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Oil palm industry’s future hinges on urgent replanting thrust in Budget 2025

October 8, 2024

 

The Malaysian oil palm industry stands as a cornerstone of our economy, driving rural development, alleviating poverty, generating employment and contributing significantly to government revenues. Spanning 5.6 million hectares — or merely 0.1% of global agricultural land — this sector accounts for 20% of the world’s edible oil and fat exports, yielding over RM100 billion annually. Given the volatility of palm product prices, the potential for increased revenue remains robust.

Challenges facing the industry

Despite its pivotal role, the oil palm sector faces critical challenges. Operating within a commodity price-taking framework, it is dependent on the biological cycles of oil palm trees, which require continuous investment. The sector is labour-intensive, relying on a complex supply chain that includes over 450,000 smallholders.

A pressing concern is the sustainability and age profile of our plantations. With more than 1.5 million hectares of trees aged 20 years or older — representing 27% of our total planted area — urgent action is needed to address the impending decline in productivity. Furthermore, the lack of mechanisation solutions for harvesting from tall palms exacerbates yield loss, making replanting not just beneficial but essential.

Current replanting status

In 2023, only 131,000 hectares were replanted out of an estimated 622,000 hectares that are 25 years or older, marking a mere 2.3% replanting rate. This is alarming, as projections indicate that by 2027, around two million hectares — or 35% of our oil palm area — will consist of trees classified as matured-old, severely impacting yield and increasing operational difficulties. The urgency of this situation cannot be overstated; without timely replanting, the sector risks facing substantial declines in output, impacting not only growers but also the entire supply chain.

 

 

The call for action: Budget 2025

To rejuvenate this vital sector, growers have sought a dedicated budget for a national oil palm replanting programme. While growers are implementing their annual replanting efforts, significantly expanded initiatives are essential to sustain the industry’s viability. The government’s introduction of tax incentives for large-scale replanting efforts will not only foster private sector engagement but also ensure a robust supply chain and enhance productivity through the adoption of advanced agricultural practices.

Financial implications and needs

Currently, replanting costs range from RM20,000 to RM30,000 per hectare, translating to an estimated RM13 billion for a comprehensive national replanting initiative targeting oil palms over 25 years old. This substantial investment is crucial for the sector’s long-term sustainability. Notably, the industry’s prior appeal for a replanting reinvestment allowance in Budget 2024 went unaddressed, underscoring the urgency of this initiative for Budget 2025.

Growers currently face a dilemma: with high crude palm oil prices, many are postponing replanting to maximise immediate revenue. While this may seem advantageous, it poses a national long-term threat to both industry health and government tax revenues. Delays in replanting could lead to a cascading effect, significantly reducing future tax revenues and ultimately affecting the livelihoods of smallholders and the intertwined supply chain dependent on this industry.

To counter this trend, the government must implement measures to incentivise replanting, striking a balance between driving operational practices and appealing incentives. This includes fostering an environment that encourages proactive replanting strategies, rather than reactive ones that wait until trees are unproductive.

Recommendations

To facilitate an accelerated replanting effort, it has been recommended in Budget 2024 to expand the reinvestment allowance to cover oil palm replanting. This would enable growers to view replanting as a strategic investment in productivity and economic growth, rather than merely a cost.

Targeted incentives i.e. Insentif Tanam Semula Bersasar for those who exceed standard replanting rates would further encourage compliance and drive progress. For example, a plantation manager responsible for 10,000 hectares typically aims for a 4% replanting rate (400 hectares). If they increase this to 6% (600 hectares), they should qualify for a 100% reinvestment allowance on the additional 200 hectares. This targeted approach rewards proactive growers and fosters a collective industry effort towards sustainability.

Additionally, the government-industry should pursue implementing effective and advanced training programmes to educate growers and young planters on best practices for replanting. This ensures that those involved in the replanting process acquire the necessary skills and knowledge to execute successful strategies, further enhancing the effectiveness of the replanting initiative.

Conclusion

The challenge of replanting is multifaceted; immediate financial pressures often overshadow the long-term benefits of investing in rejuvenation. A well-planned, strategically aligned replanting programme is essential to maintain a balanced age profile across plantations, thereby mitigating risks and enhancing resilience in the sector.

It is crucial to recognise that replanting should be viewed as an opportunity for revitalisation rather than just an expense. By investing in the future of our oil palm industry, we secure not only economic stability but also environmental sustainability for generations to come.

Final call to action in Budget 2025

In light of these challenges and the urgent need for action, the government must prioritise a national accelerated oil palm replanting programme in Budget 2025. By doing so, we can ensure a thriving oil palm sector that benefits not only growers and workers but also contributes to Malaysia’s overall economic health and sustainability. This represents not just a strategic investment for today but a promise for a shared prosperous future.

 

Joseph Tek Choon Yee is a former president of the Malaysian Estate Owners’ Association (MEOA) and chief executive of the Malaysian Palm Oil Association (MPOA). This article is based on the keynote address by the author at the MPOA Seminar on Replanting in Sandakan recently.


Source: The Edge Malaysia
 
 
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