KUALA LUMPUR: Malaysia is in an extremely advantageous position as one of the world’s top palm oil exporters, continuing to supply edible oils to countries which are grappling with rising food prices and fertiliser supply disruptions due to the closure of the Strait of Hormuz.
Julian McGill, the managing director of UK-based economic advisory firm Glenauk Economics, attributed this to palm oil production being less affected by fertiliser supply disruptions due to the ongoing conflict in West Asia.
He said that oil palm, Malaysia’s most important crop, accounts for around 75 per cent of the country’s planted area and has several characteristics that put the sector in a better position.
He explained that food crops such as fruits and vegetables are heavily dependent on nitrogen-based fertilisers, of which the Gulf regions produce a quarter to a third of the global supply.
"With disruption (from the conflict), prices have shot up. The secondary effect is that countries such as China and Russia are restricting their exports,” he said on Bernama TV’s Bernama World programme entitled ‘The Impact of the West Asia Conflict on Global Agriculture’ hosted by Melissa Ong.
McGill said that oil palm, while a heavy user of fertilisers, uses a lot of potash and not nitrogen-based fertilisers.
He added that many big producers tend to pre-buy fertilisers, with up to 60-70 per cent of the required volume already secured.
"We have to see whether the suppliers will honour the contracts with the volatility of prices, but in effect, they have already pre-bought,” he said.
McGill said even if there is a cutback on fertilisers today, it will take a fairly long time, up to two years, to impact production.
"Palm oil can continue reasonably well, even if this (conflict) is causing big problems for the planning and the decision-making. We are not going to see an immediate collapse in palm oil production,” he said.
Given the supply disruption and the period of heightened tension and concern over agriculture and food production globally, McGill said Malaysia is also well positioned to export very large volumes of edible oil, thereby boosting its export income.
"This puts Malaysia in a strategically better position,” he said.
Moreover, McGill said that in times of crisis and rising energy and crude oil prices, the commodity is important as a substitute for diesel, similar to what Indonesia is doing.
"Although it is more difficult to produce biofuel in Malaysia due to higher palm oil prices and a lack of infrastructure, in theory, it can substitute for diesel.
"Nevertheless, it is a strategic crop to have,” he added.
Global impact on agriculture
Touching on the impact of the West Asia conflict on food and fertiliser supply disruptions on global agriculture, McGill said impacts are yet to be seen, but the current situation is "very tense, and people are adopting a wait-and-see attitude”.
"The reason why it’s not yet serious is that the first point is that the Gulf is not a major food-producing region. So unlike in previous crisis situations, such as the Russian invasion of Ukraine, we haven’t seen any immediate impact.
"The other is that we are coming off a period of very many record crops,” he added.
McGill also said that agriculture moves much more slowly than other industries.
"You have to follow nature with agriculture, the planting of the seasons; you plant and wait, and therefore it is an industry that rewards patience, but it is also one where we don’t see an immediate impact.
"Not like a factory where you run out of inputs, you stop immediately. What we’re seeing is concern over the next harvest, over six months from now.
"We don’t see a crisis yet, but it is very tense, and we are monitoring the situation closely, as is everyone,” he added. - Bernama
