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Oil palm planters question legality of windfall tax

Posted by Flora Sawita Labels: Boon Weng Siew, MEOA, Oil Palm, palm oil, windfall tax

MEMBERS of the Malaysian Estate Owners Association (MEOA), who are losing money, said they will not pay any windfall taxes until the legality of Windfall Profit Levy Act 1998 on palm oil is justified. Established in 1931, MEOA represents small- and medium-sized estates of more than 40 hectares.

"We're seeking advice on the legality of this windfall profit levy. The formulation assumes all planters make money when palm oil prices in the physical market surpass RM2,500 per tonne. The reality, however, is far from that," said MEOA president Boon Weng Siew.

Not every planter makes tonnes of money because the profitability of oil palm plantations depends on the age and productivity of the trees. "A newly-replanted estate would still be losing money even if palm oil prices surpass RM3,000 per tonne," Boon told Business Times in an interview in Kuala Lumpur.

"Why should planters, whose estates are losing money, pay windfall tax?" he asked. It is clear that the windfall tax formula is flawed and unfair to new plantations or those undertaking replanting activities.

"On the one hand, the Malaysian Palm Oil Board incentivise oil palm planters to carry out replanting and yet, at the same time, the Customs Department slaps us with windfall tax when palm oil prices surpass RM2,500 per tonne. Mixed signals from different agencies within the government are causing investors to lose confidence in the palm oil industry," he said.

"It would have been more justified if the windfall tax is on actual profits of audited financial accounts, like corporate tax," he added.

Oil palm planters in the peninsular are expected to start paying windfall tax soon as the average crude palm oil price is nearing RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak only need to pay windfall tax if the price cross RM3,000 per tonne.

So far, palm oil for the third month delivery, in the physical market, has averaged at RM2,503 per tonne. MEOA said its members consider the Act a double taxation on planters and a deterrent to local and foreign investments in the stock market, Boon said.

Palm oil is already the world's most heavily-taxed vegetable oil, with oil palm planters having to pay 26 per cent corporate tax, cess amounting to RM13 per tonne of crude palm oil, 7.5 per cent and 5 per cent sales tax in Sabah and Sarawak respectively. Also, there are varying import duties in consuming countries.

Currently, it is estimated that for every RM100 a tonne increase in the price of palm oil, Malaysia's export revenue is boosted by RM1.8 billion, based on annual production of 18 million tonnes.This translates into additional corporate tax of RM315 million, based on 70 per cent of taxable production after excluding 30 per cent of non-taxable production from smallholders and newly developed areas.

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Green concerns or trade barriers?

Posted by Flora Sawita Labels: Boon Weng Siew, Mamat Salleh, MEOA, MPOA, NGOs, oil palm tree, palm oil, trade barriers

Malaysia's palm oil shipment to Rotterdam Port, the gateway to Europe has fallen by an average of 12 per cent every year since 2006's peak of 1.7 million tonnes.

This year, it is poised to shed another 30 per cent to 900,000 tonnes.

At the Roundtable on Sustainable Palm Oil (RSPO) conference last month, environment activist Wetlands International called for an address of "the alarming emissions from forest and peat swamp areas' conversion into oil palm plantations".

The Netherlands-based non-governmental organisation (NGO) alleged that "the continuous emissions caused by drainage of carbon rich tropical peatsoil in Indonesia and Malaysia are enormous." At the end of the meeting, Wetlands lamented that its attempts to insert a Greenhouse Gas Emission criterion had been frustrated by members representing Indonesian and Malaysian oil palm planters.

In an interview with Business Times, Malaysian Palm Oil Association chief executive Datuk Mamat Salleh shed light on the ulterior motive and double standards deployed by the NGOs to the detriment of the global palm oil industry.

Under RSPO, palm oil has to be sustainably-produced. On the other hand, other vegetable oils like canola and soyaoil only need to be responsibly-produced. "Did you know that the term 'responsibly-produced' allows for genetically modified oilseeds?" Mamat questioned.

Greenpeace, Friends of the Earth (FOE), and Wetlands International claim oil palm cultivation cause tropical deforestation. But these NGOs are silent on soyabean, rapeseed and sunflower farming causing deforestation in temperate countries.

"How come these NGOs do not lobby for reforestation in Europe and the US? At the very least they should campaign for 10 per cent of the 100 million hectares planted with soyabean, rapeseed and sunflower to be with replanted with trees to absorb carbon dioxide from the polluted air there.

"How come these NGOs do not tell their own governments to replant forest and restore the habitats for racoons, beavers, frogs, wild foxes, deers and bears?" Mamat posed more questions.

The United Nations Copenhagen Climate Summit, scheduled to run from December 7 to 18, will see 192 countries meet to set targets on carbon emissions. As the summit draws near, Greenpeace and its affiliates have become more vociferous for a moratorium on the forest and peatland in Malaysia and Indonesia.

Without providing scientific evidence that can be verified, these pressure groups claim oil palm planting on peatland pollutes the air to the extent that this agriculture activity makes Indonesia the world's third biggest polluter, after the US and China.

Surprisingly, there is no such call by these NGOs for a moratorium on cars, ships, airplanes, oil exploration, coal mining and petrochemical processing industries, which all emit more carbon dioxide to the air than agriculture. "Isn't it ironic that the carbon emission of 3.5 tonnes from one tonne of depleting fossil fuel is tolerated while biofuels, which have the advantage of being renewable, are abhorred even though they are proven to be 35 to 65 per cent less polluting than fossil fuels?" Mamat asked.

Human settlement, forest clearing, industrial revolution in developed countries have long emitted the large portion of greenhouse gas in the atmosphere now.

"These Europe-based NGOs just close two eyes to unsustainable farming in their home countries. When we questioned their silence, they concede with their own governments' view that it was their grandfathers' right to clear-cut forest for industrialisation.

"But what about our grandchildren's rights to progress and prosperity?" Mamat asked.

On the one hand, Malaysia and Indonesia face threats from Greenpeace, FOE and Wetlands activists who are skilful at propaganda to impose moratorium on tropical forest and peatland.On the other hand, global vegetable oils trade thrives best when markets open up for free competition and more respect is accorded to representative governance.

When placed together - it doesn't take a PhD in economics or political science to conclude that the true motive of these NGOs is to put up trade barriers against tropical nations' palm oil to benefit rapeseed and sunflower farmers who are heavily subsidised by the EU government.

In a separate interview, Malaysian Estate Owners Association (MEOA) president Boon Weng Siew explained how Malaysia's small and mid-sized oil palm estates are already practising sustainable oil palm planting by virtue of compliance with the country's environmental and labour laws.

Established in 1931, MEOA represent 153 small and medium-sized estates of more than 40 hectares. All oil palm planters, whether smallholders or estate owners, comply to the Environmental Quality Act 1974 and the Environmental Impact Assessment Order 1987.

"We prepare and submit EIA reports for agriculture land development covering an area of 500 hectares or more. Open burning of plant residue is prohibited," he said. Apart from eco-friendly laws, oil palm planters observe the Employment Act, the Industrial Relations Act and the Minimum Standard of Housing and Amenities Act.

Estate owners are not required, by law, to provide accommodation, schools, clinics and places of worship but many of MEOA members do so as part of their corporate social responsibilities. "However, when accommodation for workers is provided, the site and buildings must comply with the Minimum Standard of Housing and Amenities Act 1990. The clinic also has to comply with the Private Healthcare Facilities and Services Act 1998," Boon said.

To date, Malaysia's oil palm plantations span across 4.5 million hectares. To a question on Greenpeace and FOE's claim that monoculture oil palms are unable to support wildlife diversity, making the estates sterile, Boon replied, "That is not true. Shrubs, ferns, fungi and herbs, monkeys, birds, wild fowls, squirrels, rats and snakes flourish in oil palm plantations."

Plants, mammals, insects, reptiles and birds have adapted to the oil palm ecosystem. "Oil palm estates are the green lungs that generate oxygen which the developed part of the country breathes, fulfilling many of the rainforest functions," he said.

Boon also said planters today do not just plant, harvest and sell. "Oil palm planters are now more aware of the whole supply chain from the point of applying fertiliser to milling. We are also familiar with traceability, food safety, environmental and social responsibilities," he said.

"Malaysia's palm oil production is already sustainable by virtue of compliance with national environmental and labour laws," Boon added.

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Stinky fertiliser? Oil palms need nutrients, too

Posted by Flora Sawita Labels: Azhar Abdul Hamid, Boon Weng Siew, fertiliser, Lee Oi Hian, Lee Shin Cheng, Mustapa Mohamed, Najib Razak, palm oil, Peter Chin, Rashidi Che Omar, Sabri Ahmad, Zainal Matassan

The fertiliser trail as published in the Business Times.

21 Jan 2009 -- Fertiliser importers set to drop prices further

FERTILISER importers are expected to drop prices by more than 15 per cent this quarter. This will benefit oil palm plantations as they use up some 3.5 million tonnes or 90 per cent of the country's chemical fertiliser imports.

Plantation Industries and Commodities Minister Datuk Peter Chin said fertiliser prices in the world market, except for potash, have fallen significantly and it is only logical to see these savings passed on to the plantations.

"In the last quarter, they've dropped prices by 15 per cent. They are now calculating the quantum of price drop for this quarter. It's likely to be more," Chin told Business Times after meeting with Agriculture and Agro-based Minister Datuk Mustapa Mohamed and Fertiliser Industry Association of Malaysia (FIAM) in Putrajaya yesterday.

FIAM chairman Zainal Matassan said: "Although barter trade is an option that would involve extra steps and procedure, we'll strive to find ways to implement fertiliser purchase via the POCPA. We'll revert to the government soon, before the end of this month."
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19 Jan 2009 -- Plan to barter palm oil for fertiliser with North Korea, Russia

MALAYSIA, in efforts to reduce its fertiliser import bill, will barter US$70 million (RM250.6 million) worth of palm oil for fertiliser with North Korea and Russia.

Last year, without much leverage from barter arrangement, oil palm planters paid more than RM6 billion to fertiliser importers for an estimated 3.5 million tonnes at market pricing.

Plantation Industries and Commodities Minister Datuk Peter Chin Fah Kui said his ministry and Bank Negara had, last month, approved US$20 million (RM71.6 million) credit with North Korea for palm oil orders until end-2010.

"In the last nine years, we've bartered US$60 million (RM215 million) worth of palm oil for fertiliser with North Korea. We've approved a further US$20 million for another two years," he told reporters after meeting with the Malaysian Estate Owners' Association (MEOA) in Putrajaya over the weekend.

"Russia is a bigger fertiliser producer. We're bartering US$50 million (RM179 million) of palm oil for potash this year," he said. Bartering of palm oil for fertiliser could facilitate more competitive pricing in fertiliser components from smaller suppliers. Giant crop nutrients suppliers of the world are in Canada, Norway and Chile, Chin said.

Apart from North Korea and Russia, Chin said, Malaysia wants to do more barter trade with other fertiliser producing countries like Morocco, Jordan, Syria and Iran. Since 1992, Malaysia has been bartering palm oil for other commodities via the Palm Oil Credit and Payment Arrangement (POCPA) with Bank Negara as credit guarantor.
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30 Dec 2008 -- Govt seeks views on fertiliser bulk-buying, ceiling pricing

THE government plans to meet with the Fertiliser Industry Association of Malaysia (FIAM) to explore the option of bulk buying and selling fertiliser to oil palm and rubber planters at lower prices.

"Before we bring this up to the Cabinet, we need to meet with FIAM to gather their views on bulk-buying and ceiling pricing," said Plantation Industries and Commodities Minister Datuk Peter Chin. "We already have this kind of arrangement with sugar distributors," he told Business Times in a recent interview in Putrajaya. "If fertiliser importers are agreeable, we can work together to find ways to implement this in a practical manner like in the sugar trade," he added.

According to the Statistics Department, in the first eight months of this year, Malaysia imported 2.57 million tonnes of fertiliser worth RM4.64 billion. So far, industrial crops consume RM4.4 billion, which make up 95 per cent of the country's fertiliser import bill.

Oil palm plantations consume 90 per cent of Malaysia's fertiliser imports while rubber and cocoa estates take up another five per cent. Padi fields, vegetable farms and orchards use the remaining five per cent.

Fertiliser make up 60 per cent of oil palm planters' production cost. Many planters, especially those with young trees just starting to bear fruits, are crying foul over expensive fertiliser. "Last year, our oil palm planters spent RM2.6 billion on 3.4 million tonnes of fertiliser. This year, the import bill may swell to more than RM6 billion since fertiliser prices have more than doubled," the minister said.

Chin's plan is in line with that of Agriculture and Agro-based Minister Datuk Mustapa Mohamed who suggested subjecting fertiliser to ceiling pricing so as to ease farmers' and planters' burden.

In a separate interview, the Malaysian Estate Owners Association (MEOA) said it welcomes the ceiling price proposal if fertiliser importers continue to sell it at high prices.

"We propose that the ceiling price for fertilisers, other than urea, should be at least 50 per cent less than the current prices," said MEOA president Boon Weng Siew. "The ceiling for urea, a petroleum derivative, should be fixed at, say, 65 per cent less than the price as at 31st July 2008," he added.

Boon said the government should probe into the two-tier pricing of Muriate of Potash (MOP) in the global market if it were to facilitate fertiliser bulk buy from global suppliers.

Citing industry journal "Potash Corp", Boon said current MOP prices showed contract price for shipment to China and India was US$550 (RM1,914) whereas that for Malaysia, Indonesia and Brazil was between US$1,000 (RM3,480) and US$1,100 (RM3,828) per tonne.
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26 Dec 2008 -- TH Plantations may have to use less fertiliser

TH PLANTATIONS Bhd, the plantation arm of Lembaga Tabung Haji, will reduce its fertiliser usage if palm oil prices do not improve and continues to be expensive.

"So far, we have not cut down the amount of fertiliser usage this year. Earlier, we had budgeted for 38,000 tonnes," its managing director Datuk Rashidi Che Omar told reporters after the company's extraordinary general meeting in Kuala Lumpur yesterday.

"If, however, palm oil prices do not improve, we may have to reduce by as much as 30 per cent. Fertiliser is so expensive. If this drags on, we will have no choice but to cut back," he said.

Rashidi's comment comes on the back of major oil palm planters' recent stand to reduce fertiliser purchases in the next six months if fertiliser continue to be sold at high prices.

Fertiliser makes up 60 per cent of oil palm planters' total production cost. "Cutting back on fertiliser usage is not an easy decision because we don't want to have drastic impact on yields in the later years," Rashidi said. TH Plantation's landbank now totals 28,730ha. Its shareholders, yesterday, approved of the almost RM200 million purchase of Bukit Belian estate and one-half of Sabaco estate from parent Lembaga Tabung Haji.
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19 Dec 2008 -- Ceiling price on fertiliser?

THE GOVERNMENT may make imported chemical fertiliser a controlled item, placing a ceiling on its price so as to ease oil palm planters' burden.

"The government is aware that fertiliser prices have yet to come down despite importers pledging to drop prices by 15 per cent. Fertiliser prices have risen significantly, about three times higher than in 2006.

"While crude oil prices have dropped significantly, fertiliser is still sold at high prices," Agriculture and Agro-based Industry Minister Mustapa Mohamed told reporters after officiating the launch of the Fisheries Department's business prospectus on aquaculture in Kuantan yesterday.

"The government is already subsidising fertiliser for padi and vegetable farmers, but the biggest users are oil palm planters. It would be disastrous if planters cut back on fertiliser usage as this would affect Malaysia's palm oil output next year," Mustapa said.

Asked how soon there would be a ceiling price on fertiliser, he said: "The proposal is still preliminary. We have yet to bring it up to the Cabinet."
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25 Nov 2008 -- Oil palm growers to buy less fertiliser

MALAYSIA'S 200,000-odd oil palm planters, initially forecast to spend more than RM6 billion on 3.5 million tonnes of imported fertiliser this year, have collectively agreed to reduce purchases in the next six months.

Oil palm plantations consume 90 per cent of the nation's fertiliser imports. Last year, Malaysia's oil palm planters spent RM2.6 billion on 3.4 million tonnes of imported fertilisers. This year, they are expected to use 3.5 million tonnes worth more than RM6 billion.

Oil palm planters do not usually want to skim on fertiliser usage unless they have no choice. This is because the more fertiliser is applied to the oil palm tree, the more fruit it bears. Therefore, productive estates are better at curbing production cost. For example, estate churning out 25 tonnes of fresh fruit bunches (FFB) per hectare per year incur production cost of about RM1,300 per tonne while those producing 20 tonnes of FFB per hectare per year will have to cope with RM1,500.

"We're considering not applying fertiliser for the next six months to cut cost if fertiliser prices do not come down. Fertiliser is still two times more costly than at the beginning of the year," said Malaysian Palm Oil Association (MPOA) chairman Datuk Azhar Abdul Hamid, who is also Sime Darby Bhd executive vice-president of the plantation and agribusiness division.

He was speaking to reporters after a meeting with Malaysian Estate Owners Association (MEOA) president Boon Weng Siew and the Malaysian Palm Oil Board (MPOB) chairman Datuk Sabri Ahmad.

MEOA's Boon said fertiliser importers' recent pledge to cut prices by 15 per cent is not justified. "Fertiliser suppliers should drop prices by 50 per cent, considering that international crude oil have come down by more than 65 per cent from its high of US$147.47 (about RM535) per barrel in July," he said.

Also present at the press conference were Felda Holdings Bhd group managing director Datuk Mohd Bakke Salleh, IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng and Kuala Lumpur Kepong Bhd (KLK) chairman Datuk Seri Lee Oi Hian.

MPOB has so far collected RM500 million in cess from oil palm planters. Some RM200 million has been set aside to replant 200,000ha of land and stabilise biodiesel prices when the government implements the B5 mandate effective February 2009.

Oil palm planters are also proposing to the government that national power firm Tenaga Nasional Bhd uses palm oil feedstock for its diesel-fuelled power plants in Sabah.

Although yesterday's sudden gathering of the oil palm associations that included captains of the six biggest oil palm companies seemed to reflect the seriousness of low palm oil prices, KLK's Lee said oil palm planters and exporters are not in dire straits.

"Please do not misread this as a distress situation. At RM1,500 per tonne, we're still profitable," he said, adding that oil palm planters can manage production cost by lowering inputs.

He said KLK's oil palm planted area of some 170,000ha in Malaysia and Indonesia have begun to reduce fertiliser inputs by 20 per cent. "By using less fertiliser, we've cut back on our production cost by about RM100 per tonne," he said.

Yesterday, the third month benchmark crude palm oil on Bursa Malaysia Derivatives Exchange traded RM28 higher to close at RM1,488 per tonne.
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5 Nov 2008 -- Palm oil sector could gain from lifting of fertiliser duty

MALAYSIA'S palm oil industry could get a respite from low margins thanks to a government move to scrap import duty on fertilisers.

Deputy Prime Minister Datuk Seri Najib Razak, who is also Finance Minister scrapped the 5 per cent duty on seven imported fertilisers yesterday.

"On fertilisers, usage cost is approximately RM1,600 per hectare," Affin Investment Bank said in a research, "hence, scrapping the import duty is estimated to boost net profits by 0.5 per cent to 2, equivalent to the impact of a RM20/tonne increase in crude palm oil price."

A level of RM1,500 a tonne — 15 per cent below current levels — represents the break-even point for plantations, which face a margin squeeze as fertiliser and other farm costs stay strong. Yesterday, the third month benchmark crude palm oil futures on the Bursa Malaysia Derivatives rose as much as RM122 to close at RM1,700 per tonne.

Malaysia’s import bill for fertiliser, used mostly by the palm oil industry, is likely to more than double to RM6 billion this year, as global prices flare on strong demand.

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Green concerns or trade barriers?

Stinky fertiliser? Oil palms need nutrients, too

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