A worker shows palm oil fruits at palm oil plantation in Topoyo village in Mamuju, Indonesia, Sulawesi Island, March 25, 2017 in this photo taken by Antara Foto. Picture taken March 25, 2017. Antara Foto/Akbar Tado/via REUTERS ATTENTION EDITORS - THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. EDITORIAL USE ONLY. MANDATORY CREDIT. INDONESIA OUT. NO COMMERCIAL OR EDITORIAL SALES IN INDONESIA.
PALM oil has been the staple of plantation companies in Malaysia for decades. The crop, with its high yield and growing application, has found its way into many products that people consume everyday.
For decades, oil palm plantation companies have reaped the benefit of growing demand and price for palm oil. Yes, there have been intercropping of cocoa and oil palm to boost yields of planters and oil palm companies have diversified into rubber plantations to boost and diversify their income.
But when one of the oldest oil palm planters in Malaysia decided to plant a crop not as a supplement to its main crop, like cocoa, one has to take stock of the rationale behind the move.
The one knock on palm oil is volatility. Prices tend to be mirrored against soybean and with prices gyrating between a large band, the impact on profitability can be pronounced with cost moving in only one direction.
The other concern is supply. There is reliable output data from Malaysia but the crop is planted along the tropical belt with different results in yield. Indonesia is now the largest planter of oil palm and the output there has surpassed that of Malaysia years ago and is only going to increase in the years ahead.
With such variables ahead, it comes as little surprise when United Malacca Bhd
recently said it was venturing into new plantation land in Indonesia. The catch though for the century-old company is that out of the 60,000 ha of plantation land it wants to cultivate in Sulawesi, between 35,000ha and 40,000ha will be planted with cash crops other than oil palm.
In the report, the CEO said the company wants to plant 5,000ha with coconut, 2,000ha-3,000ha with cocoa and 3,000ha with stevia.
The CEO of the company said margins from the new cash crops it is planting can be comparable with palm oil, which says a lot about the increase in price seen with other cash crops.
One example, as was reported, was coconut oil. The status of the crop, as its oil is now reputed to be a superfood, has seen its price surge to around US$1,550 a tonne. The price of crude palm oil per tonne was almost US$600 a tonne.
Rising population and the growing attention on health has given a boost to cash crop over the years. But it is food crop that has seen the largest spike in price as anyone who has been to the market will attest to.
It is unlikely that the price of cash and food crop will drop anytime soon as it will take a long time for supply to catch up and with global weather and environment concerns now under greater scrutiny than before, the challenge for many planters of any crop will be to do so in a sustainable manner.
The move by United Malacca might have raised eyebrows with some quarters, but going by the price trends and profits that can be made from a number of cash crop, it will be interesting to see if other planters start doing the same.
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