Plantation sector to keep growing


The plantation sector is set to maintain good growth in 2005. United Plantations Bhd executive director (corporate affairs) Carl Bek-Nielsen, Golden Hope Bhd group chief executive Datuk Sabri Ahmad and PPB Oil Palms Bhd's MD Khoo Eng Min give their views in interviews with StarBiz. 

CARL BEK NIELSEN 

Vice-Chairman and Executive  

Director Corporate Affairs 

United Plantations Bhd 

Carl Bek-Nielsen

 

How do you see the plantation sector moving in 2005? 

The continued growth in world population combined with economic development will inevitably be the two most important factors that will drive an increasing global demand for more food in the future. The challenges facing humanity in the years to come will therefore be how to increase food production in a sustainable manner without adversely affecting the wider environment and social community in general. This increased food production most definitely includes the sustainable production of vegetable oils and fats.  

In this connection, the Malaysian palm oil industry, which produces more than 15% of the world’s total vegetable oils and fats, will continue to play a significant role in the supply aspect of future demands. I am therefore confident that the plantation sector will continue to move forward and further expand in 2005, especially in East Malaysia where it will be one of the main engines of growth.  

 

What is your outlook for profit margins next year? 

Profit margins for 2005 will be favourable for most palm oil producers due to the lucrative prices, which are currently way above the moving average over the last 10 years. However, having said that, it must be clear that the main challenge for most plantation companies is not to be too greedy when profit margins are already very satisfactory by trying to sell at the very top. As Paul Getty once said: “The person who buys at the bottom and sells at the top is yet to be born”. This is something we at least should not entirely disregard.  

 

What are some further challenges for the sector? 

Indeed there are several threats to the plantation industry’s future economic viability which warrant the attention of all concerted parties. 

The combination of lower commodity prices (palm oil’s real price trend has fallen on average by 3% per year with inflation from 1952-2003), higher costs and stagnating yields are definitely not the most palatable cocktail. The consequences of not facing up to these harsh realities and taking remedial action will not only result in a loss of revenue and income to the country, shareholders and smallholders but, more importantly, it could set in motion the grimmer effect of a gradual erosion of the plantation industry’s competitive edge vis-à-vis the world’s 16 other oils and fats. This would affect the livelihood of several hundred thousand people who are dependent on this industry. 

It is therefore absolutely necessary for the oil palm growers to keep pushing the frontiers of knowledge by exploring all possibilities of improving on the existing planting materials, agricultural practices as well as cultivating an even more disciplined force of employees to ensure that the backbone of this industry remains resilient in the future when the next storm of low commodity prices tears across the country. There is always room for improvement. 

 

What were some of the major developments in your company in 2004; how did your company tackle them? 

The successful acquisition of Socfin’s Lima Blas plantation was indeed a very gratifying landmark in 2004.  

Another achievement which our company was honoured to receive from the Prime Minister and the Human Resource Minister was the Most Caring Plantation Employer award on May 8 in Kuala Lumpur. 

What are the main activities at your company going into 2005? 

The company will continue striving towards being the most efficient and productive plantation company in this region and achieving this in a sustainable manner. 

Continued emphasis will be placed on producing superior planting materials through our long-term commitment to research and development. Concerted efforts will also be taken to further improve our agricultural practices thereby pushing yields and productivity to new limits in future years. 

More emphasis will also be placed on ridding complacency in 2005 – this is especially important in times of favourable prices like now – and preparing ourselves for the next downturn in commodity prices. In this connection, cost consciousness, whether we like it or not, is of immense importance and management will continue to get everybody together and start digging this landmine called “cost”, which is the concern of every responsible employee. In the end, to be cost competitive is to be price competitive and this is alpha omega for everyone who is in the business of producing a commodity like palm oil, where prices are not cost-driven but market-driven. 

 UTDPLT :  [Stock Watch]  [News

DATUK SABRI AHMAD 

Datuk Sabri Ahmad

Group Chief Executive  

Golden Hope Plantations Bhd  

 

How do you see the plantation sector moving in 2005? 

Next year will remain a challenging year in both operational and financial aspects for all plantation industry players. Most players are focusing on improving operational efficiency and at the same time enhancing shareholder value.  

Companies will be exploring opportunities in upstream and downstream activities as well so that they can integrate the business into the full spectrum of the business value chain, which may lead to merger and acquisition exercises in the industry, both locally and abroad. 

Investment in downstream activities will be a pre-requisite to protect hefty investment upstream by processing all produces. In addition, it is vital to diversify and balance income portfolios. 

For existing activities, players will further strengthen internal processes such as mechanisation, modernisation, cost management, yield and extraction improvement to maximise returns from the existing investment ventures. 

It is also foreseen that the industry will adopt sustainable practices (i.e. integrated pest management, zero burning) in anticipating pressure from environmentalists and also step up customer service measures (i.e. traceability). 

The Malaysian plantation industry as a whole will emphasise the cultivation of oil palm and CPO production as compared to international players (downstream value-adding). For example, Malaysian palm and palm-based product exports in 2003 were about RM28bil compared to a multinational corporation with a turnover of over RM200bil a year. 

 

What is your outlook for profit margins next year? 

We maintain a positive, outlook, subject to price factors. 

Buying direction of importing countries, production forecasts of competing products (i.e. soybean oil) and weather conditions will affect the demand and supply side which will in turn influence the price and direction.  

Golden Hope is always practising prudent cost-management at all levels to ensure better profit margins per hectare and eventually to give better returns to shareholders. 

 

What are some further challenges for the sector? 

Amongst the challenges for the sector are: 

·To be operationally cost effective in order to be more resilient to price gyrations. 

·To be portrayed as a sustainable and environment-friendly sector.  

·To enhance technology (processing technology) and the R&D aspects of bio-technology (high yielding clones) and downstream activities to secure a competitive advantage against competing countries, i.e. Indonesia. 

·To develop plantations on viable land overseas, i.e. Indonesia, in view of scarcity of suitable land and high land prices in Malaysia. 

·To undertake branding exercise locally and globally for downstream products. 

·To develop effective supply chain management in developing a fully integrated business. 

·To nurture human capital and competencies. 

 

What were some major developments in your company in 2004; how did your company tackle them? 

Major developments in 2004 were: 

·Completion of rationalisation exercise with Island & Peninsular Bhd. 

·Acquisition of Hudson & Knight in South Africa. 

·Launch of GH500 oil palm planting material. 

Golden Hope welcomes the rationalisation exercise because it creates tremendous synergy amongst estates and oil mills and at the same time leverages on our expertise and resources to achieve operational efficiency. After all, Golden Hope has over 160 years of experience in the plantation industry. 

South Africa offers us vital access to a big market. It provides us a constant buyer for our CPO output and amongst the benefits of the acquisition (of Hudson & Knight) are expansion of the business; its current operations are synergistic with Golden Hope’s core business. 

GH500 is the best oil palm planting material with a higher extraction rate ratio. It is available for purchase by interested plantation companies so that it will benefit everyone in getting higher returns on yield. 

 

What are the main activities at your company going into 2005? 

Golden Hope will be an exciting company to watch in 2005 because we are focusing on: 

·Fully integrated estate operations with economies of scale. 

·Further involvement from upstream to downstream activities in the value chain 

·Sustainable agricultural practices. 

·Traceability and branding. 

·Well-established in-house R&D centre (consultancy, product development & biotechnology) 

·Global supplier of palm products to world class companies. 

·Performance-driven culture. 

Golden Hope is always open to opportunities (i.e. acquisitions & strategic alliances). If an opportunity is genuine, feasible and synergistic with the group, we will study and explore it thoroughly so that shareholder value can be further enhanced. 

Our vision is: “To be the Global Leader in the Sustainable Plantation, Commodities and Oils & Fats Businesses” 

 GHOPE :  [Stock Watch]  [News

KHOO ENG MIN 

Khoo Eng Min

Managing Director 

PPB Oil Palms Berhad 

 

How do you see the plantation sector moving in 2005? 

Overall, we believe 2005 will be another good year for the plantation sector. CPO production in 2005 is expected to reach around 14.2 million tonnes, compared to with estimated production of 13.8 million tonnes in 2004. CPO prices are expected to be maintained at around RM1,300 to RM1,350 per tonne, as the Asian rust outbreak among soybean plantings in the United States is expected to put pressure on soybean production costs and may even put some areas out of production. Higher soybean production costs and lower soybean production, as a result of a reduction in yield or cultivated area, both auger well for firm CPO prices next year. 

 

What is your outlook for profit margins next year? 

We expect profit margins to come under some pressure next year because of the higher cost of inputs, especially fuel and fertilisers. The anticipated ringgit-US dollar re-peg is also expected to put some pressure on CPO price, with a negative effect on profit margins. However, the company is confident that improved CPO production and the cost control measures it has taken will negate some of the erosion on CPO prices and production cost increases. 

 

What are some further challenges for the sector? 

The plantation sector is heavily dependent on foreign workers and their availability. Recruiting sufficient workers to undertake the various critical tasks on the plantations and keeping recruitment costs low within an acceptable range are constant challenges that the company faces.  

The recent crude oil price increase will have a long-term effect on production costs and freight rates in general. While crude oil prices have now stabilised somewhat, Opec’s recent decision to curtail crude oil production by some one million barrels a day is expected to maintain pressure on crude oil prices and keep them above US$40 per barrel. 

A high proportion of the plantings, especially in Peninsular Malaysia, is due for replanting. Until old and unproductive plantings are replaced with higher yielding varieties, productivity will suffer and the production cost of CPO will increase. This will erode our competitive advantage vis-à-vis Indonesia. 

Fortunately, PPBOP has a very small proportion of old palms, with the majority of its palms in their prime production age. Apart from instituting cost reduction measures, the company is in the process of replacing the older, less productive palms with high yielding clonal palms to improve productivity and reduce production costs. 

 

What were some major developments in your company in 2004; how did your company tackle them? 

In mid-2004, the company commissioned its eighth CPO mill at its project in Suburmas, Sarawak. The 40tph CPO mill is a joint venture between PPBOP and Sarawakian plantation owners. 

PPBOP has maintained a presence in Indonesia since the late 1990s with the development of its first oil palm plantation in West Sumatra. Of the 7,750ha planted to date, 7,500ha are in production. In 2004, operations were geared up for expansion into central Kalimantan, where the company has acquired a gross area of 124,000ha for plantation development over the next five to seven years. To date, the company has planted close to 7,250ha in central Kalimantan, of which about 1,000ha are in production. 

Embarking on a massive expansion programme is a challenge to the company’s resources and logistical adeptness. Fortunately, the company has an ample pool of experienced and trained senior and middle-management personnel to man the new Indonesian projects. In addition, the company is in the process of setting up a training centre in central Kalimantan to train the locals as plantation personnel for its oil palm projects there. 

 

What are the main activities at your company, going into 2005? 

The company will concentrate on its expansion programme in central Kalimantan in 2005 and beyond. In east Malaysia, the company will concentrate on planting undeveloped areas and replanting the old unproductive palms to improve productivity and reduce costs. 

In the first quarter of 2005, the company expects to commission its ninth CPO mill at its project in Sri Kamusan, Sabah. The mill, with a capacity of 40tph, will process the fruits from the company’s oil palm projects in Sugut, Sabah. 

 PPBOIL :  [Stock Watch]  [News]

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