the vital
Generally, performance was characterised by the
vision we need is foresight – the looking out as to
broad based expansion, the benign inflation envi-
what lies, and could lie ahead, while constantly
ronment (1.8%) and the stable labour market con-
cognizant of the changes in the immediate sur-
ditions.
roundings. I will come back to this matter later.
Looking ahead, outlook is indeed challenging con-
The rise in palm oil prices in 2002 has ready rea-
sidering the less than certain global conditions. The
son in the economic bedrock of the law of supply
increasingly fluid geo-political conditions will
and demand. Following record high global produc-
probably continue to dampen the outlook on ex-
tion of oils and fats, a 4.7% increase year-on-year
ternal trade and this is not helped by the already
from 1999-2001, production rose by a smaller
sluggish performance of the major industrialised
2.2% to 120.6 million tonnes in 2001-2002. De-
economies in particular the softening economies of
mand on the other hand increased by 2.9% to
Japan and the U.S.
121.6 million tonnes in the same period while
overhanging stocks, prevalent during the past two
Still, our economic momentum appears sustainable years, declined 4.7% to 14.8 million tonnes. The
going forward, which is expected to remain do- palm oil volume movement during this period is
mestic driven and that is supported by the contin- well known; stock carry over from 2001 to 2002
ued accommodative monetary stance. At the same was reduced while production only rose margin-
time, public sector presence is expected to stay ally. These events resulted in palm oil prices rising
significant in 2003, continuing to provide the cata- to an average of RM 1,363.50 per tonne in 2002
lyst for growth. Equally vital, the strong leadership from the dismal RM894.50 in 2001, a sharp rise of
of the Federal Government, continuously sensitive 52% over the year. Palm kernel prices also firmed
to macro development, of which additional sup- in tandem in 2002, averaging at RM661.00 per
port measures are expected later in the second tonne compared with RM447.50 per tonne in
quarter of this year to better position the econ- 2001, an increase of 48%.
omy in engaging the volatile global landscape.
Broadly, expectations are for sustained economic While the above is all rapidly receding into history,
momentum in 2003, with the official forecast a hallmark of maturity - and our industry is among
pegged at 4.5%. the most mature in this country - is the taking of
lessons from history without being shackled to the
Annual Report 2003 7
MALAYSIAN PALM OIL ASSOCIATION
ruts of the past. forecasts and future prices and hence revenues, we
speculate less on the future of costs. I ask our re-
What were the lessons? searchers “Why not?” Is it because, unlike prices,
both optimists and pessimists are equally pessimis-
1. Glad to be awakened. tic on costs? And is it because the cost-cutting
technology breakthroughs get more distant, the
We are in commodities and we should never make more we move forward on their timelines?
the mistake of being lulled into complacency. Cost
competitiveness is patently obvious but there have Needless to say, if times of low prices are time to
been and will be other threatening challenges – replant, government incentives notwithstanding,
unfair trade practices in all manner of costumes, inexorable logic dictates that replanting should not
some more beguiling than others, real global con- abate during periods of high prices. The long his-
cerns such as loss of forest and food safety, self- tory of the industry recommends that we eschew
styled champions of soils and streams, of earth- the temptations of the short term for robustness
worms and indigenous tribes and the mispercep- over the longer term. Replanting with better
tions about palm oil, an excellent and nutritiously yielding clones will enhance productivity and help
sound edible oil, that never seem to go away. reduce future production costs. You all know the
figures – if national production can be inched to-
2. The day is never done. wards four and five tonnes per hectare, from cur-
rent 3.6 tonnes/hectare, the cost mirror image will
Erosion of competitiveness from productivity im- recede by an equivalent amount.
passes and rising costs.
3. As do our palms, united we should stand.
Productivity exhortations lifted the national oil ex-
traction rate (OER) to nearly 20% but further im- Palm oil continues to be the premier made-in-
provements could be increasingly more difficult Malaysia brand to the world, with high value
and call for the redoubling of effort. Changes in added, selling in larger volume, to more countries
FFB yields are more difficult to decipher given the and bought by more people worldwide than any
strong influence of recent-past and current other Malaysian product. The Malaysia oil palm
weather, as well as the coming of new areas of companies earned the country RM19.6 billion in
production especially in East Malaysia. Indeed all 2002, not to mention the many, both from within
the increase in CPO output in 2002 came from and without, it helped to feed, clothe and house.
East Malaysia, not surprising given its expansion in The formation and vibrant operation of your Asso-
planted area and where more new palms came ciation – the MPOA – is a reflection of the spirit of
into maturity. In 2002, production in Sabah and unison even as we compete between our estates
Sarawak rose strongly by 11.7% and 20.9% to 4.15 and across the globe, in a professional and, I dare
million tonnes and 0.74 million tonnes respectively. say, uniquely Malaysian way (‘boleh-lah’).
Peninsular Malaysia’s output, on the other hand,
recorded a decline of 6.1% to 7.02 million tonnes. They also say adversity tests relationships, the key
Also on the decline was palm kernel production in one for us being that between government and
2002, declining by 3% to 3.27 million tonnes. industry. The close working relationship here was
Though output rose by almost 10% to 1.11 million clearly manifest during the low price crisis. The
tonnes in East Malaysia, Peninsular’s production fell government took initiatives such as stock reduc-
by 8% to 2.16 million tonnes. tion through the utilisation of CPO and palm olein
as fuel in Tenaga and other industrial boilers; re-
Ladies and Gentlemen, planting incentives; relenting to the industry’s re-
quest to continue to recruit Indonesian labour and
So much about production movements. Turning export liberalisation for both CPO and processed
next to rising costs, we all know that only costs palm oil.
defy the Newtonian laws of gravity - which should
give us an idea of what we have to wrestle with. We thank YBhg Dato’ Seri Dr. Lim Keng Yaik,
Whether we do it by extensive economies of Minister of Primary Industries for his untiring
scale, by intensive production or by aggressive championing, support and understanding of the
value addition the bottom line is the bottom industry. We hope that the close relationship re-
line, all measures of it whether as ringgit per tonne sulting in frequent consultations and, where re-
CPO, ringgit per hectare and ringgit per man-day quired, timely interventions by the government
are equally pertinent. You have no doubt noticed will be the living proof of Malaysia Incorporated
that while we have seminars and great debates on though not often associated with agriculture.
Annual Report 2003 8
MALAYSIAN PALM OIL ASSOCIATION
We also wish to record our deepest appreciation 6. The business is doing the business
and sincere thanks to Yang Amat Berhormat
Prime Minister, Dato’ Seri Dr. Mahathir Mohamad The future of the industry, at least the short term
in his capacity as the Minister of Finance for grant- one, is increasingly here and now going by the re-
ing us the opportunity, once again, to present a cord CPO futures trading at MDEX. In 2002,
memorandum on behalf of our members on the turnover of CPO futures stood at 909,073 lots,
various issues affecting the plantation industry dur- represented an underlying notional amount of
ing the Pre-Budget 2003 Dialogue session. It must about 22.73 million tonnes of CPO trade, an in-
be noted that, our involvement is in line with an crease of nearly 90% from a year ago. This is of
integral part of MPOA’s charter - to be the single course promising and we look forward to the Ex-
voice of the industry for representation at the change expanding in both breadth and depth to
highest levels of Government and business. cater to the various businesses and sub-sectors
that trade in the industry.
4. Én garde
7. The watchtower
The admission of China into the WTO last year
will reshape the landscape of the global oils and Talking of CPO futures brings me back to where
fats industry but the old bunkers of trade barriers we started, looking at the future rising from be-
for palm oil – domestic support programmes in all yond the horizon while keenly observing the im-
manner of guises, export subsidies, linkages to the mediate surroundings. You will be aware of my
environment and social issues etc will not be read- call for the setting up of a Business and Eco-
ily removed, indeed, if anything, even more decep- nomic Intelligence Centre for the Palm Oil
tively hidden. Our watchdogs need to be con- Industry (BEIC), taking our lessons from our
stantly vigilant as the discussions become text, and once mighty natural rubber industry.
the text becomes the word, and our negotiators
not tire at ‘banging’ on the tables. I am delighted to report that the platform for the
centre has been identified. Presentations have
The MPOA, as you are aware Ladies and Gentle- been made to the National Economic Action
men, two months ago held a well-attended two Council and we are at advanced stage of establish-
day seminar on two global issues: concerns for the ing such critical Centre. I have deliberately sug-
environment and food safety and, inter-alia, the gested it be under the aegis of MIER given the ex-
related trade issues. Rather than go away, these cellent track record of the latter, and furthermore
issues can be expected to rise in importance and we do not want to set-up yet another agency.
could snowball on us if neglected. I congratulate Essentially, the proposed BEIC will manage four
MPOA for bringing matters to the fore and would core issues, namely industry statistics, national and
like to see its various sub-committees set up the international statistics, market intelligence, and
agenda to deal with them during the course of geographical including geo-political issues.
their regular deliberations. We are in the export Significantly, the proposed Centre will be responsi-
trade. Our real problems will commence from the ble for providing intelligence through the provision
buyers end, not just from our estates, and small- of a comprehensive set of database related to the
holdings or mills. Do we spend equal resources palm oil industry and research that provides analy-
dealing with them as we deal with beetle damage, sis of emerging trends. The underlying purpose is
BOD levels, screw presses and what not? to assist planning and decision making so as to bet-
ter position the palm oil industry in an increasingly
5. If you are in commodities you deserve it, challenging and complex environment.
or do we?
Conclusion
We need to relentlessly create new demand.
From edible applications we have moved signifi- All in all, I would like to stress that we should build
cantly into soaps and oleochemicals. Where do on the success of MPOA going forward. Having
we diversify into next? Is the midnight oil being lit said that, we should seek beyond the smooth run-
on bio-fuels at our research institutions? What is ning of palm oil companies but to extend our
being done beyond the collaboration with TNB to standing within the industry and beyond. In es-
burn CPO and MFO blends. Given the breadth of sence, as highlighted in the proposed formation of
the industry and its impact on the larger, especially BEIC, we continuously need to re-evaluate the in-
rural population of Malaysia, the absence of sturdy dustry inside out, strengthen our knowledge base
safety nets is a cause for concern. beyond the commodity that we produce, as well as
our understanding of the operations beyond the
Annual Report 2003 9
MALAYSIAN PALM OIL ASSOCIATION
standard mechanics of production, to comprehend 3. MPOA SECURITY SERVICES
the entire process – from cultivation to produc- SDN BHD
tion to marketing to trading as well as the ultimate
uses of the commodity produced. In other words, The wholly owned subsidiary company continues
intensifying the level of awareness, as only by un- to provide advisory services on plantation secu-
derstanding such will we better appreciate the rity matters to 34 member companies covering
hard work that we put in. 278,193 ha. The company continues to employ
one Senior Security Advisor and five Area Secu-
Furthermore, with greater understanding of the rity Advisors to carryout its functions. Currently
commodity and the industry at large, only then can services are confined to Peninsular Malaysia only.
we better engage globalisation, which apparently is
not limited to just external trade or the exports The company is well managed and has reported
and imports of the commodities produced. It is as an operating profit of RM62,768 for the year
much about coping with the internationalisation of 2003.
ownership, the ebb and flow of capital.
Finally, like at the previous AGM, my brief address
4. BRANCHES
at this AGM started off with prices as a substantive
issue. Now, even more than before, I am left with
little choice, in closing, to raise the issue of money Branches continue to play their role effectively.
and funds. Given the host of activities undertaken, The highlights for the year are:-
the Association despite sterling efforts at cost con-
trol is often hampered and hobbled by shortage of The Sabah Oil Palm Fest jointly organised by
funds. To continue with its good professional MPOA Sabah, EMPA and ISP was held on 28th &
work, the Association must re-look its funding 29th June 2003 at Sandakan, Sabah. The Fest was
mechanism. I mentioned two options at the last basically a public awareness exercise to promote
AGM: firstly we can focus on efforts towards a one the oil palm industry to the public, especially the
time Government grant sufficient to generate an school children, the tourists and non-
income stream to meet operational expenses, or governmental organisations by way of: exhibitions
secondly, increase the membership subscription on products, services and others; career opportu-
fee. Council members must see funding as an issue nities; health awareness and environmental issues.
related to sustainability – how do we continue the The Fest was officially launched by the State’s Ag-
good work given the years ahead will be even ricultural Minister, YB Datuk Abdul Rahim Ismail.
more demanding of us. A body such as MPOA
representing an industry that is a key national asset MPOA Perak Branch, for the third consecutive
cannot settle for mediocrity. We can only stake year, organized the Annual Commemorative
our future on our best professionals. Ceremony at God’s Little Acre in Batu Ga-
jah, Perak on 14th June, 2003. As in the past, the
On this note I take the opportunity to thank my Chief Police Officer, Perak and his team of Police
fellow Council members, the various main and Force extended their unstinting help and co-
working committee chairmen and members, who operation in organizing the event. The presence
have served the Association unremittingly, for and support of many well wishers, both local and
their continued support. Lastly, I must thank the overseas, continues to make this event a success.
Chief Executive and the MPOA Secretariat staff for
their sterling efforts and hard work in maintaining The Lower Perak Annual Estate Sports
an excellent track record for the Association for Gala, now in its 54th year, was successfully or-
ganised by the branch in Teluk Intan. The sport,
yet another year.
being the only one of its kind in the country, is
Thank you. organised by the estate managements of Lower
Perak since 1949 for the benefit of the plantation
workers within the district.
Tan Sri Dato’ Abdul Khalid Ibrahim,
22 April 2003 The year also witnessed the launch of the inaugu-
ral issue of the MPOA Perak Journal.
2. MEETINGS As part of its effort to provide services to its
members, MPOA Johor in association with JPJ
The Council and its Executive Committee each conducted three courses on Defensive Driving
held four meetings during the year under review. at the Ulu Remis Club, Ulu Remis Estate, Hannay
Annual Report 2003 10
MALAYSIAN PALM OIL ASSOCIATION
Club, Johore Labis Estate and EPA Training Center, Production
Ulu Tiram to equip estate workers without driving
licenses with the necessary driving skills, both the- The year 2003 recorded another bumper crop,
ory and practical. All participants were issued making it the fifth consecutive year crude palm oil
with Certificate of Attendance. The response to production has recorded a positive growth. Crude
the three courses was overwhelming and both the palm oil production in Malaysia reached 13.35
JPJ officers and participants were impressed with million tonnes, registering an increase of 12%. The
the facilities offered and the knowledge gained. increase in matured area and the higher yield per
hectare in terms of fresh fruit bunches, which
We also take this opportunity to congratulate the more than offset the stagnating oil extraction rate,
Chairman of MPOA Kedah branch, Dato’ accounted for the higher output.
Syed Abdul Aziz Al-Jaffri on being bestowed the
title “Dato” during the recent Sultan’s Birthday Peninsular Malaysia accounted for 7.94 million ton-
Honours List. nes or 59% of the total production in the country
with Sabah and Sarawak accounting for the balance
5. REVIEW OF PLANTATION of 4.52 million tonnes and 886,473 tonnes or 34%
COMMODITIES and 7% respectively.
Likewise, palm kernel production in Malaysia also
5.1 OIL PALMS
rose by 11% in 2003. Total output during the year
was at 3.63 million tonnes against 3.27 million ton-
Planted Area and Yields nes in 2002. Production in Peninsular Malaysia rose
by 12% to 2.42 million tonnes while output in Sa-
Malaysia’s oil palm planted area continued to bah and Sarawak, at 1.01 million tonnes and
expand in the year 2003. The total oil palm planted
area in the country touched 3.80 million hectares, Malaysia - Crude Palm Oil Production
registering an increase of 3.6%. With the limited 1400000
availability of suitable land in the Peninsular, the
expansion is mainly concentrated in the East 1300000
Malaysian states of Sarawak and to a smaller extent 1200000
in Sabah. Total planted area in Peninsular Malaysia
was at 2.20 million hectares. In Sarawak, planted
1100000
Tonnes
area rose by 12% to 464,774 hectares while Sabah 1000000
registered an increase of 6% to 1.13 million 900000
hectares. Of the total planted area in the country,
the matured area accounted for 87% or 3.30 mil- 800000
lion hectares. The national oil yield per hectare in 700000
2003 rose by more than 4% to 3.75 tonnes per
hectare, as per MPOB statistics. The national FFB 600000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
yield in 2003, at 18.99 tonnes per hectare, also
rose significantly from the 17.97 tonnes per hec- 2002 2003
tare achieved in 2002. The national oil extraction
rate in 2003 at 19.75% however declined slightly
Malaysia - Palm Kernel Production
from 19.91% in 2002.
400000
Malaysia : Oil Palm Planted Area 350000
2002 2003 Change
(%)
300000
Tonnes
Peninsular 2,187,010 2,202,166 0.69 250000
Sabah 1,068,973 1,135,100 6.19 200000
Sarawak 414,260 464,774 12.19
150000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Total 3,670,243 3,802,040 3.59 2002 2003
Annual Report 2003 11
MALAYSIAN PALM OIL ASSOCIATION
193,411 tonnes, registered increases of 8% and Palm Oil Prices
16% respectively.
Against a tight supply of world oils and fats, the
Exports price performance of crude palm oil improved sig-
nificantly in 2003. The competitive advantage of
The demand for Malaysian palm oil continued to the wide price discount of palm oil vis-à-vis soya-
expand in 2003. Total exports during the year rose bean oil, which on average was around US$110
by 12.5% to 12.25 million tonnes. The tight world per tonne, and the price rally in the US soya com-
oils and fats situation, the higher growth in world plex during the third quarter of the year on ac-
demand of oils and fats vis-à-vis production and count of unfavourable weather conditions, pro-
the more competitively priced palm oil vis-à-vis vided further strength to the firm palm oil prices.
other vegetable oils in the international market The increased demand for Malaysian palm oil,
were major contributing factors. which expanded by 12.5% to 12.25 million tonnes,
was also a supporting factor. In 2003, crude palm
The traditional markets of China, P.R., India and oil prices for the current month delivery position
Pakistan, with total imports accounting for 43%, averaged at RM1540.00 per tonne, registering an
were the major importers of Malaysian palm oil. increase of 13.8% over the 2002 average price of
Exports to EU also grew markedly in 2003. RM1353.00 per tonne.
China, P.R., with an intake of 2.55 million tonnes
which registered a sharp increase of 38%, emerged Likewise, palm kernel prices in the domestic mar-
as the largest importer of Malaysian palm oil. EU ket also firmed in 2003. The average price for the
was second in line with an import volume of 1.69 current month delivery position was at RM732.00
million tonnes, followed by India, 1.59 million ton- per tonne, 11% higher than the average in 2002.
nes and Pakistan 1.10 million tonnes. Other im-
porting countries that increased their intake of Ma-
laysian palm oil in 2003 were Egypt, Japan, Bangla- Crude Palm Oil Prices 2002-2003
desh and UAE.
2100
Malaysia: Export of Palm Oil By 1900
Country of Destination ( '000 tonnes) 1700
RM per tonne
1500
1593.59 (13%)
India 1676.58 (15%) 1300
1695.39 (14%)
1100
EU 1497.47 14%)
2545.69 (21%)
900
700
China, PR 1838.71 (17%)
500
1098.70 (9%)
Pakistan
ar
ay
b
n
No t
g
ec
n
M r
Au l
p
v
Ju
c
Ap
1084.72 (10%)
Fe
Ju
Ja
Se
O
M
D
564.85 (5%)
Egypt 526.95 (5%)
Japan
447.33 (4%)
427.21 (4%)
Palm Kernel Prices 2002-2003
471.63 (4%)
Singapore 432.77 (4%)
204.53 (2%)
900
Hong Kong, PR 348.25 (3%)
800
RM per tonne
217.12 (2%) 700
South Korea 200.72 (2%)
600
257.85 (2%) 500
USA 262.97 (2%) 3151.63 (26%)
2589.91(24%)
400
300
Others
200
n
n
b
g
ar
M r
N t
ay
p
ec
Au l
ov
0 1000 2000
Ju
c
Ap
Ju
Ja
Fe
Se
O
M
D
Thousands
2002 2003 2002 2003
Annual Report 2003 12
MALAYSIAN PALM OIL ASSOCIATION
5.2 NATURAL RUBBER (NR) market. The three countries produce about 80% of
the world’s rubber. The IRC, with a paid-up capital
Prices of US$300 million to support the price of rubber
at the agreed level, would also establish a supply
The performance of the national natural rubber management scheme and permissible export ton-
industry continued to improve in 2003. The aver- nage.
age prices of RSS1, SMRCV and SMR20 were at
400.64 sen per kg, 472.89 sen per kg and 378.97 ACTIVITIES
sen per kg, sharply higher than the 2002 average of
293.26 sen per kg, 347.05 sen per kg and 285.98 6.1 GOVERNMENT AFFAIRS
sen per kg respectively.
6.1.1 Accounting & Taxation Working
Planted Area Committee
The planted area of rubber in Malaysia declined in a. Pre-Budget 2004 Dialogue
2003 to 1.32 million hectares from 1.35 million
hectares in 2002. However, domestic production For the fourth consecutive year, MPOA was in-
of natural rubber rose by 18% to 697,583 tonnes. vited by the Ministry of Finance to submit propos-
The higher yield per hectare was mainly attributed als for the Pre-Budget Dialogue session. MPOA
to the firmer prices of natural rubber as well as was represented by Y.Bhg. Dato’ Yeo How, Chair-
increased demand. Total exports of natural rubber man, Accounting & Taxation Working Committee,
in 2003, at 945,888 tonnes, registered an increase Mr. M. R. Chandran, Chief Executive and Encik
of almost 7% from the year ago level. Domestic Daud Amatzin, Head Government Affairs at the
consumption in 2003 has also improved by 9% dialogue with YAB Prime Minister and Finance
with a total usage of 357,062 tonnes while imports Minister, on 20 May 2003 – Session II: “Mitigating
declined by about 5% to 436,191 tonnes. Destabilizing External Environment and Ensuring
Sustainable growth.”
The International Rubber Cooperation
We wish to record our deepest appreciation and
The International Rubber Cooperation (IRC), set gratitude to YAB Prime Minister in his capacity as
up by Malaysia, Indonesia and Thailand, has also the Minister of Finance for according the Associa-
reached an agreement in a tripartite meeting held tion the opportunity to present a memorandum on
on 9 March 2004 in Bangkok, Thailand, to set the behalf of members on various issues affecting the
price of rubber at US$1.10 per kg in the world plantation industry at the dialogue session.
PRINCIPAL RUBBER STATISTICS Mr. M. R. Chandran, Chief Executive presented
MALAYSIA ( TONNES) MPOA’s proposal at the meeting. The summary
and text of the memorandum are shown sepa-
2003 2002 rately in this report.
Planted Area b. International Accounting Standards 41
1,315.00 1,348.40
(‘000 hectares) Agriculture (IAS 41)
Stocks, at beginning 241,545 191,600
of period In Malaysia, there are two accounting standards
related to agriculture activities namely the Malay-
Imports 436,191 456,870 sian Accounting Standard MAS5 - Accounting for
Aquaculture and MAS8 - Accounting for Pre-
Production 697,583 589,366 cropping Costs. These two standards are based on
conventional approach, which is transaction-based,
Consumption 357,062 326,320 historical cost method. The main difference be-
tween IAS 41 and MAS is that IAS 41 adopts the
fair value model of income recognition and asset
Exports 945,888 886,873
value measurement. This is a major departure
from what Malaysian plantation companies have
Stocks, at the end of 216,701 241,545 been doing in the past. The general consensus is
period that, if the Malaysian Accounting Standard Board
Source : Department of Statistics, KL (MASB) adopts IAS 41, it will do more harm than
Annual Report 2003 13
MALAYSIAN PALM OIL ASSOCIATION
good to member companies. Therefore the commit- JOB VACANCIES BY STATE
tee is not in favour of adopting the IAS 41.
No State Vacancies %
6.1.2 Human Resources Working 1 Sabah 1448 40.8
Committee
2 Johor 640 18.0
a. Labour Shortage 3 Pahang 417 11.8
The Association wish to thank the Government and 4 Perak 337 9.5
the various agencies for their continued support and 5 Negri Sembilan 279 7.9
approval in permitting foreign workers to be em-
ployed in the plantation sector. However, that ten- 6 Kedah 152 4.3
ure of employment of foreign workers in this coun-
try is restricted to 3 + 1 + 1 years, thus the process 7 Terengganu 97 2.7
of engaging them is a continuous exercise. Despite 8 Sarawak 78 2.2
constant assurances by government departments to
improve the delivery systems, especially at the Min- 9 Selangor 60 1.7
istry of Home Affairs or Kementerian Dalam Negeri
(KDN), some member companies are still facing ex- 10 P.Pinang 37 1.0
treme delays in receiving replies for their applica- 11 Melaka 1 0.1
tions to recruit foreign workers. It has been re-
ported that it takes about 8 to 12 weeks to receive a 12 Kelantan 0 0
reply from KDN as compared to the stipulated 5
weeks time frame mentioned in the KDN Charter. Total 3546 100
MPOA had proposed that the government introduce
a “Green Lane” counter at KDN to cater for ap- weeders etc. who represent about 47 % of the
plications particularly from reputable and reliable vacancies because of the need for able bodied
organizations. workers for replanting operations to improve
the national productivity. This is followed by Oil
Some twenty (20) MPOA member companies, as at Palm Harvesters representing 38 %.
December 2003, reported the following vacancies in
the various categories of work to the Manpower De- MPOA is engaged with the National Economic
partment, Ministry of Human Resources. The two Action Council (NEAC), Economic Planning
significant categories are General Workers such as Unit, Prime Minister’s Department in assisting
the Consultant tasked with the Study on the Im-
pact of Foreign Workers on the Malaysian Econ-
JOB VACANCY BY WORKER CATEGORY
omy for the plantation sector. Key field survey
Category of Workers. Male Female Total %
preliminary findings are as follows: -
§ Employers make significant contribu-
Field/General Worker 1256 393 1649 46.5
tions towards the costs of maintaining
foreign workers, with plantation sector
Oil Palm Harvester 1347 15 1362 38.4
contributing an equivalent of 30 % of
total salary costs, the main items being
Rubber Tapper 91 79 170 4.8 social security (18%), transport (7.2%)
and accommodation (5.3%)
Palm Oil Mill Worker 59 7 66 1.9
§ Employers were of the view that a ban
Rubber Factory Worker 18 4 22 0.6 on foreign workers would have serious
negative effects on the viability of their
Mandore 84 20 104 2.9
company and on the economy as a
whole. About 46 % of employers claim
they would close their company in the
Coconut/Cocoa Har- 13 - 13 0.4
vester
absence of foreign workers while 78 %
believe the economy would be ad-
Others 126 34 160 4.5 versely affected.
Total 2994 552 3546 100 In essence, Malaysian employers find foreign
Annual Report 2003 14
MALAYSIAN PALM OIL ASSOCIATION
workers attractive because of availability and atti- supervising the health aspects of foreign workers
tude, despite significant on-costs paid for social should lie with the Government and not with a
security, transport and living costs. Their reduction concession company such as FOMEMA Sdn Bhd.
would cause significant adjustment problems, Employers believe that free market forces should
unless substantial improvement in production prevail so that the fee structure be determined by
methods occurs. economic consideration and not by coercion. Em-
ployers believe that a discussion to explore alter-
Polis DiRaja Malaysia (PDRM) is commended for native mechanisms for effective and efficient moni-
their continued vigilance in safe guarding the secu- toring and supervision system would be desirable
rity aspects of plantations, and the Association and are long overdue
through it’s MPOA Security Advisory Services Sdn
Bhd continue to provide the necessary framework b. AKTA FI 1951, PERINTAH FI
for participating members. (PERUBATAN) (PINDAAN) 2003
b. National Occupational Skills Standards The effect of the above legislation was an increase
(NOSS) in medical fees for all foreign workers seeking
treatment at government hospitals. The implemen-
In tandem with the governments’ vision to make tation of this ruling has created confusion to man-
Malaysia a developed nation by the year 2020, a agement at ground level as it contradicts with the
NOSS for the plantation industry (Oil Palm Sector provisions under the Workers’ Minimum Stan-
including Oil Palm Mill) was approved in 2003. The dards of Housing and Amenities Act 1990
committee members responsible for the (Act 446) which the plantation sector is re-
development of the standards comprised of quired to comply with. This statute provides for
Managers, Assistant Managers, Conductors and equal treatment to all workers irrespective
also Oil Palm Mill Managers/Engineers selected whether they are local or foreign.
from various organizations within the industry. The
document is now a government property and can Section 17. Sick workers being admitted to
be purchased from MLVK head office in Putrajaya. a Government hospital.
We wish to thank all managers and mill engineers
from selected member companies for their (1) If a worker at the time of his admission to
cooperation and contribution towards this a Government hospital was employed and
project. residing on any estate the employer shall
pay the expenses of maintenance and
6.1. 3 Health Matters Working Committee treatment in such hospital of such worker
and of any dependent of such worker at
a. Medical Examination of Foreign such rate as the Minister may, from time
Workers by FOMEMA Sdn Bhd to time, prescribe by notification in the
Gazette.
MPOA in collaboration with Malayan Agricultural
Producers Association (MAPA), Malaysian Employ- The relevant Gazette of the 5th April 1995
ers Federation (MEF), Federation of Malaysian reads… Notification of Maintenance and
Manufacturers (FMM), Master Builders Association Treatment for Estate Workers and their
Malaysia (MBAM) and SMI Association of Malaysia Dependants 1995… In the exercise of the
submitted a joint memorandum to the Ministry of powers conferred by subsection 17 (1) of
Health, appealing to the government to review the the Workers’ Minimum Standard of
scheme and allow employers the freedom of Housing and Amenities Act 1990, the
choice of doctors to conduct the medical examina- Minister has prescribed the rate of three
tion of foreign workers. ringgit per day for the expenses of main-
tenance and treatment in any government
Employers recognize that the requirement of hospital for each estate worker and his
medical examination is necessary to ensure the dependent.
health safety of the country in general and foreign
workers in particular but strongly opposed the By virtue of the above requirement, MPOA has
monopoly given by the authority to a company appealed to the government that the plantation
known as FOMEMA Sdn Bhd thus creating financial sector be excluded from the enforcement of
burden, inconvenience and wastage of management AKTA FI 1951, PERINTAH FI (PERUBATAN)
time. The general view is that the important pri- (PINDAAN) 2003.
mary duties and responsibilities of monitoring and
Annual Report 2003 15
MALAYSIAN PALM OIL ASSOCIATION
c. Occupational Safety and Health Act operation, food safety, quality and environmental
1994, Use and Standards of Exposure of issues.
Chemicals Hazardous to Health Regu-
lations 2000 6.2.2 Working Visit to Bintulu, Sarawak
The Department of Occupational Safety and The Working Committee made a working visit to
Health (DOSH), Ministry of Human Resources is Bintulu, Sarawak on 12th – 14th October 2003. The
seeking the commitment from all employers to Working Visit is part of the annual familiarization
comply with the requirements of the law to ensure exercise of the Working Committee to monitor
the safety of workers at workplace. Emphasis focus and update on the progress and development of
on the category of workers such as sprayers and the oil palm plantation industry in the country. The
the committee is working with (DOSH) to carry programme includes visits to the Rajawali Complex
out a pilot chemical health risk assessment of Austral Enterprises Berhad (Sarawak), Lavang
(CHRA) and medical surveillance in the estate, as Complex of Golden Hope Plantations (Sarawak)
only registered assessors are allowed to conduct Berhad, Bintulu Edible Oils Sdn Bhd and Bintulu
the exercise. However, member companies must Port Sdn Bhd.
adhere to all other aspects that are practicable.
6.2.3 DOBI Value
6. 1.4 Land Matters Working Committee
In view of the increasing demand by consumers for
a. Oil Palm Mill-Conversion of Land Use food safety in the entire palm oil value chain, it was
from Agriculture to Industrial (Sabah) strongly felt that more concerted efforts from all
sectors of the industry is necessary to maintain the
The State Government of Sabah passed an Order image and reputation of Malaysian palm oil. These
to rezone and convert the status of palm oil mill should be complemented by good quality palm oil
lands in the State from agricultural to industrial. and in this respect, PORAM put forward the pro-
Applying the State Land Ordinance (Sabah Cap.68) posal of the inclusion of DOBI value as an addi-
in isolation from the National Land Code has cre- tional quality parameter in the MPOA/PORAM
ated some disparity on the definition of primary Domestic CPO Sales Contract at the informal
processing unit, where the state laws are silent. luncheon meeting hosted by MPOA on 6 March
Our appeal to YAB Chief Minister of Sabah to 2003
streamline the State Land Ordinance was an effort
in futility and MPOA has appealed to the Federal The MPOA Working Committee deliberated on
Government to intervene and rationalize the is- the subject matter over several meetings as well as
sue. Our rationale is that an oil palm mill is a pri- with PORAM and POMA. In addition, a survey was
mary processing unit and as such an integral part of conducted amongst members of the Working
a plantation. The industry in Sabah is already bur- Committee on the DOBI value to determine the
dened with the additional Sabah state sales tax acceptance level. Various mechanisms were estab-
and any form of additional taxes will only add to lished and put forth to PORAM and vice-versa.
cost of doing business in the State thus losing its
competitive advantage over other states. The subject matter was also taken up at the ABC
Industry Forum which was established with the
6.2 MARKETING & PROMOTION rationale to provide a forum for the related bodies
of the palm oil industry, namely MPOA, MPOB,
6.2.1 MPOA/PORAM Interaction MPOPC and PORAM, to discuss common issues
and to come out with coordinated and effective
An informal luncheon meeting with PORAM, on approach in resolving such issues. MPOA and PO-
the invitation of MPOA, was held on 6 March RAM are currently in the process of deliberation
2003. The objective of the interaction, among oth- to finalise the issue.
ers, is to enhance cooperation between producers
and refiners, as advocated by Haji Sabri Ahmad, 6.2.4 Informal Meeting of Main and Work-
Chairman of the Main Committee and endorsed by ing Committees
the Council. In return, PORAM hosted a luncheon
dialogue on 10 July 2003. The issues discussed in- The Main and Working Committees had an infor-
clude the export of crude palm oil as a stock man- mal luncheon meeting on 2 October 2003. The
agement tool, vertical integration of the palm oil luncheon meeting was hosted by Haji Sabri Ahmad
industry, joint-venture refineries and ex-tank/ of Golden Hope Plantations Berhad, who is the
bulking facilities overseas, Malaysian-Indonesia co- Chairman of the Main Committee. Among the is-
Annual Report 2003 16
MALAYSIAN PALM OIL ASSOCIATION
sues discussed were DOBI value, meeting with more effectively as well as allow wider participa-
FOSFA International, arsenic in palm kernel cake tion and deliberation of issues as they arise. Both
and market developments. MPOA and PORAM are represented in the Tropi-
cal Oils Working Group. Other issues discussed
6.2.5 MDEX Price Outlook 2003 were the CPO initiative, IMO development and
trade education courses by FOSFA. MPOA’s Chief
The MDEX Annual Palm & Laurics Oils Confer- Executive also briefed the meeting on the Round-
ence 2003 was held on 18th – 19th March 2003 in table on sustainable Palm Oil initiative.
Hotel Shangri-la, Kuala Lumpur. The Price Outlook
Conference, which attracted some 1,000 partici- At the FOSFA International Annual Dinner held on
pants from more than 30 countries, saw mixed 6th November 2003 in London, Mr. M.R.
views over the average price outlook for crude Chandran was invited as a guest speaker to
palm oil following uncertainties in stocks and global enlighten the 460 guests on the topic of
production of oilseeds. Competition from the ‘Sustainability Development and the Next Innova-
bumper South American soyabean crop in 2003 tion Challenge’.
and the imminent US-Iraq war were the other in-
fluencing factors. 6.2.8 Asean Vegetable Oil Club (AVOC)
Price forecasts by the respective speakers at the Con- The 21st Board of Directors Meeting was held on
ference range from a low of RM1,100.00 to a high of 26 July 2003 in Jakarta, Indonesia. The issue of de-
RM1,715.00 per tonne for crude palm oil for the pe- veloping joint contracts by members of AVOC,
riod March to December 2003. In summing up, the who are producers of palm oil and coconut oil,
Chairman of the Panel Discussion said that assuming with other international bodies was the main sub-
favourable weather conditions and hence normalcy in ject of discussion. The Chairman of AVOC high-
the oils and fats market, sustained demand on account lighted that the objective of AVOC is to promote
of population and GDP growth and constant supply of and protect the general welfare of ASEAN. In this
palm oil, the average price should be in the region of context, the representative of Philippines pro-
RM1,300.00 – RM1,500.00 per tonne. posed that perhaps the ASEAN Common Contract
should be used as the basis in this initiative instead
6.2.6 MPOB Standard Surveying of developing individual contract for an individual
Procedures and Practices commodity.
MPOB has established a Technical Committee to The meeting also noted the amendments to the
look into the Standard Surveying Procedures and temperature conditions for loading and discharge
Practices for palm oil and its derivatives. The ob- of palm kernel oil, proposed by Indonesia, as well
jective is to review and finalise the guidelines for as the Philippines to include coconut oil in the
use by the palm oil industry. MPOA is represented footnote in Table 1 of the Recommended Interna-
in the Techincal Committee by Mr Charlie Ng of tional Code of Practice for the Storage and Trans-
Socfin Plantations Sdn Bhd. port of Edible Fats and Oils, which was accepted at
the Codex Committee meeting in London in Feb-
6.2.7 FOSFA International ruary 2003. The amendment was accepted as “new
work” at the Codex Commission meeting in Rome
An informal Malaysian Associations/FOSFA Inter- and will be endorsed in the next Commission
national meeting was held on 6 October 2003 in meeting. On membership, it was agreed that the
Shangri-la Hotel, Kuala Lumpur. FOSFA Interna- Coconut Association of Indonesia be invited to
tional was represented by its Chairman and Chief join AVOC and that Vietnam be also persuaded to
Executive while the Malaysian Associations com- rejoin AVOC.
prised members of MPOA, PORAM and
MEOMA. Representatives of MPOB and MPOPC 6.2.9 Steering Committee on Marketing
were also invited. The Malaysian Associations were Strategy for Palm Oil
briefed on the establishment of the Working
Groups – Tropical Oils, Soft Oils, Fish Oil, Tallow/ There are three Sub-Committees under the Steer-
Lard, Oleochemcials and Logistic Services, its ob- ing Committee and these are Sub-Committee on
jectives and modus operandi. The Working Marketing Strategy, Sub-Committee on Utilization
Groups, which only communicates electronically, of Palm Oil as Fuel and Sub-Committee on Envi-
will enable members of FOSFA to communicate ronment and Food Safety.
Annual Report 2003 17
MALAYSIAN PALM OIL ASSOCIATION
a) Sub-Committee on Marketing
Strategy
Issues discussed were focused on the estab-
lishment of ex-tank/bulking facilities overseas,
review of the Palm Oil Credit and Payment
Arrangment and more aggressive communica-
tion of the techno-nutritional advantages of
palm oil among others.
b) Sub-Committee on Utilization of
Palm Oil as Fuel The Secretariat and some members of the MPOA R&D
Working Committees in one of their joint meetings.
It was reported that the Fund now stands at about
RM150 million. The collection of the cess of Lastly, the Food Safety working committee has a
RM4.00 per tonne CPO/CPKO for the utilization working group focused on Good Manufacturing
of palm oil as alternative fuel will be maintained as Practices (GMP) in palm oil mills.
a safety mechanism and to build it up to RM500
million. 6.3.1 MPOA Agricultural Research
Working Committee (ARC)
MPOB has commissioned a legal firm to draft the
Biofuel Act 2004 which provides for the use of B5 a. Working Group on Quantification of
fuel. A RM1.5 million grant has also been given for Agrochemicals Used in Oil Palm
the testing of engines using B5 fuel. Initial tests on Plantations
engines will be conducted in-house before a con-
sumer campaign is carried out to promote the use The above Working Group was formed to develop
and acceptance of B5 fuel. an industry database of agrochemicals used in the
oil palm plantations and to assist and review the
6.3 RESEARCH AND pesticide residual projects currently pursued by
DEVELOPMENT MPOB. . As a first step, a questionnaire has been
prepared for circulation to MPOA member com-
a. Introduction panies to obtain feedback on the types of chemi-
cals and quantities used.
There are four MPOA R&D Working Committees, The issue on the alleged high arsenic content in
namely, Agricultural Research (Chairman: Dr. palm kernel expeller cake (PKEC) was also deliber-
Mohd. Hashim Tajudin), Technical Research ated by the Working Group. There was a pro-
(Chairman: Mr. Ng Say Bock), Environment posal to ban all arsenic-based fertilizers but thus
(Chairman: Tuan Haji Khairudin Hashim) and Food far the source of arsenic found in PKEC has yet to
Safety (Chairman : Mr. Ng Say Bock). The Working be identified. The Working Group responded to
Committees report to MPOA R&D Main Com- the above allegation with a brief position paper to
mittee under the chairmanship of Dr. Radzuan the Pesticide Board on 24 November 2003. MPOA
Abdul Rahman. is of the view that all chemicals used in the oil palm
sector should be properly controlled and regu-
For the term 2002/2004, the Agricultural Research lated. As a follow up to the arsenic allegation, a
has formed three (3) working groups namely the preliminary study conducted and analyzed by an
Working Groups on Quantification of Agrochemi- accredited laboratory concluded that there were
cals (Chairman : Mr. Chung Gait Fee), Trial Priori- non detectable traces of arsenic in the palm kernel
tization Initiative (Pro-tem Chairman: Dr. Vengeta samples.
Rao) and Publication Review (Chief Editor : Dr.
Gurmit Singh). As for the Technical Research, it The Working Group is also monitoring the pro-
has two (2) working groups namely Environmental posal by EPU-DANIDA study that recommends
Management in Mills (Chairman: Dr. Anhar Suki) for the introduction of a cess duty on all pesticides
and Methodology & Quantification of Product used in Malaysia. MPOA had expressed its strong
Losses (Chairman: Mr. Teoh Guan Eng). The objection to this proposal.
MPOA OER/KER monthly exchange continues to
be under the purview of the Technical Research.
Annual Report 2003 18
MALAYSIAN PALM OIL ASSOCIATION
b. Working Group on Trial
Prioritization Initiative
A review on the R&D needs for the oil palm indus-
try by the Working Group brought about the need
to prioritize R&D efforts according to the areas of
importance. The three priority areas of research
identified are:-
1. improvement in productivity via genetic im-
provement (i.e. higher oil yields, lower height
increment and resistance to Ganoderma).
Members of the MPOA Technical Research Working Com-
2. oil palm mechanization focused on harvesting,
mittee at Tanah Merah palm oil mill, an ISO14001 certified
pruning and loose fruit collection. palm oil mill
3. arresting the spread of Ganoderma disease.
MPOB has accordingly been informed of these pri- 6.3.2 MPOA Technical Research Working
ority areas in a brainstorming session organized by Committee (TRC)
MPOB on 31 March 2003.
a. Working Group on Environment
c. Working Group on Publication Review Management in Mills
The Working Group has agreed to increase the The survey undertaken by the Working Group to
content of the proposed 2nd Edition of the book all MPOA member mills by way of questionnaires
titled ‘Oil Palm And The Environment - A to gauge the compliance of the regulations as
Malaysian Perspective”. In addition to the ex- stipulated by Department of Environment has been
isting twenty one chapters, ten new chapters will completed. Based on its findings, the Working
be included. The new chapters will cover present Group has identified key areas to explore new
and emerging topics such as biodiversity in oil palm mechanism and technologies to enhance the envi-
cultivation, social aspects, NGO’s perspective, fu- ronmental management in palm oil mills.
ture research and development thrust, food safety,
versatility of palm oil biotechnology and biosafety, As an extension to the deliberations of the above
economic contribution to the Malaysian economy working group, a talk was organized on 24 March
by the palm oil industry, the sustainability indica- 2004 to create awareness amongst MPOA mem-
tors for oil palm and the application of environ- bers on green power generation from oil palm bio-
ment management systems in the oil palm industry. mass. The presentations were delivered by Pusat
Authors for the new chapters have been identified Tenaga Malaysia (PTM) which focused on develop-
and work is in progress. ing renewable energy in line with the National En-
ergy Policy that aims to generate 5% of the na-
d. Exploring Collaboration with CAB tional grid power production by 2010 from renew-
International (CABI) able sources; and by Toyo Engineering Corpora-
tion with a proposal to produce a 60 MW biomass
Dr. E. J Asteraki, the chief coordinator and CABI power plant using oil palm biomass.
(www.cabi.org ) applicant for sourcing grants from
Darwin Initiative- a UK Government initiative, was b. Working Group: Methodology and
not successful to derive the funds needed for the Quantification of Product Losses
collaborative work with MPOA and has since reap-
plied. MPOA has agreed to be an associate for the Successful palm oil mills can achieve better com-
project as it concerns the much sought after stud- petitive advantage by improving their efficiency
ies on micro-biodiversity in oil palm agro- which inevitably include controlling product losses
ecosystems. Some MPOA members have already during the extraction process. Notwithstanding
indicated their interest to lend support to the ini- this, mills cannot avoid a small percentage of
tiative, namely Golden Hope Plantations Berhad, losses. It is essential however to ensure that the
United Plantations Berhad, IJM Plantations Bhd. losses are measured, monitored and maintained at
and FELDA Plantations Berhad. the lowest possible level with the best technology
available at the mill. There is also a dire need in the
industry for harmonization of methods used for
Annual Report 2003 19
MALAYSIAN PALM OIL ASSOCIATION
benchmarking exercises. The Working Group has Charter. The MPOA Council deliberated and ap-
produced the guideline for Industry titled “Palm proved the Charter for adoption by its members
Oil Mill Product Losses Measurement and at a meeting held on 8 September 2003. The Char-
Monitoring Guidance”, First Edition and is ter declares that MPOA members will strive to
ready for circulation to MPOA members. maintain good balance between environmental
conservation and their respective business objec-
c. FAQ on Deterioration Of Bleachability tives. In doing so, it will not only care for the well-
Index (DOBI ) being of the environment but also commit to
sound management and development policies to
At present, the Malaysian palm oil contractual preserve our natural resources.
specification comprises of only free fatty acids,
moisture and impurities. It lacked a very important MPOA would like to record it sincere appreciation to
quality parameter called oxidation, which is the Dr Ian Henson, a member of the working Committee,
reaction of palm oil with oxygen to form rancid for his invaluable contributions in the deliberations per-
taining to environment related issues. Dr Ian Henson
products. CPO with a high degree of oxidation is
was a Senior Research Fellow with MPOB until recently.
more difficult of refine and products made from it
will be off-coloured, off-flavoured and have poor MALAYSIAN PALM OIL ASSOCIATION
shelf life. Notwithstanding this, an earlier review by ENVIRONMENTAL CHARTER
the MPOA Sub-Committee on CPO Quality in
2000-2002 based on PORIM findings revealed that We, the members of MPOA, hereby declare
majority of Malaysian CPO producers are capable that we care for the well being of our
of producing high quality CPO which includes the environment. We are committed to protect
desirable DOBI value. The Working Committee and conserve them for future generations.
lead by the Chairman has taken the initiative to We shall strive to maintain good balance
write a technical guideline entitled “Frequently between environmental conservation and
Asked Questions about DOBI” and will be ready business objectives.
for circulation to MPOA members.
We shall therefore aim to use natural
d. Inter-Company Exchange of resources in an ecologically sustainable
Information on OER/KER manner.
The above exchange of information by over 200 We Shall:
palm oil mills is continued and the compiled data-
base is generated on a monthly basis . This infor- 1. Establish appropriate infrastruc-
mation is used as benchmarks by various mills both tures and responsibility for environ-
in Peninsular Malaysia and East Malaysia. mental affairs within our organiza-
tions and carry out appropriate and
6.3.3 MPOA Environment Working routine assessment and reporting
Committee (EWC) procedures on such matters;
a. MPOA Environmental Charter 2. Endeavour to preserve high conser-
vation value tropical forest and
Most plantation companies would have their own natural areas of unique scientific,
environmental charters, many of which are avail- historical and cultural interest for
able in-house and/or are published in the company posterity;
annual reports. Many others may be in the process
of putting together their charters or position pa- 3. Undertake to carry out Environment
pers vis-à-vis environmental responsibility. In any Impact Assessment (EIA) studies
case, company planting manuals themselves cover on new land developments in com-
many aspects that relate positively to environ- pliance with Department of Environ-
mental care. ment (DOE) requirements;
Over the last two years, the Working Committee 4. Adhere and conform to all relevant
has been working on an Environmental Charter environmental legislation of the
that aspires to depict MPOA’s overarching declara- country;
tion for its members in addressing the environ-
mental issues. Many discussion sessions have taken 5. Adopt and implement best manage-
place within MPOA Committees in developing the ment practice at all times currently
Annual Report 2003 20
MALAYSIAN PALM OIL ASSOCIATION
established in the Industry;
6. Take judicious actions to minimize
environmental pollution;
7. Operate with due regard for the wel-
fare, health and safety of employ-
ees, the local community and the
wider public;
8. Educate our employees and our
business partners to accept, uphold
and apply this Charter judiciously.
b. Partnership with Partners for Wetland
(PfW), WWF-Malaysia on the Lower
Kinabatangan Flood Plain Project
Due to heavy involvement with the RSPO initia- palm plantation development.
tive, the Environment Working Committee has not
pursued with PfW on possible partnerships pro- d. Other Activities
jects. Notwithstanding this, MPOA is pleased to
note that Asiatic Development Berhad, a MPOA was involved in the commentary towards
member of MPOA had taken an environmentally the publication of the Guidelines for the Imple-
constructive and exemplarily approach by signing mentation of the ASEAN policy on Zero Burning
on a second Memorandum of Understanding with prepared under the auspices of the ASEAN Secre-
WWF-Malaysia to extend their reforestation tariat. The report is available at www.dec.org/
ground involving 40 hectares. This member com- pdf_docs/PNACU609.pdf.
pany initially had offered 15 hectares for a pilot
tree-planting project to re-establish damaged ripar- MPOA was also actively involved in the discussions
ian areas along Sungai Tenegang Besar. Although amongst Malaysian representatives under the Envi-
MPOA will continue to explore potential areas for ronment and Food Safety Sub-Committee chaired
partnership with PfW, it was noted that many plan- by MPOPC. This subcommittee reports to the
tation stakeholders along the said river are not Steering Committee chaired by the Secretary Gen-
members of MPOA. eral of the Ministry of Primary Industries.
6.3.4 Working Committee on Food Safety
c. High Conservation Value Forest (HCVF)
Workshop and Seminar for Malaysian Under the auspices of the MPOA Technical Re-
Palm Oil Industry search Working Committee, a new Working
Committee on Food Safety specifically covering
MPOA will be collaborating with WWF-Malaysia palm oil mills was formed to deliberate on food
to organize the above workshop and seminar. The safety related issues. The committee will look to-
issue of “Where can we plant ?” and “Where can wards creating common food safety guidelines to
we NOT plant ?” areas for oil palm expansion has include both good manufacturing (GMP) and hy-
always been constantly debated in numerous meet- giene practices (GHP), identifying critical control
ings between industry and NGOs. WWF has points and areas for improvements in the mills and
mooted the use of the HCVF concept, originally to explore cost-benefit of HACCP certification in
part of the Forest Stewardship Council’s Principle palm oil mills.
9. The above workshop will provide opportunity
for the industry to be briefed on the HCVF con- a. Working Group On Good Manufactur-
cept, available toolkits and its application across ing Practices in T Palm Oil Mill
forestry as well as other areas where HCVF has
effectively helped conservation efforts as well as One of the key issue discussed was the anticipated
safeguarding commercial interests. The industry high cost in implementing the Hazard Analysis and
will also have the opportunity to participate in the Critical Control Points (HACCP) in palm oil mills.
discussion to outline a proposed framework for Kuantan Trading Sdn. Bhd., a member com-
the development of a HCVF toolkit for use in oil
Annual Report 2003 21
MALAYSIAN PALM OIL ASSOCIATION
pany, has offered the use of its mill as a pilot mill 6.5 School Programme:
for the costing exercise. In addition, the Working Educating Students On Palm Oil
Group propose to compile the ‘MPOA Guide-
lines on Good Manufacturing and Hygiene MPOPC in association with MPOA has embarked
Practices in Palm Oil Mills’ since these prac- on a nation wide educational campaign targeting
tices are pre-requisites to implement HACCP. secondary school students. The objective of the
exercise is to create awareness on the goodness of
b. WSSD Partnership on Market Access palm oil, career opportunities in the industry and
for Palm Oil its importance and contribution to the nation as
whole. The programme involves field visits to plan-
A meeting was held between 11-13 June 2003 in tations whereby the estate management will un-
Medan, Indonesia to discuss market access for dertake a pre-arranged field visit and brief students
palm oil in relation to food safety. It was organized on oil palm production, career prospects and the
by the Ministry of Agriculture, Netherlands. Since industry in general. MPOA has assisted MPOPC in
then, MPOA has been actively involved in the dis- listing member estates who have agreed to sup-
cussions coordinated by the Malaysian Ministry of port and provide the necessary facilities for this
Primary Industries on the proposals for a G-2-G programme. As of March 2004, more than 3,000
trilateral partnership involving Netherlands, Malay- students have participated in the programme in-
sia and Indonesia on market access to Europe volving 20 participating plantations covering the
through meeting food safety and quality standards. states of Sabah, Perak, Selangor and Johor.
This partnership is proposed under the partnership
scheme of the World Summit for Sustainable De- Closely related to the palm oil awareness cam-
velopment (WWSD). Discussions are still on- paign, MPOA Head, R&D was invited by British
going. Petroleum (BP) Malaysia to brief school career
teachers at the Workshop on Encouraging Stu-
6.4 MPOA Plantation Executive’s dents to Take Up Careers in Biodiversity on 23
Forum 2003 and Gala Evening September 2003.
Dinner with the Minister of
Primary Industries, Malaysia
6.6 ABC INDUSTRY FORUM
The above forum cum dinner was held on 23 May
2003 at the Renaissance Hotel, Kuala Lumpur with MPO(A), MPO(B) and MPOP(C) have jointly
the objective of updating plantation executives on formed a Committee under the Chairmanship of
the various issues confronting the industry and at Ybhg Dato’ Lee Oi Hian called the ABC Industry
the same time to create awareness on the macro- Forum and had its first meeting on 2 May 2003.
perspective of the Malaysian Palm Oil industry. It The rational for the Committee being:
also provided an opportunity for the people on the
ground to meet and mingle with the Honorable • To provide a platform to receive feedback on
Minister of Primary Industries, Dato’ Seri Dr. Lim various issues concerning the industry.
Keng Yaik, and at the same time to hear his vision • To discuss, coordinate and provide an effec-
for the industry. tive approach for resolving common issues
within the industry.
The forum which was held in the afternoon, had • To provide a common consensus in ap-
three papers titled Oil Palm and Sustainability by proaching subjects thus avoiding duplication
MPOA; Palm Oil Nutrition by MPOB and Promo- within the organization.
tional efforts by MPOPC. During dinner, apart • To ensure amore effective deployment of re-
from the Minister’s address, included in the pro- sources.
gramme was a tribute presentation by MPOA in
recognition of the 100 years timeline of the oil The Committee will consist of Council/Board
palm industry in Malaysia. Members of MPOA, MPOB and MPOPC (at least
three from each organization); the CEOs of each
Also present to receive symbolic tokens from the organization will be permanent members; the
Honorable Minister were MPOA State Branches chairmanship of this Committee will rotate every
Chairmen who have been given the task to be the two years and members to meet at least twice a
Ambassadors of the Palm Oil Awareness and Edu- year.
cational Campaign in their respective States.
Annual Report 2003 22
MALAYSIAN PALM OIL ASSOCIATION
TERMS OF REFERENCE the seminar in both CD and book version, which is
now available for sale at MPOA Secretariat. A
In pursuing the objectives of the Committee and in review of the book titled Proceedings of the
order to achieve maximum results and impact, the MPOA Seminar 2003, Good Agricultural Practice
ABC Committee would focus on the following and Food Safety in Palm Oil Industry ( ISBN 983-
areas:- 3063-00-4) by Dato’ H.S. Barlow is appended here-
with.
1. Of immediate importance is the social safety
net aspect issue, which is to ensure the wel- Review by Dato’ H.S.Barlow
fare of the smallholders’ sector of the indus-
try. In periods of depressed prices, the ABC The MPOA is to be congratulated for its proactive ap-
will collaborate closely with the Ministry and proach to emerging problems facing the palm oil indus-
other central agencies in such plans and pro- try. The publication under review bears evidence of this
grammes to mitigate the negative impact on concern, at a time when the industry, largely because
the affected sectors. of its successful expansion, faces a shift from a produc-
2. Market intelligence - enhancing the current tion driven to a consumer driven industry. The defini-
market intelligence capability to allow the tion sounds glib enough, but what are the implications?
Committee to react or respond to situation
such as price sentiments, stocks situation, They are very considerable, perhaps the more so be-
market share, competition and market expan- cause many of the industry leaders grew up in the era
sion. of rubber, and consequently find the mindset required
3. Industrial development—the Committee of a consumer based industry unfamiliar. However, like
will examine policies and programmes that it or not, the industry must realize that the customer is
affect plantation development, productivity, always right – particularly when there is such a variety
product development and overall develop- of alternatives to palm oil on the international vegeta-
ment and commercialization as well as transfer ble oil markets.
of technology and those factors which impede
growth and sustainable development of the Globalisation, combined with vast increases in palm oil
palm oil industry. Activities relating to public- production has stimulated rivalry with other competing
ity and public awareness on palm oil at the vegetable oils, chiefly soya bean, in world markets. This
domestic level would also need effective col- has combined with an increasing environmental aware-
laboration of all sectors of the industry. ness in the developed world, leading to demands for
4. International and Multilateral Issues - identity protection (traceability), for the maintenance of
The Committee together with the public and food quality standards at all stages of production from
private sector will need to monitor and iden- field to frying pan, and for proof that the industry is
tify issues such as environment, food safety operating in accordance with principles of sustainability.
and trade policies and to recommend proac- This means the enforcement of Good Agricultural Prac-
tive strategies and action plans. The Commit- tice (GAP) on estates and compliance with all legisla-
tee will collaborate with the Ministry of Pri- tion as far as the traditional rights of indigenous com-
mary Industries and other relevant agencies in munities are concerned.
order to protect the national interest and that
of the palm oil industry in particular.
The Committee met three times during the year
2003.
6.7 SEMINARS
6.7.1 MPOA Seminar 2003
MPOA in association with qa plus asia-pacific sdn.
bhd. organised a seminar titled “Good Agricultural
Practice (GAP) And Food Safety Management In
Palm Oil Industry” over two days, 24th and 25th
February 2003 at the Putrajaya Marriott Hotel. In
view of the overwhelming response and at the
same time for the benefit of the various industry
players, MPOA has produced the proceedings of
Annual Report 2003 23
MALAYSIAN PALM OIL ASSOCIATION
What is good agricultural practice? It is likely to go a representatives of chemical and fertilizer suppliers.
good way beyond no-burning clearance and replanting, There are a number of organizations operating in-
with the need, for instance, to ensure that adequate ternationally who are involved in certification
strips of land are left uncultivated along major river schemes of the kind envisaged, and one of the in-
courses, and perhaps restrictions on the clearing of steep dustry’s problems is to decide, in conjunction with
and hilly areas, and inherently impoverished soils, as well end users and other interested parties the extent to
as strict criteria for the drainage and cultivation of peat which existing schemes or parts thereof can be
swamps. adopted for use in the palm oil industry, and to
what extent a completely new system is needed.
Will the producer who complies with these regulations This was among the issues discussed at the semi-
get a premium for his oil? Almost certainly not: if he fails nar, and out of it arose the decision to set up a Sus-
to comply, he will simply find it increasingly difficult to sell tainable Environmental Charter under MPOA to
such oil, initially into the developed world, and doubtless provide a solution to these problems.
in the not too distant future, into the large developing
markets in China and the Indian subcontinent. There There is clearly much detailed negotiation to come
have already been a number of critical articles and re- and this, if it is to produce a charter which all can
ports on these problems in some of the more important subscribe to, will need to involve all the stake-
markets for palm oil. One recent one in particular was holders. The experience of the cotton industry in
commissioned by a significant fund manager in London, Australia, where this process is far more advanced
asking users of palm oil for food products whether they indicates that the first requirement is for the grow-
were aware of the sources of their oil. A large percentage ers’ representatives to mandate full cooperation
of the respondents admitted they had no such knowl- towards the development of a system of Good Agri-
edge. The message was clear: it is only a matter of time cultural Practice (GAP). This must be combined with
before retail consumers start asking for reassurances on collaboration among all stakeholders in a commit-
these points. ment to find solutions.
Nor are these concerns restricted to estates: mills come The seminar papers reflect a number of the prob-
in for equally close scrutiny. Compliance with Hazard lems which will face the industry, and, more impor-
Analysis and Critical Control Points (HACCP) and confor- tant, the willingness of the industry to take up the
mity with Codex Alimentarius, the international code for challenges needed to face the future. This bodes
food safety, are becoming increasingly important. These well for the industry.
will require mills to be operated in accordance with inter-
national standards of food hygiene, and the use of
stainless steel and vegetable based, rather than petro-
leum based lubricants in all machinery likely to be in con-
tact with palm oil: no more crows feeding on the ffb
ramp, nor sparrows or pigeons flitting around in the roofs
of mills.
In terms of traceability, users of palm oil for human con-
sumption will be under pressure to insist that any con-
signment of oil can be traced at least to the estate where
it was grown. This requirement clearly favours large inte-
grated producers who are involved in downstream refin-
ing of palm products. It does however raise significant
problems over how to handle smallholder production,
millers operating without their own sources of ffb and
dealers on the international markets, particularly forward
traders who may not know till the last moment the physi-
cal origin of the oil traded. At the smallholder level, one
solution may be the much closer supervision of small-
holder agricultural practices by an accredited mill.
It is in response to these issues that MPOA organized this
seminar, which was attended by representatives of most
of the stakeholders in the industry, from major growers
through refiners and traders to include NGO’s, in this
case WWF Malaysia, government representatives, and
Annual Report 2003 24
MALAYSIAN PALM OIL ASSOCIATION
7. ROUNDTABLE ON sustainable-palmoil.org.
SUSTAINABLE PALM OIL (RSPO)
Any interested business organization and other
MPOA has been in the forefront and ardently en- stakeholders along the palm oil supply chain can
gaging other stakeholders including civil societies join the Roundtable process, provided they are
and environmental non-governmental organizations legal entities, by committing to the principles of
in various forums towards establishing partnership this international B-2-B platform for sustainable
initiatives that aspires to address environmental palm oil and sign unto the SOI. They will be ex-
aspects of sustainable development relating to the pected to contribute a membership fee of EURO
palm oil industry. The MPOA Council has taken a 2,000 per annum to fund the permanent Secre-
pro-active stand and has decided that it is vital for tariat. As of April 2004, 14 plantation companies
the Association to play a lead role in the on-going from MPOA membership with a total land-bank
multi-stakeholders’ dialogue process. This is in or- of 1.16 million hectares of cultivated oil palms in
der to safeguard the competitive advantage of Ma- Malaysia have indicated their intentions to sign
laysian palm oil and the need to sustain the viability the SOI, as follows:
of the business vis-à-vis other edible oils. The op- No. Member Hectarage
tions were either to lead the dialogue or be dic-
1 Asiatic Development Berhad 48,140
tated to by monologue given the heightened world-
wide concerns environmental issues can generate, 2 Boustead Estates Agnecy Sdn Bhd 70,537
whether justified or otherwise. In this respect, the 3 Consolidated Plantations Berhad 76,281
MPOA Environment Committee has been given the
4 FELDA Plantations Sdn Bhd 349,028
mandate to pursue with the above objectives. In
the process, MPOA was invited by WWF-Malaysia 5 Golden Hope Plantations Berhad 122,877
and WWF-Switzerland in December 2002 to par- 6 IJM Plantations Berhad 23,316
ticipate in the Organizing Committee of the Round-
7 IOI Corporation Berhad 120,201
table for Sustainable Palm Oil. The decision to par-
ticipate arrived after a series of consultative meet- 8 JA Russell & Co Sdn Bhd 2,848
ings within MPOA. 9 Kuala Lumpur Berhad 100,155
10 Kulim (Malaysia) Berhad 29,801
Subsequently, a business-to-business (B2B) multi-
11 Kumpulan Guthrie Berhad 100,293
stakeholders’ Roundtable on Sustainable Palm Oil
(RSPO) was organized by a seven member Orga- 12 PPB Oil Palms Berhad 60,768
nizing Committee, comprising of Aarhus United– 13 TH Plantations Sdn Bhd 30,174
UK; Golden Hope Plantations Berhad–Malaysia;
14 United Plantations Bhd 26,501
MPOA–Malaysia; Migros–Switzerland; Sainsbury’s–
UK; Unilever-Netherlands and World Wildlife Fund Total 1,160,920
for Nature–WWF Switzerland. The Organising
Committee has now expanded in 2004 to include A governing structure for the RSPO has also
an additional four other members, namely : Loders been firmed up. The Roundtable will have a
Croklaan–IOI, Malaysia; Pacific Rim Palm Oil Pte. Board consisting of 16 members from 7 interest
Ltd– PNG; Karlshamns AB–Sweden and Bodyshop– groups. Four (4) seats i.e. 25% will be allocated
UK. MPOA official representative is Dr Vengeta for plantation companies and another four (4)
Rao (took over from Tuan Haji Khairudin seats i.e. 25% for NGOs ( 2 each for environ-
Hashim, who became Golden Hope’s representa- mental and social/developmental interest
tive ). The MPOA Secretariat provided the back-up groups) and the balance eight (8) seats, i.e. 50%
support. will be equally shared between the other four (4)
interest groups, namely, traders/processors, con-
Prior to the Roundtable meeting, MPOA organized sumer goods producers, retailers and investors/
a preparatory workshop on 24 July 2003 to brief bankers. A Roundtable Secretariat to be lead by
the Malaysian stakeholders of the Roundtable its first Secretary-General, Mr. Teoh Cheng
process and provided numerous briefings to other Hai will be tasked to undertake the operational
stakeholders both in Malaysia and Indonesia. The work as decided by the Governing Board to be
inaugural Roundtable meeting was held in Kuala established by end April 2004. The Secretariat
Lumpur on 21-22 August 2003 attended by 193 will initially be based in Kuala Lumpur. Subse-
participants from over 16 countries. The report quently, the RSPO is expected to move ahead to
covering the event is available at MPOA website initiate projects relating to defining and imple-
www.mpoa.org.my. Other related information menting sustainability projects that will cover ex-
pertaining to RSOPO can be found at www. isting plantation management and expansion in
Annual Report 2003 25
MALAYSIAN PALM OIL ASSOCIATION
new plantations, developing financial and invest- ble on Sustainable Palm Oil has proved to
ment criteria and chain of custody. be of utmost importance and significance to the
international well being of the palm oil industry.
The Inaugural Roundtable Meeting Before I embark on my observations on the out-
21 & 22 August 2003, Kuala Lumpur come of this Roundtable, I should like to start by
bringing to your attention on what sustainable
Philosophy of the Roundtable development concept is perceived to be.
( Extracts from the Opening Address by Tan Sri SUSTAINABLE DEVELOPMENT
Dato’ Abdul Khalid Ibrahim, Chairman-MPOA
21 August 2003 ) • devel-
The great achievement of the sustainable devel-
opment concept is that it broke with the old
“ The Roundtable is an initiative to promote sustain- conservationist approach to natural resources
able production of palm oil, including the three pillars other
and its tendency to place Earth’s other species
of sustainability… People, Planet and Profit. It is NOT above people.
a green initiative on palm oil and environment. It is a
partnership between business players and WWF and • Conservationists, many of them scientists in the
therefore it is NOT exclusively a WWF project. The tradition of Julian Huxley, rendered the world a
Roundtable is a partnership that fully recognises the great service in alerting us to the assault we
own responsibility of growers to define their sustainabil- were making on nature.
ity standard and is NOT an attempt of the palm oil
market at dictating production standards to the grow- • they
Now they are helping to spread the broader
ers. It is an initiative to promote sustainable palm oil, i. message that unless we integrate environment
e. an initiative that stimulates best management for and development, unless we care for Earth
existing plantations and sustainable forms of land use through a strategy for sustainable living, we will
planning for new plantations and is therefore NOT an imperil the survival of all life.
initiative to save only the forests. The Roundtable is an
initiative that leaves it to the business players to deter- • children
Ensuring that the children of our children have
mine what extent certification, identity preservation at their disposal as much of Earth’s bounty as
and labeling are effective tools to stimulate sustainable conservation-
we do is a central task of today’s conservation-
palm oil and is NOT a certification and/or labeling per- ists.
se initiative. It is a place where business partnerships
will be shaped and business ideas will be tested and is • We cannot save the freshness of the air or the
NOT a debating club. purity of the water or the goodness of the earth,
we cannot save the forests or the elephants or
The Roundtable is therefore an unique platform for the tigers, unless we save the people.
starting and implementing initiatives for producing
palm oil sustainably; a product-centric forum, where • We cannot ask endangered people to rescue
focus is on palm oil, and the presence of industry mak- the planet from the many threats it faces unless
ers and producers from all over the world offer partici- we link Earth’s salvation to their own.
pants a unique opportunity to stimulate learning
through the exchange of such diverse background and • Poverty threatens the survival of the poorest.
experience. It is also the responsibility of palm oil pro-
ducers to comprehend the impact of its global reach,
• To appeal to them to join in saving the planet is
the profound effect beyond the industry, essentially, its
pointless unless we link it to their own survival.
role in the development of the broad economy, its wel-
fare and the community at large; stressing further the
• Simply to tell those at the margin of existence
significance of sustainable palm oil ”.
not to cut down the forest or not to have many
(Closing Address by M. R. Chandran, Chief children when they see both as necessary to
Executive MPOA and Chairman of the first their survival is to be not only insensitive to their
Roundtable Meeting.) predicament but also downright provocative.
• commit-
The poor need to share in the human commit-
Distinguished Participants,
ment to change so that life on the planet can be
sustainable for all.
• We have come to a successful conclusion of the
two days Roundtable. My task has been made • But to make an appeal for that commitment
easier by the fact that this historical Roundta-
Annual Report 2003 26
MALAYSIAN PALM OIL ASSOCIATION
credible, the rest of the world must address not ment of sustainable palm oil.
pov-
merely its own salvation but the relief of pov-
erty as well. • The process of the last two days has indeed
been very constructive and the ouputs have
• We must save the many who are poor because been encouraging.. Overall , I feel that the
they are poor; it may well be the surest way of pro-
Roundtable has met its primary objective of pro-
saving the few who are rich. moting sustainable palm oil.
• We must be conscious of the fact that poverty • Round-
Over 16 countries are represented at this Round-
is an incentive to neglect the environment. table with varying interests that represent the
entire value chain and stakeholders. Different
OUTPUT OF THE ROUNDTABLE agenda
stakeholders with different agenda have come
objec-
together at this Roundtable with a common objec-
• We agree to work together to define and im- im-
tive to deliberate and try to provide a blueprint
ple
plement best practice through an industry code
or something similar on the basis of continuous for sustainable palm oil.
improvement.
• It is encouraging how the various stakeholders
• sus-
We agree that palm oil can be produced sus- have taken the initiative to work together at this
imen-
tainably taking into account the three imen- Roundtable. Two or three years ago such an
sions of sustainability: differ-
event would not have been possible as the differ-
ent stakeholders could not see eye to eye on is- is-
Ø profitable to the growers and the entire
sues.
supply chain
Ø in the interest of the people especially the
rural communities in developing countries, • A large part of the Roundtable owes its success to
and the way that WWF has moved with a steep
Ø in the interests of the environment (forest). learn indus-
learning curve on dealing with business and indus-
try. The industry itself has also played a key role
• We agree that the best practice should be of course, and there has had to be learning on
more widely adopted and that we all should the industry side on how to engage with NGOs.
learn from these proven methodologies.
• This Roundtable in my judgment is the start of a
• Priority is to find solutions for bulk commodities
market in an economically sustainable manner. journey, and to be effective, credible to the world
and sustainable, it has to take concrete steps or
• It is very encouraging to see that many of the produc-
actions. It is imperative for all present…. produc-
companies in the entire supply chain and the ers, processors, manufacturers, traders, industry
civil societies present here are committed to governmen-
associations, research organizations, governmen-
work on concrete projects under the umbrella ac-
tal organizations, civil societies and all other ac-
of the Roundtable. tors in the supply chain to now take the
Intent”
“Statement of Intent” that has been discussed
• Therefore my feeling is that we should now
organi-
here, deliberate internally within your own organi-
Round-
focus on working on these projects. The Round-
table is an industry initiative, therefore the com- sations and sign on to the document with minimal
com-
panies who are here today should show to the delay.
‘talk-show’, plat-
world that this is not a ‘talk-show’, but a plat-
form for concrete actions towards sustainable • I have taken more of your time than I had in-
palm oil. tended. I trust all of you have enjoyed this Round-
table and I hope when we next meet for Roundta-
CONCLUSION ble 2, we will be able to talk more positively of the
implementation of initiatives discussed and more
• summing- Roundta-
In summing-up, I would say that this Roundta-
particularly, on the three dimensions recognized to
ble is a landmark event. This is the first time
various players in the supply chain have been make up sustainability.
involved in a multi-stakeholder engagement
multi- engagement ——————————————————-
procure-
process to promote production and procure- At the end of the Roundtable meeting, a non-legally
binding Statement of Intent (SOI) was put together.
Annual Report 2003 27
MALAYSIAN PALM OIL ASSOCIATION
STATEMENT OF INTENT ing on the following tasks:
Roundtable on Sustainable Palm Oil
a. research and development of definitions and
This Statement of Intent is a non-legally bind- criteria for the sustainable production of
ing expression of support for the Roundtable palm oil;
on Sustainable Palm Oil, a business initiative
by b. undertake practical projects designed to fa-
Aarhus United, Golden Hope Plantations Ber- cilitate implementation of sustainable best
had, Malaysian Palm Oil Association (MPOA), practices;
Migros, Sainsbury’s, Unilever and WWF.
c. development of solutions to practical prob-
Kuala Lumpur, 22 August 2003 lems related to the adoption and verification
of best practices for plantation establish-
A. Preamble ment and management, procurement, trade
and logistics;
The signatories of this Statement of Intent rec-
ognise that: d. acquisition of financial resources from private
and public funds to finance projects under
1. the Roundtable on Sustainable Palm Oil is a leading the auspices of the Roundtable on Sustain-
example in the general trend towards sustainable able Palm Oil; communication of the Round-
agriculture; table’s work to all stakeholders and to a
2. due to its intrinsic qualities, palm oil is an important broader public.
and versatile raw material for both food and non-
food industries, which contributes to the economic 2. Commit themselves to:
development of the producing countries and to the
diets of millions of people around the world; a. actively and constructively communicate and
3. sustainable production implies legal, economically support the continuation of the Roundtable
viable, environmentally appropriate and socially process and the implementation of Roundta-
beneficial management and operation; ble projects;
4. sustainability must result from consultation and
informed consent by all stakeholders, that may in- b. develop and implement plans of action to
clude residents in areas of production, palm oil plan- their best ability within their own organisa-
tation companies, smallholders, actors along the tions, in accordance with the framework of
entire supply chain, consumers, governmental, inter- the Roundtable process, to promote sustain-
governmental and non-governmental organisations; able palm oil production, procurement and
5. most observers, from both the industry and outside, consumption;
would agree that the best companies and small-
holders within the palm oil sector are models of sus- operate transparently and inform the Round-
c.
tainability, in terms of economic performance as table regularly on plans, activities and results
well as social and environmental responsibility; in promoting sustainable palm oil produc-
6. not all palm oil is being produced sustainably at tion, procurement and consumption.
present, and there is a risk that expansion of oil ————————————————————
palm plantations could be running counter to sus- –
tainable development in various parts of the world;
7. progress must be made to produce more palm oil
sustainably, to make sure that expansion of oil palm
plantations will take place on lands that do not have
a high conservation value.
B. The Roundtable
The Roundtable will promote the development
of a credible definition of sustainable palm oil
production and implementation of practices
that comply with this definition. Therefore, sig-
natories to this Statement of Intent will:
Members of the Organising Committee of the RSOPO
1. Actively participate in the Roundtable on
at a physical meeting in MPOA office, Kuala Lumpur on 19-20
Sustainable Palm Oil, which will be work- January 2004
Annual Report 2003 28
MALAYSIAN PALM OIL ASSOCIATION
Annual Report 2003 29
MALAYSIAN PALM OIL ASSOCIATION
MEMORANDUM BELANJAWAN TAHUN 2004
DARI MALAYSIAN PALM OIL ASSOCIATION
THEME: “MITIGATING DESTABLIZING EXTERNAL ENVIRONMENT
AND ENSURING SUSTAINABLE GROWTH”
SUMMARY
In palm oil, we have a great natural competitive advantage amongst the competing eight major globally
traded edible oil crops. Oil yield is the highest and production cost the lowest. This natural advantage
was augmented and leveraged by good agricultural practices, supportive government policies, a reliable
labour force and excellent infrastructure. It is why we have been the number one for over four decades.
Malaysia today is the largest producer and exporter of palm oil and has gained a share of 48% of world
palm oil production and 60% of exports. Combined with palm kernel oil and oleo-chemical exports Ma-
laysia has become the world’s largest exporter supplying 30% of world’s trade in oils and fats in 2002.
Thus Malaysian palm oil has become a significant contributor to the global oils and fats economy. But can
the global primacy that we have toiled so hard to keep be sustained in the face of an onslaught of both
natural and unnatural factors?
Apart from rapid expansion of hectarages in soybean and oil palm by low cost producers in South Amer-
ica and Indonesia respectively, palm oil’s natural cost advantage is being eroded by genetically modified
high yielding clones and hefty farm subsidies. Despite the imbalances and biases of WTO Agreement on
Agriculture, we still have to content with discriminating tariffs and are in danger of facing new non-tariff
barriers from introduction of subjective criteria such as a need for producers to comply with ‘sustainable
agricultural practices’, international food safety standards and the like. The oil palm industry is now sub-
ject to ever increasing scrutiny in terms of its environmental impact on the wider social and economic
environment in Southeast Asia. Thus, palm oil is constantly buffeted by a myriad of destabilizing external-
ities.
Within Malaysia, the industry’s competitiveness and future is also being affected in a very significant way
by two changing trends in recent years; i.e. the need to import labour to sustain the industry and the sig-
nificant shifting of hectarage, from the excellent infrastructure supported Peninsular Malaysia to East Ma-
laysia, particularly Sabah, where in comparison, support infrastructure is very poor.
The industry is realistic in accepting the limitations for hectarage growth within Malaysia. However, sus-
tainable growth for the palm oil industry in the context of higher productivity and cost efficiency, quality
market penetration, higher value added, wider scope of utilization and expansion including downstream
operations and beyond Malaysian shores, should be the objective and shared custodial responsibility if
modern plantation agriculture is to be part of Malaysia Inc.
Annual Report 2003 30
MALAYSIAN PALM OIL ASSOCIATION
In order to address the changing trends and counter the destabilizing externalities so as to achieve the
objective of sustainable growth as mentioned above, the following needs to be addressed:-
1. Key infrastructure improvements (i.e. roads, ports, electricity, water) in Sabah to provide basic
support which the industry urgently needs and to enable the natural trend of “relocation” of oil
palm estates from Peninsular to East Malaysia to continue without a drastic erosion of competitive-
ness in due course. To note that effective this year Sabah government has revised the sale tax on
CPO to a flat 5% of turnover which will translate to nearly RM 300 million in contributions from
producers to the state treasury this year.
2. Foreign labour utilization policies that will not result in reduction of productivity (constant change
of labour force) and higher avoidable employment cost. Whilst the need to address security and
other issues is fully appreciated, labour cost and labour productivity needs to remain competitive.
3. Greater latitude for duty free export of CPO to counter discriminating tariff barriers.
4. Greater incentives for investments in R&D and new business ventures in related fields to extend
the utilization and market scope for palm oil. Risk of failure and need for gestation period can be
mitigated by group tax relief and higher incentives for R&D.
5. Incentives in form of higher tax deductions for the industry to address subjective or qualitative cri-
teria in increasing market acceptance of palm oil such as ISO, EUREPGAP, HACCP status certifica-
tion and modifying agricultural practices to address environmental concerns.
6. To reconsider the ban on paraquat following a study on the adverse economic impact resulting
from the ban. A joint study sponsored by Malaysian Palm Oil Association (MPOA), National Asso-
ciation of Smallholders (NASH) and Malaysian Estate Owners’ Association (MEOA) reveals that the
ban will reduce the Malaysian palm oil industry’s ability to compete internationally and also reduce
its ability to invest in replanting activities. The study entitled “The Economic and Social Impact of a
Paraquat Prohibition in Malaysia” showed a cumulative loss of RM 2.73 billion to the agricultural sec-
tor over ten years. The decision which was made by the Pesticide Board in August 2002 did not
have the consultation of the user groups comprising 3,200 estates and 500,000 oil palm and rubber
smallholders in Malaysia who have used the product for over 40 years. Besides, the reasons given
for the ban does not have its justification. We believe there is a need to review the decision in
light of the economic impact on the industry.
Malaysian Palm Oil Association (MPOA)
20 May 2003
Annual Report 2003 31
NATIONAL BUDGET 2004: MPOA's PRE-BUDGET DIALOGUE PROPOSALS
"Mitigating Destabilising External Environment and Ensuring Sustainable Growth"
ISSUES RAISED PROPOSAL RATIONALE
RECRUITMENT COST OF FOREIGN
A WORKERS
Annual Report 2003
1 Levy - RM360 per worker per annum To reduce to the original Foreign workers make up more than sixty percent (60%) of the
rate of RM240 per worker work force in the plantations. Education, urbanization and i n-
per annum dustrialisation have effectively dried up any available local work
force. Efforts to mechanize operations by MPOB in tandem
with private companies have yielded limited success. The core
2 Work Permit - RM60 per worker per To be reduced to RM30 critical activities of the industry such as harvesting is still l abour
annum per worker per annum dependant and based on current scenario, this dependency is
expected to continue for another two decades. Consistent and
equitable labour recruitment policies are critically required to
sustain this important industry.
3 Processing Fee – RM10 per case To be waived Despite support from the Government to allow employment of
foreign workers, administrative delays by the Ministry of Home
Affairs in approving applications continue to affect productivity.
4 Visa-variable (RM15 – RM50) To be waived
(Depending on nationality)
5 Workmen's Compensation (Foreign To reduce to RM60 nett As of December 2002, members of the Malaysian Palm Oil A s-
Workers' Compensation Scheme) per worker per annum sociation reported a shortage of 19,713 workers of which 46%
(Insurance) Order 1998 -Premium are for Field/General Workers and 39% for oil palm harvesters.
payable by an employer to the insurer
at RM72 per worker per annum plus
5% service charge
MALAYSIAN PALM OIL ASSOCIATION
32
ISSUES RAISED PROPOSAL RATIONALE
Annual monetary losses to members as a result of oil palm ha r-
vester shortage translates to:-
[1] 7,688 harvesters X 1.5 tonnes of FFB per day X 300 work-
ing days = 3,459,600 tonnes of FFB.
[2] Based on an oil and kernel extraction rates of 20% and 5%
Annual Report 2003
this equates to 691,920 tonnes of crude palm oil (CPO) and
172,980 tonnes of palm kernel (PK).
[3] Based on year 2002 average price of RM1,353 per tonne
CPO and RM 661 per tonne PK the loss amounts to RM1.05
billion.
The recruitment of foreign workers is not by choice but of n e-
cessity. Employing foreign workers is expensive. Apart from pay-
ing the same wages and benefits as local workers , addi-
tional costs are incurred in bringing them from their source
countries. This plus statutory levies, fees and taxes have i n-
creased the labour cost component appreciably which now co n-
stitutes nearly 40% of CPO production cost.
Wages paid to workers have been increasing over the years.
Collective Agreements are triennially reviewed and revised. A
case in point is the recently concluded wage agreement between
MAPA and NUPW which resulted in about 8% wage increment
and which also assures a guaranteed minimum monthly basic of
RM350.00 as a safety net . To note the minimum basic wage
paid to a worker is RM15.10 per day worked. In addition to the
basic wage, the worker is also paid a monthly Outturn Incentive
of RM40.00 and a price/prosperity bonus of RM3.00 (under cu r-
MALAYSIAN PALM OIL ASSOCIATION
rent palm oil prices) for each day worked.
33
ISSUES RAISED PROPOSAL RATIONALE
This translates to RM510.00 a month based on 26 days work.
As for oil palm harvesters and rubber tappers who are piece -
rated, their average monthly earnings work out to RM900.00
and RM780.00 respectively.
Annual Report 2003
The plantation industry is required by l aw to provide housing,
water, light and other basic amenities such as health care, clinics,
crèche facilities etc by virtue of the Workers' Minimum Sta n-
dards of Housing and Amenities Act 1990. These additional
non-cash benefits to workers translates into RM350 per
worker per month.
6 FOMEMA Sdn Bhd - RM180 per e x- To reduce to RM120 per The current rates are excessive and burdensome. Instead of a l-
amination for male workers and per examination and to lowing only one company to monopolize the conduct of medical
RM190 per examination for female reduce the frequency of examination, rates ought to be determined on a free market b a-
worker, annually. examination to once in sis as practised in Sarawak. Market forces will bring out the ne c-
two years. essary quality at competitive pricing.
7 In Sabah, the New Immigration Policy To revert back to the ea r- Dependents now enter the State as workers subject to the same
does not allow families (Dependents) lier policy which allows d e- levies and work permit fees. Previously they were treated as
of foreign workers to accompany pendants to accompany dependents of the worker utilizing the same passport as travel
them. workers. document. This has increased recruitment costs without pr o-
ductivity improvement. Sabah requires a total of 178,000 wor k-
ers to cover 1.07M ha. based on a labour land ratio of 1:6.
About 90% of these workers are foreigners. The current rate
of abscondment is at an average of 10 - 15% thus incurring losses
to the industry. At the current rate of levy this translates to
nearly RM64 M per year or equivalent to RM60.00 per ha.
MALAYSIAN PALM OIL ASSOCIATION
34
ISSUES RAISED PROPOSAL RATIONALE
ISSUES AFFECTING PLANTATIONS
B GENERALLY
1 Replanting Incentive Scheme
To encourage replanting of old and To extend the scheme to Accelerated replanting campaign is crucial to reduce high stoc k-
low productive areas, the Government year 2004/ 2005 by provi d- pile of CPO and at the same time to encourage replanting with
Annual Report 2003
through MPOB introduced a incentive ing an additional RM200 high yielding new planting materials to elevate the national oil
scheme of RM1,000 pe r hectare for million and for areas yield per hectare from current level of 3.6 tonnes to 4.8 tonnes
palms over 25 years for the period where the oil yield per by the year 2005 or by 33%. This is critical for the sustainab ility
2001 to June 2002. hectare is below 2.5 tonnes of the oil palm agriculture in Malaysia. This would ensure our
of CPO, instead of using competitive edge over our competitors.
the 25 year age criteria.
Currently 20 % of total
planted area are over 19
years of age, i.e. 728,000
hectares.
2 To accord double Deduction for Cess To recognise the R & D MPOB and MRB are two of the premier Research Institutions in
Contributions to Malaysian Palm Oil portion of the Cess pa y- the country. The Cess payments from the industry to these bod-
Board (MPOB) and Malaysian Rubber ments of RM11 per tonne ies is purely for research and marketing & promotional activ i-
Board (MRB). CPO/PKO and 3.85 cts/kg ties. Such activities are essential for the industry to retain its
rubber as contributions to competitiveness and pre-eminence as a leading producer of palm
approved Research Inst i- oil and rubber products in the world.
tutes.
3 Accelerated Agriculture Allowances
for Estate Buildings
'i Residential buildings for the welfare of To increase to 50 % per This will encourage plantation owners to build new or replace
employees are currently accorded 20 annum existing quarters and thereby improving the quality of life of
% tax allowance per annum workers in the plantation sector. Rural and plantation sector
quality of life should not fall behind the rest of the country.
MALAYSIAN PALM OIL ASSOCIATION
35
ISSUES RAISED PROPOSAL RATIONALE
ii Other buildings are currently accorded To increase to 20 % per This would help modernise plantation facilities paving the way
10 % tax allowance per annum annum for automation and increased productivity.
4 Accelerated Expenditure incurred for To increase to 40 % per This would encourage plantation companies to invest in new
the treatment of Agricultural waste/ annum technologies which are very costly in line with national efforts to
effluent - Plant & Machinery are cu r- protect the environment.
Annual Report 2003
rently accorded 14 % tax allowance per
annum.
5 Abolition of Import Duties/Sales Tax
'i Tractor spare parts, implements and To abolish all import du- With more oil palm areas coming into maturity and with the
machinery for palm oil mills. ties and Sales tax on spare need to construct more palm oil mills, the use of machinery, i m-
parts. plements and spare parts will increase. Reduction in duties
would greatly reduce the capital outlay required for such oper a-
tions and also spur efforts for greater mechanisation.
ii. Compound Fertilizers-currently 5% To abolish all import du- Fertilizers are a significant and substantial cost item for
ties the industry. With compound fertilizers fewer applic a-
tion rounds are required as opposed to straight fertili z-
ers, thus saving on labour.
iii. Paraquat salts - (2933.393.100) 10% To abolish all import du- Paraquat salts are not manufactured in Malaysia, the duty of 10%
ties imposed on paraquat salts should be waived. It will benefit the
estates and smallholders.
iv. Diesel - Plantations are currently To accord public con- Diesel usage in the plantations are mainly for tractors, lorries
treated as an Industrial user and a c- sumer rates based at and mechanical equipment. In Sabah & Sarawak diesel ge n-
cordingly pay RM1.05 per litre. RM0.76 per litre. sets are used to provide electricity to workers and staff
quarters, operation of water treatment plants etc.
MALAYSIAN PALM OIL ASSOCIATION
36
ISSUES RAISED PROPOSAL RATIONALE
C DEVELOPMENT OF THE PALM OIL Federal Government to Sabah has the largest oil palm area in Malaysia accounting for
INDUSTRY IN SABAH assist in infrastructure de- about 30% of the total hectarage. Future expansion for oil palm
velopment. cultivation will remain in the two east Malaysian states with S a-
bah being more suitable than Sarawak. However basic infrastruc-
ture development in the state is inadequate and unable to keep
pace with the accelerated development of the industry. With
more areas coming into maturity within the next 5 years the
state will face serious bottlenecks if remedial actions are not put
Annual Report 2003
in place immediately.
INFRASTRUCTURE REQUIRE-
MENTS
'i Water Supply - currently inadequate a Urgent need to upgrade Supply of clean water is inadequate in most part of Sabah thus
and inefficient distribution water distribution facilities hampering the development and cost effectiveness of palm oil
downstream activities.
b To ensure adequate supply Case study 1 (Refinery) RM
of water Total cost of water usage. 1,390,000
Transported by lorry @ RM 2.70 per cu M 1,280,000
Cost via pipe supply @ RM 0.90 per cu M 110,000
Due to inadequate water supply the plant has to incur 6.5 times
normal costs.
Case Study 2 (Palm Kernel Crushing Plant in Sandakan). Pipe-
line available to the plant but no water supply. Need to buy wa-
ter by trucks.
ii Electricity Supply - unreliable, inconsis- a Sabah Electricity Sdn Bhd Frequent power supply interruptions result in dependence on
tent and more expensive than Peninsu- (SESB) to improve and diesel generators, which are generally 2.5 times more costly than
lar. provide uninterrupted SESB supply.
power supply.
MALAYSIAN PALM OIL ASSOCIATION
37
ISSUES RAISED PROPOSAL RATIONALE
b To reduce the present
SESB tariff to be in line
with that of Tenaga N a-
tional Berhad (TNB) in
Peninsular and to intr o-
duce a minimum of 10
hours off peak tariff like in
Peninsular.
Annual Report 2003
iii Roads - inadequate and in poor state of a To upgrade main roads from 2 The current road development is not in tandem with the growth
repair lanes to 4 lanes. of the palm oil industry in Sabah. In 2002 Sabah produced 4.15
Telupid - Sandakan M mt and 0.94 M mt of CPO and PK respectively. The produ c-
Sandakan – Lahad Datu tion is expected to increase to 6M mt and 1.4 M mt of
Lahad Datu - Tawau CPO and PK in 2010.
b To upgrade and seal the Estimated daily volume of traffic on the road due to growth of
following key roads. oil palm industry will be: Traffic volume for CPO tankers is e x-
Sapi-Nangoh-Paitan Road pected to increase from 440 trips in year 2002 to 636 trips in
Jln Jeroco year 2010 (+ 44.5%). Palm Kernel trailers from 114 trips to 174
Jln Sukau trips (+ 52.5 %). Fertiliser lorries from 222 trips to 333 trips (+
Tawau - Kalabakan Road 50 %). The total number of trips will increase by nearly 4 7%
from current number of 776 to 1143 trips per day in year 2010.
(These estimates exclude FFB lorries and fuel tankers).
iv Port Facilities - inadequate To upgrade ports of Sa n- Poor port facilities have resulted in significantly higher cost of
dakan, Tawau and Lahad sales - higher freight charges of US $ 5 - 10 per tonne of pa lm
Datu. Urgent need to i n- products compared to Peninsular Malaysia. Higher freight cost
crease the number of of US $ 2 - 4 per tonne of fertiliser compared to Peninsular M a-
berth (wet) and to deepen laysia.
the harbour entrance to
accommodate larger ve s-
sels up to 40,000 metric
tons
MALAYSIAN PALM OIL ASSOCIATION
38
ISSUES RAISED PROPOSAL RATIONALE
D OTHER TAXATION ISSUES
1 Reinvestment Allowance To extend RA to Agricu l- To encourage plantation owners to improve ground condition
(RA) is currently restricted to Plant/ tural Implements, tra c- for the purpose of mechanization.
Machinery only. tors, buildings, structures,
jetties, bunds etc under
this category.
Annual Report 2003
2 Service Tax on Intra - Group Manage-
ment Services.
The 2003 Budget Commentary pr o- To extend the exemption Currently the tax exempt benefit is only applicable to companies
posed that professional services pr o- on service tax for intra providing intra group services. To enhance greater efficiency and
vided to companies within the same group management se r- at the same time to benefit from economies of scale, plantation
group be exempted from service tax. vices to Companies which companies constantly centralize management functions. Confi n-
However when the Service Tax provides services to both ing services within their own group may, however, not reach the
(Amendment) (No.2) regulations 2002 intra and outside comp a- economies of scale. Under such circumstances management se r-
was made public in December 2002, it nies. vices are also offered to outside companies. Discriminating such
had an additional clause which pr o- service providers by not extending the tax exempt provision fo r
vides that where a company provides intra group services goes against the very intent of the new pr o-
these services to another person ou t- vision. Such service providers should only be taxed for
side the group of companies, the same outside services.
services provided outside or within the
group shall be a taxable service.
3 Group Relief
Currently 'group relief' applies to a Propose that this be ex- i) Corporations often organise themselves into multiple holding
limited number of crops and livestock tended to the entire agri- companies, subsidiaries and associates to reflect the structure of
farming. cultural and integrated their business and to limit liabilities. Sometimes corporations are
agro-based industries. required by law to setup separate companies for specific pu r-
poses.
MALAYSIAN PALM OIL ASSOCIATION
39
ISSUES RAISED PROPOSAL RATIONALE
ii) This would particularly assist plantation companies which, ow-
ing to their size and the wide geographical spread of their activ i-
ties, often conduct their business under several entities. Esse n-
tially they are no different from a plantation housed under one
business entity. Group relief would help these companies ove r-
come the anomaly of having losses ringfenced, especially in areas
Annual Report 2003
where there are only new plantings. More importantly, it will
encourage and enable plantation groups to undertake new
downstream and related activities that will require a gestation
period or investment in R & D such as in related fields of bio -
tech, bio -mas utilisation and bio -diesel which will broaden the
usage of oil palm and enhance overall returns for the future.
iii) Corporations are not allowed to offset the losses of one
company against the taxable profits of another within the same
group. As a result, setting up separate companies effectively
raises the tax rate of the whole group.
iv) Group companies should be allowed to transfer their current
unutilized capital allowances and losses.
v) Group relief is already available in most developed countries
including US, UK and recently in Singapore.
4 Expenses for attaining ISO status, It is proposed that such This is in line with the Government's promotion of improved
Europe Retailers Fresh Products Good expenditure be granted management techniques and processes and encourage the pr o-
Agriculture Practices (EUREPGAP) double deduction. curement of intellectual properties. This will promote greater
and Hazard Analysis and Critical Co n- efficiency as well as improve the quality of the products and se r-
trol Points (HACCP) etc. In order to vices in the long term.
improve efficiency, productivity and
environment protection, companies
need to embark upon a variety of i n-
ternational standards to improve qual-
ity and acceptability of products.
MALAYSIAN PALM OIL ASSOCIATION
40
ISSUES RAISED PROPOSAL RATIONALE
5 Income Tax on Oil Palm Replanting To review the Order so The subsidy and the related tax exemption by the Government
Incentive Scheme. that tax is exempted from is to encourage growers of oil palm to replant old areas with
The above incentive was eligible for the subsidy totally and not better and higher yielding planting materials so as to increase the
tax exemption for Assessment Year as it presently stands yield per unit hectare. However, by limiting relief to only stat u-
2002. However, Income Tax which is, exempt up to the tory income which in turn is net of all capital allowances mean
(Exemption) (No.4) Order 2003 pr o- extent of the Statutory I n- the subsidy is also forced. This defeats the intention of the i n-
vides that income derived from Fe d- come of the tax payer. centive in the first place.
Annual Report 2003
eral Government in the form of a
grant or a subsidy is exempt from i n-
come tax only in respect of its Stat u-
tory Income. As the Statutory Income
is arrived at after deduction of capital
allowances, a company with sufficient
capital allowances would have to effec-
tively suffer tax on the subsidy.
6 Sabah Sales Tax - 5% of turnover at To adopt a two tier tax The bulk of the oil palm plantations are relatively young
threshold price of CPO RM1,000 per structure as follows. When (weighted average of 8.8 years of age) indicating higher cost of
mt. CPO price is between sales (RM800 to RM1000 per tonne of CPO) The Sales Tax will
RM1,000-RM1,400, a rate also affect the income of smallholders in Sabah. Sabah Sales
of 2.5 % and when the tax is an additional cost to palm oil producers in the
price is R M1,400 and State.
above, a rate of 5 %.
MALAYSIAN PALM OIL ASSOCIATION
41