III. MECHANISMS FOR INTEGRATING ENVIRONMENTAL CONSIDERATIONS INTO AGRICULTURAL POLICY

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A. National agricultural policy

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6. Major industrial crops

There will be no substantial expansion of agricultural area beyond 2000 because of the lack of export markets and local absorption capacities. Production increases will thus have to emanate from productivity increases.

The production target for palm oil is 8.5 million tons by 2000 and 10.5 million tons by 2010. The export target for 2010 is 53 per cent higher than in 2000. To achieve those targets, 1.2 million hectares of new plantings will be required: 600,000 hectares in Sabah/Sarawak; 400,000 hectares in peninsular Malaysia; and 200,000 hectares conversion from rubber and cocoa plantations. Aggressive marketing will be required to expand, deepen and diversify the markets. By-products of the crop (i.e., trunks fronds etc.) will be increasingly exploited, and more downstream processing of palm oil will be undertaken in Malaysia.

Malaysia will continue an expansionary palm oil production policy based on new land development in Sabah and Sarawak as well as overseas. The role of public sector agencies in developing new land for oil palm will decline as a result of reduced availability of land in peninsular Malaysia. In Sabah and Sarawak, the development of oil palm plantations is undertaken by local public sector agencies such as the Sabah Land Development Authority and the Sarawak Land Development Board. FELDA and the private sector will be encouraged to move to Sabah and Sarawak.

The limitation of growth in the area under oil palm is the result of the conversion of oil palm land to housing, industrial estates vegetable growing and fruit farms which provide higher rates of return on investments. Any increase in the oil palm area in peninsular Malaysia will mainly come from the conversion of rubber and cocoa growing areas.

It is important to maintain the current area under oil palm in order to ensure increased production in the future. That will require the formulation of a land-use policy. Under the Seventh Malaysia Plan, an expansion target for the oil palm area has been set at 60,000 hectares per year up to 2000 so that the total land area under oil palm will be 2.58 million hectares by 2000 and 3.78 million hectares by 2020.

Increased production of palm oil can also be expected through productivity improvements which can be brought about in a number of ways which are detailed below.

Better and high yielding planting materials will be made available to the industry through research and development efforts. Currently, the yield of fresh fruit bunches (FFB) for oil palm plantation is typically in the range of 17-22 tons, giving 3.4-4.4 tons of palm oil per hectare per year. New planting materials now in use are expected to provide yields of up to 7 tons of palm oil per hectare; the oil from those materials is more liquid and will therefore have a higher value on the market. The palms are a shorter variety so that harvesting is made easier and less costly. Higher yields will make it possible for a plantation to be more profitable compared with lower yielding plantations which may be uneconomical. The industry should be targeting an average FFB yield of 22-24 tons per hectare in order to improve competitiveness with Indonesian producers.

Improved yields can be achieved by an adequate application of fertilizer and proper maintenance of plantations in accordance with recommended practices. Thus it is crucial to ensure that the Malaysian palm oil sector can obtain adequate supplies of inexpensive fertilizer.

A more efficient system for grading FFB will be established and adopted by millers. The producers of FFB should ensure that only ripe, good quality fruit is delivered to the mills.

Mechanization is a priority area for the industry in overcoming the problem of a serious labour shortage in the plantation sector. Research and development should make a special effort to expedite mechanization of certain field operations. To date, PORIM has made some progress with the introduction of an FFB collector and infield transporter as well as a loose fruit collector. Certain incentives should be given to encourage the plantation sector to mechanize.

By-products of the oil palm industry such as fronds, empty fruit bunches, mesocarp fibres, shells and trunks can be utilized to produce value added products. Such renewable raw materials are available in abundance and efforts should be made to fully utilized them. PORIM is actively looking into utilizing and commercializing those products in line with the objective of making the oil palm industry a "zero- waste" industry.

Intercropping oil palm with rattan as well as medang teja and medang wangi appears to be a viable venture. In addition, rearing sheep and cattle in oil palm plantations provides opportunities for generating additional incomes. An intensive farming approach will need to be adopted as suitable land becomes scarcer.

The aim is to encourage replanting of oil palm in uneconomic areas in order to increase productivity through the use of better high-yielding clones and better agronomic practices. The cumulative area that will need to be replanted between 1992 and 2000 will be an estimated 500,000 hectares. Currently, no replanting fund is available for the independent smallholder sector, which constitutes about 9 per cent of the total area under oil palm. The smallholder oil palm area that will require replanting up to the year 2000 is estimated to be 50,000 hectares.

Malaysia will formulate and implement a more effective and integrated system of recruiting immigrant labour in order to reduce costs and security-related problems. The plantation industry is over-dependent on foreign labour. That is very risky and costly in the long run, as recruitment, abscondment and training costs of the immigrant workers will increase. Thus, it is necessary to plan and devise a more effective and integrated system of recruiting immigrant labour.

Malaysia will continue to adopt a stringent policy of enforcement in order to regulate the industry. Quality is the key to successfully meeting competition. Therefore it is important that Malaysian palm oil conforms to acceptable quality standards. In that regard, PORLA has taken a number of measures including:

• The establishment of stations at major ports throughout the country to enable the quality of palm oil exports to be monitored;
• The introduction of a surveyor's course and examinations to enhance the professionalism of palm oil product surveyors;
• The requirement for all contracts to be registered;
• The requirement for all those dealing in palm oil products to obtain licences from PORLA.

A system will be enforced that ensures fair prices for the producers of FFB. In that connection, it is important that FFB pricing be made more transparent to FFB producers, especially smallholders. PORLA will devise a uniform formula to ensure that producers supply only ripe fruit and that millers fix a price based on an acceptable formula. The use of a manual by all FFB dealers and buyers for grading FFB will be made mandatory..

Malaysia will continue to pursue the current aggressive palm oil marketing policy through:

• Market promotion missions;
• Promotional campaigns and publicity efforts aimed at correcting and enhancing the image of Malaysian palm oil;
• Providing technical advisory services;
• Improved technical advisory services from PORIM.

A promotion policy aimed at enhancing the image and acceptability of palm oil should be actively pursued through:

• Health and nutrition studies to confirm that palm oil is not detrimental to health and in fact has a high nutritional value;
• The dissemination of scientific information through seminars, exhibitions and the mass media;
• Improvements of products to counter the overseas anti-palm oil lobby;
• Publicity campaigns;
• Educational and familiarization programmes that enhance the knowledge of consumers about the Malaysian palm oil industry as well as the characteristics of the oil itself.

Malaysia will continue to encourage the palm oil milling industry and accelerate the manufacturing of finished value-added oleochemical products and oil palm by-products through:

• The upgrading and modernization of milling technology;
• The introduction of new milling technologies with a high level of automation to reduce costs and wastage as well as increase efficiency and improve the quality of oil;
• The elimination of over-capacity in the refining sector;
• Retaining the current freeze on refining licences;
• Encouraging integrated processing industries;
• The liberalization of imports of crude palm oil and crude palm kernel oil;
• Placing emphasis on the manufacturing of finished and semi-finished value-added oleochemical products, e.g., detergents, cosmetics and pharmaceutical products;
• Encouraging the commercial uptake of by-product manufacturing;
• The development of a skilled and semi-skilled workforce in order to meet the requirements of high-tech, value-added industries;
• The development of Malaysia as the centre of oils and fats processing, using modern and sophisticated technology;
• The control of raw material supplies and pricing.

Malaysia’s current restrictive export policy on planting materials is to support reverse investment in overseas plantation. With more Malaysian plantation companies making large investments in plantations overseas, the supply of seeds has become a major concern. As the host country cannot satisfy that increased requirement internally, seeds need to be imported. The Johore State Economic Development Corporation has estimated that over 30 million seeds are required annually to develop 1 million hectares of new plantations in Indonesia. Currently, the export of planting materials and seeds from Malaysia is banned. However, exemptions are granted in certain cases where the materials are needed for research and development, goodwill cooperation or ornamental purposes. In addition, to support Malaysian ventures overseas, such companies may be given preferential treatment in the export of oil palm seeds for use by plantations with Malaysian equity investments.

Malaysia will place emphasis on a market-driven oil palm research and development policy in order to meet the changing needs of the industry and consumers through:

• The improvement of production efficiency at various levels in order to increase yields, product quality and reduce wastage and production losses;
• Increases in value-added products such as oleochemicals;
• The development of new products;
• The development of the nutrition and health aspects to counter negative campaigns against palm oil;
• Improvements in the yield and characteristics of the oil in order to meet the varied needs of international consumers and achieve a high level of competitiveness;
• The transfer of technology;
• The commercialization of research and development results.

Cess collection is undertaken by PORIM and PORLA for research and development, regulatory and market promotion purposes. Currently, PORIM collects M$ 5 per ton while PORLA collects M$ 3.75 per ton including M$ 2 per ton for MPOPC. The total collection, based on M$ 8.75 per ton, has been estimated at M$ 63 million per year, which was only about 0.8 per cent of the total exports of palm oil products in 1994. The possibility exists for the proportion of cess collection to be increased to 1 or 2 per cent to cater for future increases in the activities of the three agencies.

In addition, the export duty on palm oil and palm products, which was recently suspended for one year, was being reviewed for duty exemption.

Storage and bulking facilities will be developed in Sabah and Sarawak, and a dedicated port for palm oil will be developed such as Pasir Gudang port in Sarawak.

A reverse/offshore investment policy on the palm oil industry is being encouraged in: upstream (plantation); exports of Malaysian expertise; opening up of business opportunities; providing raw materials supply down stream; overseas bulking installations and refineries in strategic locations; a distribution centre; and the identification of certain focal points at the regional distribution centre.

To date, Malaysia has made investments in China, Egypt, Mexico and Pakistan. If Malaysian equity, skills and expertise are not made available, other countries will fill the vacuum.

The area occupied by rubber is expected to decline to 1.59 million hectares by 2010. However, the yield is projected to rise from 1,300 kg/hectare in 1995 to 1,500 kg/hectare and 2,000 kg/hectare in 2000 and 2010, respectively. Production will thus be maintained at 1.85 million tons in 2010 and the country will still supply 23 per cent of the world market. Downstream processing of the produce will be increased.

The industry is divided into two sectors: the large estate sector with holdings of 400 hectares and more, and the smallholder sector where units of land are usually no more than 2-3 hectares. Smallholdings make up almost 1.4 million hectares (82 per cent) while the estate sector accounts for 329,400 hectares (18 per cent).

Estates account for 28 per cent of the total rubber produced and are more efficiently operated than smallholdings. Estates manage their own replanting and are more readily disposed to adopting technical improvements.

However, smallholders play a prominent role in the Malaysian rubber industry, contributing 72 per cent of the country's production. Rubber smallholdings can be classified into two main groups: independent holdings (consisting of individual and subdivided holdings) and organized holdings. Individual holdings are units which are under individual family ownership while subdivided holdings are lots of rubber land which have resulted from fragmentation of estates. Organized holdings are those in land schemes developed by FELDA, FELCRA and various State governments and statutory authorities, notably RISDA. An estimated 500,000 rural families are involved in rubber farming.

Malaysian natural rubber production underwent a dramatic change in the 1980s. The area under rubber had been declining largely as a result of conversion to oil palm and other crops. Between 1980 and 1984, natural rubber output remained stagnant at 1.5 million tons. In the second half of the decade, with the exception of 1988, annual output averaged 1.45 million tons with marked declines in the 1989-1991 period. In 1992 and 1993, natural rubber production in Malaysia continued declining to 1.1 million tons and 937,092 tons respectively, as a result of a labour shortage as well as smallholders turning to other economic activities that provided better returns.

As the sources of rubber production are very widely separated from the centres of consumption, a domestic marketing system has developed to cater for the collection and transportation of the commodity from the numerous producers via the export channels. To ensure the orderly conduct and proper regulation of the market, the government has set up the Malaysian Rubber Exchange and Licensing Board (MRELB) with authority to issue licences for dealing in and handling rubber. Complementing the regulatory function of MRELB, a government-sponsored company, the Kuala Lumpur Commodity Exchange has been established. The principle function of the Kuala Lumpur Commodity Exchange is to promote trading in rubber and other commodities as well as provide facilities for futures contracts. The domestic marketing network provides credit, insurance, transportation, warehousing, grading, packaging, handling etc., which are essential to making the internationally presentable and marketable.

Malaysia has a well-diversified market structure as it exports natural rubber to more than 60 countries. The major markets are the European Union, the Republic of Korea, the United States, Japan and Singapore. In the case of Singapore, the rubber is purchased mainly for re-export.

From its early beginnings as a tree gum used by the natives of South America for waterproofing articles and making bouncing balls, natural rubber has evolved into a versatile industrial raw material. It is used in tens of thousands of products, ranging from the simplest elastic rubber band to massive tyres for earth-movers.

The tyre product manufacturing sector is, today, by far the leading consumer of natural rubber worldwide, accounting for about 70 per cent of world natural rubber consumption. Most of the rubber goes into tyres for heavy-duty trucks, buses, aircraft, large earthmover and other off-the-road transport. Different operating conditions make different demands on the rubber of a tyre. The modern tyre uses blends of natural and synthetic rubber. However, in the case of tyres for aircraft and larger off-the-road vehicles, where demanding conditions can generate a high degree of heat build-up and result in tyre failure, virtually 100 per cent of natural rubber is used because of its inherent property of low heat build-up.

Apart from tyres, natural rubber is used to make a host of other tough, durable and flexible products like beltings, hoses and wire covers, footwear, and balls and other sporting goods. It is also used in engineering applications such as engine mounts, bridge bearings and earthquake protection mountings for buildings and dock fenders. In those areas, natural rubber is often favoured over other materials with similar ‘spring’ functions because it has the advantages of being relatively easy to maintain, corrosion-free and requiring no lubrication.

Latex products include dipped goods like gloves, condoms, balloons, foam products such as carpet underlays etc., mattresses, adhesives and rubber compounds. The rubber products manufacturing sector has experienced spectacular growth in the past few years, which has been reflected in the large increase in rubber consumption and export earnings. Domestic rubber consumption increased rapidly, and by 1993 natural rubber consumption by domestic rubber manufacturers accounted for 17 per cent of total Malaysian production. Natural rubber constitutes more than 90 per cent of the total rubber consumed. For the past two years, export earnings from rubber products have exceeded those from raw rubber. Given the availability of technical back-up facilities such as from the Rubber Technology Centre of RRIM and the supply of good quality latex, Malaysia has been able to attract more investment in rubber-based industrialization.

Rubber products manufacturing has been identified as a priority industry in the Malaysian industrialization programme. Products that have a high natural rubber content and good export potential rank foremost in the types of goods encouraged for local production.

Malaysia is now a major producer of rubber goods, particularly those made from latex, and a major consumer of rubber, ranking sixth in the world. Malaysia continues to import large quantities of rubber products including general and industrial rubber goods and tyres. That is a clear indication of the further potential that exists for import substitution and exports.

Rubber-tree wood is a by-product of the 25-year replanting of natural rubber. It is a light-coloured medium hardwood that makes a suitable and attractive material for furniture, parquet flooring and panelling. Other uses include the manufacturing of pulp and paper and particle board.

Malaysia plays an important role in international efforts to strengthen the natural rubber industry. Together with other natural rubber producing countries, Malaysia assisted in the formation of the Association of Natural Rubber Producing Countries (ANRPC) which was established in 1970 with the objective of coordinating the production and marketing of natural rubber, promoting technical cooperation and ensuring fairer and more stable natural rubber prices. The ANRPC members, comprising India, Indonesia, Malaysia, Papua New Guinea, Singapore, Sri Lanka and Thailand, together account for an estimated 83 per cent of the total world natural rubber production.

In view of the need for a new spirit of international understanding and cooperation in resolving problems confronting the global rubber industry and ensuring its healthy development for the mutual benefit of both producers and consumers, Malaysia participated actively in the establishment of the International Natural Rubber Agreement (INRA) which came into force in 1979. INRA has served to stabilize rubber prices at a level that is acceptable to producers and fair to consumers. ANRPC and INRA have served as very useful focal points for continuing cooperation among natural rubber producing and consuming countries, respectively.

Another important aspect of international cooperation is in the field of research under the International Rubber Research and Development Board (IRRDB), which has a membership of 13 producing countries. IRRDB operates in close liaison with other international rubber bodies such as the International Natural Rubber Organization (INRO) and the International Rubber Study Group, of which Malaysia is also a member. Various research and development projects have been implemented, the most important of which was the collection of germ plasm from the Amazon in order to further widen the genetic base of existing rubber species.

Cocoa planting is undertaken as a mixed crop enterprise. The further development of the industry will be technology driven and guided by specific policies including:

• The implementation of regulatory measures including compulsory grading to ensure standardization and quality in combating the problems of inconsistency in bean size, fat content, acidity and flavour. Those measures will also contribute towards the creation of a market ‘niche’ for Malaysian cocoa beans as well as enable the industry to remain competitive in international markets;
• The continuance, in the short term, of the use of foreign labour in cocoa plantation on an organized basis and, in the longer term, a concerted and aggressive effort by research and development institutions towards the development of labour-saving technologies including mechanization;
• Continued research and development into better yielding new varieties that can withstand severe attacks by pests and diseases ( e.g., the cocoa pod borer and vascular dieback disease) and that are suitable for high-density planting. In addition, emphasis will be placed on cost-effective production systems. In that regard, research and development institutions and related agencies will aim for a higher degree of new technology dissemination and adoption;
• The priority establishment of a comprehensive and effectively coordinated surveillance procedure for controlling the threat of pest and disease outbreaks;
• Further integration of the industry with the industrial sector through expansion of strategic downstream industries and the manufacture of cocoa tertiary products including chocolate. Joint ventures with foreign investors to obtain market links/outlets and distribution networks will be given due emphasis;
• A gradual transformation of the industry from the status of supplier to that of an efficient product marketer in the face of competition and future challenges from other low-cost producers. Future programmes will incorporate quality improvement, market segmentation through product development, product diversification and offshore investments. New non-traditional markets will be developed in tandem with a more aggressive marketing strategy in order to gain further access in present markets.

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