http://bepi.mpob.gov.my/news/detail.php?

id=21461

Date 08/08/2016

News Provider Mohd Nasir Ismail

News Source Borneo Post

Headlines Innovations in the Palm Oil Sector

08/08/2016 (Borneo Post) - With the first half of 2016 just ended, the palm oil industry continues to be plagued by
issues pertaining to manpower shortages, non-tariff barriers on palm products in major importing countries and
local high taxation rates.

On the worker shortage front, Plantation Industries and Commodities Minister Datuk Seri Mah Siew Kong had
acknowleged the higher demand for manpower from the plantation industries and commodities sector due to the
fact that the sector requires its entire production process to be done in the country.

“One of the big issues raised in this industry is the manpower shortage because production has increased,” he
said.

“My deputy and I will continue holding dialogues with the parties concerned and my officials will gather as much
information as possible to solve the issue as this is a very important industry.”

In addition, this past week saw bilateral talks held between Mah and Indonesian Coordinating Minister for
Maritime Affairs Luhut Pandjaitan in Jakarta, both expressing concern over the evolving non-tariff barriers on palm
products in major importing countries.

In a media release by the Ministry of Plantation Industries and Commodities (MPIC), it stated that these included
labelling of food product with No-Palm Oil and proposal to impose high import tax on palm products.

The ministry highlighted that both Ministers agreed that Council of Palm Oil Producing Countries (CPOPC) to
spearhead activities to address these issues, including organising CPOPC Ministerial delegation to Europe.

“Indonesia and Malaysia are the major global palm oil producers and jointly account for 85 per cent of global
production and 91.2 per cent of global exports.

“The establishment of CPOPC is expected to further strengthen cooperation among oil palm producing countries
and address evolving issues related to palm oil,” the ministry said.

Even with these issues at hand, Malaysia’s oil palm industry remains one of the major contributors to the
country’s economic growth, having generated abundant employment opportunities in the agriculture sector.

According to Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi earlier this year, the industry currently
provides direct employment to more than one million people including 600,000 smallholders.

Zahid noted that this makes palm oil one of Malaysia’s major development drivers and an important pillar in the
nation’s economy.

“The Government recognizes the importance of the palm oil sector and has taken measures to enhance its
performance from the upstream to the downstream subsectors, towards generating economic growth and higher
income for the country,” he said.

The Malaysian Palm Oil Board (MPOB) noted in its overview of the oil palm industry that the oil palm planted area
in 2015 reached 5.64 million hectares, an increase of 4.6 per cent as against 5.39 million hectares recorded in the
previous year.

The board pointed out that this was mainly due to the increase in new planted areas especially in Sarawak, which
recorded an increase of 13.9 per cent.

“Sabah is still the largest oil palm planted state, with 1.54 million hectares or 27 per cent of the total oil palm
planted area, followed by Sarawak with 1.44 million hectares or 26 per cent, while Peninsular Malaysia accounted
for 2.66 million hectares or 47 per cent,” it said.

Gauging the path for CPO price recovery

In a recent meetup with investors in Kuala Lumpur, Ivy Ng of the research arm of CIMB Investment Bank Bhd
(CIMB Research) noted that crude palm oil (CPO) prices have failed to meet the forecasts of RM3,000 per tonne,
despite the weaker-than-expected palm oil supplies.

Ng further noted that on top of this, CPO prices have fallen from the peak of RM2,714 per tonne in April to
RM2,342 per tone currently.

“We explained to investors that poor Chinese demand for palm oil led to weaker prices,” she said.

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Ng added that this is evidenced from the 50 per cent year on year (y-o-y) drop in China demand for Malaysian
palm oil in the first half of 2016 (1H16), as Chinese government released two million tonnes of rapeseed oil from
state reserves.

The research arm highlighted that the good news is that the Chinese government has stopped releasing
rapeseed oil from state reserves in recent months but this is offset by concern that the government still holds
around four million tonnes of rape oils in its reserves.

Apart from Chinese demand for palm oil, CIMB Research further highlighted that other key drivers for CPO prices
are the El Nino/La Nina impact on palm oil supplies for 2017, Indonesia and Malaysia progress in implementing
biodiesel mandate and the prospects for US soybean crops in 2H16. (explain more?)

In its palm oil stock preview for July 2016, CIMB Research’s CIMB Futures team had revealed its findings from a
survey of 24 planters that Malaysian CPO output rose by two per cent month on month (m-o-m) to 1.56 million
tonnes in July 2016.

“Palm oil exports grew approximately 14 per cent m-o-m, based on export statistics released by SGS and ITS,”
Ng said.

“Overall, we estimate that Malaysian palm oil inventories may have risen 1.7 per cent m-o-m to 1.81m tonnes as
at end-July 16.”

On El Nino, CIMB Research observed that the impact may be fading on yield. Ng said that the approximately two
per cent m-o-m rise in fresh fruit bunch (FFB) output was below the historical July m-o-m average of eight per
cent over the past five years as workers took time out for Eid Al-Fitr.

“But, this is higher than our earlier projection of flattish output and suggests that the El Nino impact on yield may
be fading,” the analyst added.

However, year on year (y-o-y), CPO output fell 14 per cent as the El Nino continued to impact FFB yields.

The research arm’s survey revealed that output from Sarawak estates rose approximately nine per cent m-o-m,
but this was offset by weaker output from Sabah and Peninsular Malaysia which were down 1.1 per cent m-o-m
and 1.3 per cent m-o-m, respectively.

Meanwhile, it turns out that there was surprisingly stronger palm oil demand from China and Europe. CIMB
Research estimated that Malaysian palm oil exports grew by circa 14 per cent m-o-m in July 2016, based on
estimates from cargo surveyor SGS (15.4 per cent m-o-m) and ITS (12.7 per cent m-o-m).

“This is a positive surprise to the market and above our initial projection of a five per cent rise, due mainly to
stronger-than-expected demand from China (up 68 per cent m-o-m) and the European Union (EU) (up 28 per
cent m-o-m).

“China imported more palm oil after its government stopped releasing its rape oil reserves,” Ng said.

On the downside, the expectation of higher stocks in July is projected by CIMB Research to be negative for CPO
prices. However, this is offset by stronger-than-expected demand.

Ng explained that the higher demand for palm oil suggests that palm oil stock levels at the consuming countries
are currently low and that palm oil prices have regained compeitiveness against other edible oils.

“We project palm oil demand to remain firm due to the upcoming Mid-Autumn Festival in China in mid-
September,” she said.

In its second quarter of 2016 (2Q16) results preview, CIMB Research expected Malaysian planters to report
flattish to lower y-o-y earnings during the quarter. This is due to the average Malaysian CPO price for 2Q16
having improved 18 per cent y-o-y, insufficient to offset the 20 per cent y-o-y drop in output from Malaysian
estates over the same period.

“However, we project 2Q16 earnings for Malaysian planters to be much better than 1Q16’s due to the eight per
cent q-o-q rise in selling price and 20 per cent increase in output,” Ng said.

For the second half of 2016 (2H16), CIMB Research projected a weaker average CPO price of RM2,400 per
tonne versus 1H16 average of RM2,517 per tonne as the research arm expected seasonally higher output in
2H16.

CIMB Research also expected CPO prices to trade in the range of RM2,300 to 2,600 per tonne in August 2016.

IJM ‘reimagining plantations’

IJM Plantations Bhd (IJM Plantations) is taking up the call to innovate the sector.

Chief executive officer and managing director Joseph Tek Choon Yee in his keynote address at the recent 12th
ISP National Seminar 2016 (NATSEM 2016 said as per Petroliam Nasional Bhd’s (Petronas) ‘reimagining energy’
tagline, the industry will also have to start ‘reimagining plantation’.

“We are now in the fourth industrial revolution where there is a lot of usage of smart automation. There is a ‘nexus
of forces’ whereby the digital transformation is so great and rapid and the question is how do they interlink,” he
said in his address. He referred to issues such as connecting mobile phones with the cloud of data storage,
against the Internet of Things (IoT), against the social networks and so onmany more.

It all boils down to how the plantation industry has been taking advantage of this digital transformation and
innovations.

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Using IJM as an example, Tek explained that they have adopted a platform of connectivity known as
Facebook@Work on which he can talk to and relate to his people. “This is something which is changing the way
operations, in terms of compliance, we can share,” he said.

On IoT, he highlighted the issue of whether this can be brought into agriculture in Malaysia because it is not going
to be an option, it is going to be a necessity.

“And with IoT, we have sensors and sensors are very cheap nowadays…I know (of) people who are working with
drones, to see how they can move fertilisers or chemicals, how much can be carried,” he observed.

With technology becoming cheaper, Tek stressed that the challenge here is whether they can ‘jump the curve’ and
“imagine beyond imagination”.

He believed that sometimes there may be a lack of imagination with plantation players as they are caught up in
the compartmentalised system that they have and thus may need to engage other people’s expertise.

Other areas which can be looked into include precision agriculture in the form of geospatial technologies,
unmanned aerial vehicles (UAVs) and drones. These equipment are already in the market and as Tek points out,
it is all about whether industry players are looking into these technologies to benefit their plantations.

With harvesting being one of the most difficult and time consuming, along with pruning and loose collection, Tek
hopes that there are Malaysian companies out there will pursue or explore unique technologies such as the exo-
skeleton suits or ‘Titan Arm’ which may make the tasks a much smoother process.

On innovations in oil palm mechanisation, MPOB’s deputy director general of Research and Development Dr
Ahmad Kushairi Din presented a paper on this topic at the seminar, touching on the technology development to
date.

In his presentation, Ahmad highlighted that the technologies on harvesting, infield FFB evacuation, loose fruit
collection, field maintenance, fertiliser applications, pest and disease control had been developed over the years
by MPOB in collaboration with members of the industry.

He stated in his slides that other harvesting tools developed were the Hi-reach pole and the motorized cutter,
Cantas.

“The tractor-mounted mechanical arm, The Grabber for bunch loading and evacuation is a well-accepted
technology in Malaysia and globally,” he said.

Ahmad also highlighted that recent technologies offered by MPOB to the industry include the track-type
transporter, Beluga for peat area, prime mover for soft grounds, loose fruit separator, roller-type loose fruit picker
and mechanical loose fruit collector, MK III.

According to Ahmad, imported machineries of various makes are available in the market for use in plantations.

“Some of these machines however, can be used with some minors modifications as their original designs are (for)
other crop.

“Apart from fulfilling the requirement of oil palms itself, the terrain also pose a challenge for imported machinery,”
he said.

Going forward, Ahmad believed that for the country to remain competitive, it has to overcome two crucial
problems – labour and land.

“As the available land for oil palm is getting scarce, focus should now be towards breeding palms that can
produce more yield in terms of tonne FFB or oil per unit area.

“As to the workers, they can be made more productive by supplying them the right tools and they can carry out
the tasks assigned to them with less human effort,” he said in his conclusion slides.

Ahmad also explained that the development of ground operated machine tools or implements has to take into
account the challenges posed by various types of terrain where the oil palms are grown.

In particular it needs to be semi automated, so that more locals are attracted to work in oil palm plantations.

“The success of mechanisation can also be attributed to good management of machinery as well as payment
system to workers,” he said, adding that to ensure less maintenance on the machinery, proper training for workers
is a must

With that, Ahmad stressed that the time has come for local engineering firms to be involved in producing
machinery for the oil palm industry.

It should be noted that the government has set aside RM750,000 for the Oil Palm Industry Mechanisation
Incentive Scheme to encourage mechanisation activities this year. Under this scheme, plantation or estate
owners will be given a price discount when they purchase machinery to reduce labour dependency.

Salcra shares experience in harvesting, crop recovery

In a ‘behind the scenes’ look into a plantation, BizHive Weekly had the opportunity to sit in at a presentation by
Sarawak Land Consolidation & Rehabilitation Authority’s (Salcra) Martin Kusong during NATSEM 2016 as he
described in detail the group’s harvesting and crop recovery experience.

“As with commercial estates, we also try to comply with all the the harvesting standards that is 2.5 to three rounds
per month or 10 to 12 days interval,” he said of harvesting rounds.

With the ripeness standard, prime matured it is two detachable fruitlets while for palms of less than five years, it is

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five detachable fruitlets.

On Salcra’s harvesting system, Kusong remarked that from the beginning, they have deduced a harvesting
system that will suit the local conditions of the land and workers.

“We started with ‘gotong royong’ and our workers are the local people. Gotong royong is just a group of people
who come together to work towards completion of an assigned task for the day.

“We also introduced the lot keeper system where the people come from the community near the project area,” he
said.

As for the row rolled on system, the harvester is alloted by palm rows daily while the task rolled on system
involves the harvester being allotted by tasks.

“A task here means 180 to 200 pounds per task,” Kusong explained.

The last system introduced by Salcra was the fixed task rolled on whereby the harvester is allotted a fixed task in
all fields.

Based on Salcra’s experience, the gotong royong and lot keeper systems had the advantage of having a good
standard of work because workers have a sense of ownership.

However, the gotong royong system demotivates other diligent harversters because their salaries or wages are
being shared. As for the lot keeper system, the disadvantage is that the harvesters are neither willing to assist
others nor allow others to work on their lots.

For the row rolled-on and task rolled-on systems, the main highlight is that there is compact harvesting and palms
are being fully harvested. However, the disadvantage is that as supervision is not there, you may have low quality
of work due to no sense of ownership and slow harvesters may cause problems as they lag behind.

As for fixed task rolled-on system, one which Salcra sustains until today and is considered the best harvesting
system method, Kusong says.

“It is compact and palms are fully harvested because we expect all the harvesters to have that sense of
ownership to their own tasks,” he explained. However, it is not without disadvantage, as the system does see
slow and absent harvesters who lagging behind.

Moving on to collection and evacuation, from Salcra’s perspective, this is divided into infield collection, internal
transportation and external transportation.

Infield collection involves the collection of FFB and loose fruits (LF) from palm base, FFB platform to the collection
points while for internal transportation is the evacuation of FFB and LF from FFB platform to central platform, FFB
ramp or bin.

As for external transportation, it is the transportation of crops from central collection points at estate level to the
palm oil mill.

On the factors influencing harvesting and crop recovery based on Salcra’s experience, Kusong first highlighted on
the field contiguity and topography.

Under the non contiguous category, Salcra has 88 fragmented fields with a size of one to 385 hectares with a 96
per cent hilly to steep terrain. The distance of these fields from the office is 10 to 20 kilometres (km). An example
of Salcra’s non contiguous areas is the Saribas estate. For Salcra’s contiguous field, it comprises of three states
and consists of low lying to undulating terrains. An example is Salcra’s Stenggang estate in the Bau-Lundu
region.

On Salcra’s terrain, Kusong revealed that 70 per cent is flat to undulating while 30 per cent is hilly to very hilly.

Due to the fragmented and steep terrains, Salcra’s problem includes assigning harvesting gang as it can be very
tedious, field supervision becomes less intensive due to the scatteredness, slow-down crops evacuation, low
road density of 90-100 metres per hectare and unrecovered crops that roll down to vallyes and ravines.

Improvements which has been made in Salcra’s new development and replanting, the group is using remote
sensing, GIS/GPS and drone technology for thorough estate planning and design.

“We also do incorporate mechanisation infrastructure in our estate planning,” Kusong said.

Another factor is the field cleanliness and accessibility, which Kusong explained requires complete yearly weeding
an pruning programmes, usage of semi-mechanisation techniques and cattle integration to assist in weeding
activity.

With improvement through good agricultural practice (GAP), Salcra is able to access the palms and fruit bunches

As for the road network factor, Kusong noted on the low road density of 90-100 m per hectare (mph) which
causes middle terraces or rows, unhealthy, poorly maintained and harvested palms; hanging terrace which
causes inaccessibility to mechanisation equipment and workers; and scattered field inter-locking hills which
causes an insufficient road network. This will all contribute to poor harvesting as well as poor crop replanting. As
such, some of the improvements Salcra made in its replanting and new development included increasing the road
density to 180-220 mph, made sure road construction commenced earlier than terrace to avoid hanging terrace
and construction of boundary or perimeter roads.

With the labour factor, Kusong pointed out that Salcra started out with local workers who were from the local
community residing at their own villages. However, they were unused to the regimented working style, preferred
to be paid daily rather than piece rates and they had many job options outside.

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On work preferences, Kusong noted that they preferred field upkeep rather than harvesting work. Local male
workers are more inclined to be drivers on a monthly paid basis which is not productive for Salcra.

In addition, Salcra found them to be very seasonal workers with poor attendance during paddy planting, durian
fruit, festival seasons, funeral and political occasions.

In short, relying on locals may lead to estate operations coming to a stand still which is the reason Salcra resorts
to foreign workers for labour.

Improvements made over the years by Salcra included the recruitment of foreign workers, with Undan OPE
Lundu as the first estate to do so in 1997. The foreign workers hired then had been meant for harvesting only.
This action by Salcra had been met with strong resistance by the local community until after a trial of one or two
years when they were finally able to accept this development.

Salcra noted that through time, landowners were able to adopt and adapt the engagement of foreign worker
especially when FFB yield productivity improved. In fact, it was highlighted that after 2002, the numbers increased
to fill up the shortfall left by the locals.

Other improvements made by Salcra for in its labour department included a morning muster which was made
compulsory since 1996 to all of its estates. Kusong explained that the significance of this is to inculcate strong
discipline among workers and staff before starting the day’s work.

Additionally, Salcra also gave workers welfare and training whereby the group attended to the workers’ needs –
providing workers’ welfares, attending to the sick, donating cattle during Hari Raya Haji, interaction through sport
and recreational activities. Salcra also provides hands-on training for two to three weeks for new recruits before
engaging them fully.

Salcra also gives local contractors opportunities in the form of package contracts on field upkeep, road
maintenance, harvesting and FFB transportation introduced and implemented since 2001.

Lastly, on the human factor influencing harvesting and crop recovery, Kusong highlighted that before 1996,
Salcra’s modus operandi was more inclined to the socio-economic development. This meant its focus was on
eradicating poverty, providing job employment and providing basic infrastructure and amenities.

Salcra’s improvements under the human factor included a revamp of structural organisation to lean structure.
Salcra also introduced budget and budgetary control to the operating units by adopting the activity and zero
based budgeting and annual review of the physical and financial performance.

Other improvements included a mindset change exercise across the organisation for all staff and Ahli
Jawatankuasa Pembangunan Ladang SALCRA (AJPLS) by conducting effective meeting, discussions, study
visits, seminars, conferences and recreational and social activity.

Kusong noted that very intensive training was given to all the staff across the board on the procedures, system
and process.

He further noted that strict discipline was enforced throughout work discipline across the organisation.

In addition, the roles of AJPLS or Estate Development Committee was intensified and given due recognition by
the Salcra management in 2002.

“They also participate in our organisation’s affairs (at project) as well as estate level,” he explained.

On the impacts thus far from its harversting and crop recovery experiences, Kusong highlighted that Salcra has
made changes in the management and development of NCR lands from the socio-economic to commercial
approach from 1997 onwards. This has inadvertantly increased Salcra’s wealth.

“Salcra also succesfully declared nett proceeds to landowners from year to year,” Kusong said.

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