PPB Oil Palms’ business plans are coming along just fine, says its managing director Khoo Eng Min. Many of its plans are immediate- to short-term. The group’s venture into central Kalimantan is aimed at improving its position as a lower-cost producer in the longer term.
KHOO ENG MIN
PPB Oil Palms Berhad
STARBIZ: How are your plans to strengthen the business coming along?
Khoo: Our plans are coming along just fine. In Q1 2005, we expanded our landbank in Kalimantan by 16,800ha and are in the process of finalising negotiations to acquire additional land that are contiguous to our existing 120,000ha in Kalimantan. The expansion will result in improved economies of operation and greater competitiveness for our business.
We have also put in place several measures to enhance the productivity of our existing mature areas, in the form of weevil hatcheries to induce better fruit development and fruitset, field mechanisation to improve harvester productivity and quicker evacuation of fresh fruit bunches (FFB) to the mill, and application of empty fruit bunches to improve soil condition and to reduce manuring costs, to name a few.
StarBiz: Are you reaping the benefits of earlier moves to better position the business? Kindly elaborate.
Khoo: Some of the measures that we have adopted have medium- to long-term effects, while others are immediate- to short-term. For example, our venture into Kalimantan will improve our position as a lower cost producer in the longer term, while our weevil hatchery and mechanisation efforts will have almost immediate benefits in the form of higher yields and more timely and reliable delivery of FFB to the mills. In the medium- to long-term, our venture into the production of clonal palms at our laboratory in Kuching and increasing cultivation of clonal palms in our estates will provide us with a distinct yield and cost advantage over our competitors.
StarBiz: What are the trends in the industry or economy that are having a positive impact on your business?
Khoo: Palm oil is healthy oil while trans fatty acids (TFA), a health hazard, have been associated with the hydrogenation of highly unsaturated oils like soyoil. This is pleasant news to the palm oil industry, as the production of margarine from palm oil does not involve the hydrogenation process. While the soyoil and associated industry scrambles to find a solution to overcome the problem, the palm oil industry can expect continuing increase of palm oil imports into and consumption in Europe and even United States.
The recent rise in crude oil prices has renewed interest in biofuel and other sources of alternate energy. This augurs well for the palm oil sector, as it is the cheapest and most competitive edible oil in the world. Much of the biofuel being produced in Europe comes from rapeseed. It is estimated that close to 40% of the rapeseed produced in Europe is being diverted to the production of biofuel. We expect palm oil to fill part of the void created by this diversion, or palm oil may be imported for biofuel production.
StarBiz: Do you foresee or expect any unfavourable occurrences or events that could have an impact on your business in the future?
Khoo: A review of the ringgit peg will have a short-term unfavourable impact. However, the impact will be mitigated by the offsetting impact of US dollar-traded inputs such as fertiliser, machinery, etc.
Malaysia must increase productivity to keep costs down. As a company, our expansion to Indonesia will help to average down our cost of production.
The imposition of sales tax on CPO by Sabah and Sarawak is a disadvantage, vis-a-vis Peninsular Malaysia and Indonesia. The decision by Sabah to increase its sales tax to 7.5% in 2005 will only aggravate the situation.
Crude oil price will remain high and is likely to go higher. High crude oil prices have a negative and domino effect and higher freight charges will result eventually in higher production input and reduced profit margins.
StarBiz: Moving forward, are you still likely to be expanding your business or the scope of your business ties?
Khoo: Yes, we will continue to expand our business into Indonesia and improve our productivity in order to ensure we remain a leading efficient and low cost CPO producer.
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