Malaysia and Indonesia, the world’s top two palm oil producers respectively, have forged an alliance which could put an end to price undercutting and overlapping of export markets.
The two countries account for 80 per cent of the world’s palm oil output, each producing 15 million tonnes. Indonesia, however, is expected to overtake Malaysia by the end of the year.
Under the pact, Kuala Lumpur and Jakarta have also agreed to join forces and not allow crude palm oil (CPO) prices to be determined by non-producing countries such as traders in Europe and Singapore.
In their Memorandum of Understanding (MOU), the two countries have also agreed to lay out several action plans on how to tackle countries such as India which impose higher import duties on CPO compared with soybean oil.
“The two countries will coordinate on a supply and demand management scheme and ensure there will be no palm oil shortage anywhere in the world,” said Plantation Industries and Commodities Minister Datuk Peter Chin Fah Kui. “It is time we, the producing countries, determine the prices of palm oil and not allow prices to be dictated by another party,” said Indonesia’s Agriculture Minister Dr Anton Apriyantono.
The two ministers represented their respective countries at the MOU on “Bilateral Cooperation on Commodities” signing ceremony in Putrajaya yesterday.
The pact also include pepper and cocoa. Natural rubber is not included because both countries and Thailand have already established a tripartite rubber cooperation, A similar pact between Malaysia and Indonesia on timber is currently in the works and is forged separately due to its lucrative nature.
Under the cooperation pact, Malaysia and Indonesia will also have joint promotions and joint research and development (R&D) activities.
Indonesia will also offer land to Malaysian plantation firms which wants to expand but face land shortages.
The MOU will also encourage Indonesia to get involved in R&D activities. The republic does not have its own R&D centre dedicated to palm oil such as the Malaysian Palm Oil Board.
The cooperation will hopefully eliminate a long standing practice by Indonesia’s palm oil exporters who are known to undercut Malaysia by selling its palm oil at US$10 (RM36.50) a tonne cheaper.
KL and Jakarta will also exchange scientific, technical and marketing information and bolster technical cooperation and assistance for capacity building, among others.
Prior to the MOU, both countries have been mulling over the partnership for years before it took a serious note last year during Prime Minister Datuk Seri Abdullah Badawi’s annual dialogue with the republic in Bukit Tinggi, Sumatra.
In 2005, there are 5 million ha and 4 million ha of oil palm cultivation in Indonesia and Malaysia respectively. Presently there are 20 Malaysian firms involved in oil palm cultivation in Indonesia covering an area of about 1 million ha.
The major companies are Kumpulan Guthrie Bhd, PPB Oil Palms Bhd, Kuala Lumpur Kepong Bhd, TH Plantations Bhd and Kulim (Malaysia) Bhd.
In terms of exports, Malaysia in 2005 sold 13.4 million tonnes to 140 countries compared with Indonesia’s 10.3 million tonnes.
By 2010, Malaysia and Indonesia are targeted to increase their exports to 17.1 million tonnes and 14.5 million tonnes respectively.
Source: Soyatech.com May 30, 2006.