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TEXT OF SPEECH

YBHG TAN SRI DATO’ SERI AHMAD SARJI ABDUL HAMID

AT THE YAYASAN PAK RASHID PUBLIC LECTURE

“CORPORATE SECTOR AND AGRICULTURE”

EXPERIMENTAL THEATRE, UNIVERSITI PUTRA MALAYSIA (UPM)

SERDANG, SELANGOR DARUL EHSAN

THURSDAY, 9th MARCH 2006, 10.00 A.M.  

 

The subject of my speech this morning is “The Corporate Sector and Agriculture”. Agriculture is an important industry in the Malaysian economy. The agriculture sector encompasses activities in the following three major commodity groups: 

(i)    Industrial commodities: (a) rubber; (b) crude palm oil; (c) palm kernel oil; (d) sawlogs; and (e) cocoa.

(ii)    Food commodities: (a) paddy; (b) fish including marine fish and aquaculture; and (c) livestock including beef, mutton, pork, poultry, eggs and milk.

(iii)    Miscellaneous commodities: (a) pepper; (b) pineapple; (c) tobacco; (d) flowers; (e) fruits; (f) vegetables; (g) herbs; (h) tea; (i) sugarcane; and (j) coconut.

 

The above activities are found in areas belonging to:

(i)    traditional agriculture;

(ii)    industrial agriculture; and

(iii)    the land settlement schemes. 

Industrial agriculture comprises plantation of agricultural land exceeding 20 hectares, upon which operations of any kind are carried out largely by the corporate sector. 

 

2.    The significance of the agricultural sector is reflected in terms of contribution to the GDP, employment, export revenue, export tax and duty, as well as economic and rural development. However, since Independence, the relative importance of agriculture has declined with the structural changes in the Malaysian economy. This declining trend in the relative importance of the agricultural sector is also due to other factors such as slow growth in commodity production, especially rubber, fluctuations in agricultural commodity prices, changing export composition in favour of non-primary sector commodities, emergence of crude oil, natural gas and manufactured goods as important export commodities. 

 

3.    In 1970, the agricultural sector contributed approximately: (i) 31% of GDP; (ii) 80% of export revenue; (iii) 30% of export tax; and (iv) employed 50% of all labour force. In 2005, 35 years later, the agricultural sector contributions are as follows: (i) 9% of GDP; (ii) 6% of export earnings; (iii) 4% of export tax; and (iv) employed 13% of total labour force.

 

4.    Agricultural land use for major crops (oil palm, rubber, paddy, cocoa, coconut, pepper, tobacco, pineapple and tea) had increased from an estimated 3 million hectares in 1970 to 6 million hectares in 2004.  Oil palm and rubber, both being important export crops, accounted for 64% (3.9 million hectares) and 21% (1.3 million hectares) respectively of the total agricultural land use in 2004. Another 11% (0.7 million hectares) are used for the cultivation of paddy.

 

5.    As the corporate sector generally undertakes large-scale commercial farming with the use of modern and capital intensive technology, they are able to enhance labor and land productivity.  Additionally, the corporate sector promotes good agricultural and best management practices along with environment-friendly efforts at their estates that will ensure not only the high quality of their agricultural produce but also promote sustainable development for the industry. The three companies, Kumpulan Guthrie Berhad, Golden Hope Plantations Berhad  and Sime Darby Berhad, majority-owned by PNB produced an estimated 1.88 million tones of crude palm oil in 2004, representing a market share of 13.4% of Malaysia’s total output of 14 million tones or 6.1% of the global production (30.65 million tones). The three companies owned a planted area of 511,220 hectares of oil palm estates including in Indonesia (174,470 hectares). Other companies own about 47% of the total oil palm land, while another 30% are owned by smallholders under FELDA and FELCRA schemes and the balance 10% are held by independent smallholdings. The palm oil industry is indeed a success story for the Malaysian corporate sector. The story of palm oil’s evolution from a highly prized local commodity in Africa to become the largest traded edible oil and fat in the world, with Malaysia its largest producer, is a source of inspiration to all of us.  

 

6.    The palm oil industry has evolved from a mere producer and exporter of crude palm oil into a more diversified sector with downstream and supporting industries by venturing into the oil and fats business. It had created new products ranging from food products to non food products, such as cooking oil, margarine, chocolate, soap, lotion, detergent and oleo-chemicals such as fatty acid, fatty alcohol, fatty acid methyl ester. Malaysia proudly hosts some 20 oleo chemical plants with production capacity of 2.02 million tones in 2005. Their combined value-added export revenue of US$1.35 billion represents 22.5% of the US$6 billion global ole-chemical market. A subsidiary of Golden Hope is now one of the world’s largest olechemicals producers of fatty acids, glycerin, oilfield chemicals and other oleo-chemical products.

 

7.    With the current world crude petroleum price holding above US$60 a barrel for a prolonged period of time, palm bio-diesel is becoming an increasingly commercial reality. Europe, India, Korea and Turkey are keen to adopt palm diesel as a renewable source of energy. The EU countries have already started using bio-fuel for transport and industries. EU’s production of bio-fuels weighs 2.4 million tones in 2004, or approximately 0.8% of EU petrol and diesel consumption. Germany has started producing bio-diesel on a commercial scale in 1991 and is currently the world’s leading user of bio-diesel from rapeseed oil with a production of 1.4 million tones of bio-diesel in 2004.

 

8.    The government has issued nine licenses to the corporate sector for the production of bio-diesel. Several private companies such as Rubiatec Sdn Bhd, a subsidiary of Golden Hope Plantations Berhad; Kumpulan Fima Bhd, and Carotino Sdn Bhd will develop three bio-diesel plants at an estimated total cost of RM120 million. They will be located in Banting and Port Klang in Selangor, and Pasir Gudang in Johor with production aimed for the export markets. The development of these new sources of renewable energy will be guided by the National Biofuel Policy that was launched in August 2005. This policy entails a three pronged strategy which are:

(i)    Production and use of biofuel for the transportation and industrial sector;

(ii)    Biofuel production for export purposes especially the European market; and 

(iii)    Commercialization of biofuel technology as a home grown technology.

Among the initial measures that will be implemented include the production of a biofuel blend of 5% processed palm oil and 95% diesel (B5) and encouraging the usage of biofuel among the public.  Biodiesel not only has the advantage of being environment friendly, it also helps to generate a demand of 500,000 tones of CPO by blending 5% of palm oil with diesel.

 

9.    Biotechnology is another promising area where the corporate sector could play a bigger role with the support of the government. Biotechnology essentially plays a significant role in transforming and enhancing the value of the agricultural sector to improve crop yields and ensure the production of high quality produce on a consistent basis. In this regard, Golden Hope has developed an improved high yield oil palm planting material, the GH500 series. GH 500 Series has a potential fresh fruit bunch (FFB) yield of more than 40 tones per hectare per year with oil content of 31%.The planting material is produced by crossing selected elite Deli Dura mother palms with second generation BM119 Pisifera father palms.

 

10.    The greater use of biotechnology in commercial tissue culture processes, genetic engineering, molecular probe techniques, biotransformation and advanced material extraction technology will enhance the biotechnology contribution to the economy. A case in point is the extraction of "Tri E", a tocotrinol which is vitamin E produced by Golden Hope from palm oil. Tocotrienol is a natural antioxidant 40 to 60 times stronger than Vitamin E from tocopherols. Tocotrienols help to reduce cholesterol, reverse arteriosclerosis, restrain platelet aggregation, retard cancer and suppress tumors, lower blood pressure and it is used in cosmetics as a supplement to decelerate skin aging.  The superior attributes of tocotrienols over other vitamin E puts it in a position to secure a better global market share of the US$1.06 billion vitamin E market which represents 40% of the US$2.65 billion vitamins market worldwide.

 

11.    Another new growth area of great potential for the corporate sector is oil palm biomass. Biomass utilization is gaining momentum in recent years, largely due to global concern over environmental pollution.  The vast biomass resource available in the industry has not been fully exploited until now. It is encouraging to see some progress in Malaysia in this direction. There are now industrial plants manufacturing particle board, medium density fiber-board and plywood from oil palm. 

 

12.    There are also private companies producing the palm fibers for various applications such as flower pots and mats for mulching and to control soil erosion.  Oil palm fiber has also been used as fillers for plastics sheets used in car components. We would like the industry to tap all the available biomass and come up with value added products that will enhance the industry’s growth, competitiveness and sustainability.

 

13.    A matter of major concern is the country’s high dependency and rising demand for imported food.  In the year 2005, Malaysia a net importer, among others, of the following food items:

(i)    maize (RM1.4 billion);

(ii)    vegetables and fruits (RM1.2 billion);

(iii)    wheat (RM1.1 billion);

(iv)    milk and cream (RM1.1 billion);

(v)    meat (RM1 billion);

(vi)    feeding staff for animals (RM900 million);

(vii)    sugar (RM800 million);

(viii)    rice (RM700 million); and 

(ix)    fish (RM600 million).

 

14.    Besides actively involved in the upstream and downstream activities in the palm oil industry, the plantation companies under the PNB Group support the Government’s drive to increase food production and enhance food sufficiency for Malaysia.   Among the initiatives are as follows:

(i)    beef cattle-rearing in Kerdau Estate in Pahang by Austral Enterprises Berhad (AEB), a subsidiary company of Golden Hope.  Viable business models are being formulated around business activities for breeding, fattening and slaughtering of cattle. A consortium between three PNB owned plantation companies is being formed for cattle-rearing.

(ii)    cultivating guava and producing guava puree Golden Hope through a wholly owned subsidiary, Golden Hope Fruit Industries Pte. Ltd. at an Integrated Fruit Zone (IFZ) in Sungai Wangi Estate in Sitiawan, Perak on some 500 hectares.  It is an integrated activity involving cultivation, production, processing and marketing of 12,000 metric tones of guava fruit or equivalent to 6,169 metric tones of puree which accounts for 23% of the world’s pink guava puree market.

The concept of Integrated Fruit Zone (IFZ) emphasizes the development of the area into a fruit         production zone. The existing project acts as a nucleus to encourage the surrounding farming community to participate and benefit from the development of the IFZ.  Its export market is Europe, US, Singapore, Australia, Korea and Japan.  Golden Hope Fruit Industries has obtained SGF Certification issued by European Fruit Juice Independent body.

(iii)    aero phonic vegetable farming by Sime Darby on a 5- hectare aero-phonic farm in Nilai, Negeri Sembilan.  The project which started in 2000 at two green houses has a monthly production of about 20 metric tones of the sub-tropical variety of kailan and temperate salad leaves branded as “Sime Fresh”. 

 

15.    Some of the characteristics of cash crop and food producing farmers are as follows:

(i)    small and fragmented land ownership which contributed to low productivity of land and labor;

(ii)    labor intensive with low usage of technology and without applying proper and systematic farm management;

(iii)    rely heavily on family members;

(iv)    unable to venture into downstream activities such as processing or value adding products due to the low productivity and lack of knowledge;

(v)    existence of unscrupulous middlemen; and 

(vi)    rising production costs and price fluctuation. 

 

16.    In order to resolve some of the problems faced by farmers and as strategy to maximize land usage and increase food production, I wish to submit a few recommendations as follows:

(i)    introduce landlord-in-trust scheme - under this scheme, plantation and other selected companies will be allowed to hold and undertake development of idle plots around the estates, leased to the companies by the owners who either, obtain rental fees, receive steady income in the form of dividends or partake in a profit-sharing arrangements;

(ii)    introduce cooperative farming – under this system, individual farmers or landlords through their farmers’ organizations could develop and cultivate their land together.  The organizations will pool their resources to buy commodities such as seeds and fertilizers, and lease machineries and undertake services such as harvesting, storage, distribution and marketing. It is a system of farming found throughout the world and is particularly widespread in Denmark and the ex-Soviet republics. 

(iii)    introduce contract farming under this method, private sectors will provide individual farmers or smallholders with resources such as land, seed, fertilizers, techniques and agricultural management practices for them to cultivate and develop cash crops under contract basis. Well-managed contract farming is an effective way to coordinate and promote production and marketing in agriculture. It is an approach that can contribute to both increased income for farmers and higher profitability for sponsors. Through this collaboration, organizations will benefit in purchasing these crops at a discounted price while at the same time be ensured of continuous and guaranteed supply of the products. On the other hand, contract farming activities will help farmers with guaranteed purchase and guaranteed minimum price for their produce and simultaneously eliminated the middlemen activities.  This method can also provide farmers with access to a wide range of managerial, technical and extension services that may otherwise be unobtainable.

(iv)    introduce crop and livestock insurance scheme - under this scheme, farmers will be covered against crop and livestock failure for loss or damage resulting from unforeseen weather conditions, fire, insured perils such as animal damages, flood, windstorm, riot strike and other disasters. Crop insurance has been adopted since the establishment of rubber plantations in Malaysia to cover events leading to planting and yield losses. For farmers, this scheme could become an effective tool to tackle the agricultural risks and to encourage them to adopt new technology and innovation. The insurance scheme to be extended to the agricultural sector could encourage more participation by the corporate sector in the production of cash and food crops as well as livestock.

(iv)    the expansion of the herbal industry Malaysia’s tropical forest, the world’s oldest, is one of the primary centers of biodiversity with an estimated 2,000 known plant species that have medicinal or herbal value. Herbal plants or parts of plants can be used for:

Although Malaysia's herbal industry is still at its infancy stage, it offers huge potential for the locals. Examples of technologies that are available in Malaysia for herbal commercialization include color stable pegaga drink, high fiber ginger drink and citrus hystrix tea. Pegaga or Centella asiatica is one of the top 25 selling herbs in US. Color stable pegaga drinks is a ready to drink products that has high total antioxidant content up to 60%-70% and free of artificial color. High fiber ginger drink is a high acid product which has a total dietary fiber value of 6.4%.

(vi)    the extensive planting of rattan and bamboo - wild plants which are found in the jungle but can planted, cultivated and managed like an estate.  Both can be exploited for the furniture and property industry. The continuous bamboo researches in other countries have produced new engineered applications of bamboo. Apart from craft items, bamboo can be processed to create the flat look, transforming into a super strong and durable construction materials as for flooring like parquets and tiles; structural components like beams, posts and frames; boards like sawali boards, particle boards; and architectural and interior materials like moldings, jambs, stair treads, molding, paneling, and laminates, and,

(vii)    the accelerated expansion of Malaysia’s tropical fruit industry such as papaya, banana, pineapple, star fruit and mango can be commercially cultivated for both fresh and processed. These fruits can be processed and canned as juices and puree, made into natural food ingredients, yogurt, snack and functional food.

 

17.    The corporate sector should learn about  the food production industry from successful food producing and exporting countries. For example, 

(i)    New Zealand farmers use modern technology and systematic farm management that enabled them to produce, process and package high quality meat and dairy products for the world. New Zealand is now the world leader in the following areas:

(ii) Netherlands is another country that excels in agriculture due to the extensive use of technology from seedlings to harvesting in its agricultural sector. The sector employs not more than 4% of the total labor force but provides large surpluses for export purposes as their small farming plots produce high yields. Among others, Netherlands agricultural sector: 

Agricultural productivity has also been stimulated through land consolidation exercise and the extensive promotion of agricultural research. 

(iii)    Thailand is another country that has benefited from good farm practices as well as research and development and strategic partnership. Thailand’s poultry and aquaculture industry are among the most technologically advanced in the world due to:

 

18.    Like many academics who have been conducting agricultural research for decades, I have been involved over the years in a wide network of agriculture enterprises.  I hope that my little speech this morning provides you with some perspectives on the role of corporate sector in agriculture.