Paper 133: ‘Malaysia’s Innovation and Comparative Advantage in Producing/Exporting Palm Oil
and the Development of Best Sustainability Practices Applied by Palm Oil Producer’
By: Rafiq Idris
SLAB Academic Fellow
Department of Economics
Faculty of Economics and Administration
University of Malaya
Abstract
This paper analyzes the innovation, growth and development of palm oil’s industry production
and export in a developing economy, Malaysia, using trade and palm oil plantation area data, from 1964
to 2008. My literature survey suggests that strategic government approach in developing
agricultural land, innovation through concerted initiatives in focusing on research and
development and favorable trade policy are among the main reasons for explaining the flourish
of Malaysia’s palm oil export. Besides, in evaluating whether it is economically justifiable for
Malaysia to continue specialize and expand palm oil production and export, an analysis on Malaysia’s
comparative advantage in this industry is undertaken through computation on Malaysia’s palm oil
Revealed Comparative Advantage (RCA) Index. In addition, a nation-wide questionnaire survey was
circulated randomly to Malaysia’s palm oil companies aiming at eliciting their awareness and perception
on ‘best practices standard’ or the palm oil sustainability standard promoted by an international body
called the Round Table on Sustainable Palm Oil (RSPO). My study results suggest that Malaysia has
comparative advantage in producing and exporting palm oil. However, a research signal outcome of this
study indicates that there is a need for government bodies and palm oil producers to response and ensure
that palm oil cultivation and production activities are based on the best practices and sustainability
standard promoted by RSPO. Hence, I propose that policy makers, academicians/scientist and producers
to engage in a dialogue with RSPO and other interactive policy roundtable so that all contentious issues
pertaining best practices for sustainability, carbon tax and trade, possibility of promoting biodiesel, and
climate change could be managed and resolved more efficiently.
Abstract (total words): 267 words
Keyword: palm oil, comparative advantage, export, RSPO, sustainability
*Author can be contacted through mobile no +60198635555 or email rafiqidris@um.edu.my
I.
Introduction
Palm oil and palm kernel oil are of many uses. Approximately 80 percent are used for food
applications while the rest are feedstock for a number of non-food applications (Salmiah, 2000).
There are many advantages associated with palm oil production. On cost wise, among many
types of edible oils and fats available worldwide, palm oil is said to be the most cost-efficient
edible oil crop as it produces more oil per hectare planted than other crops. Its cultivation also
requires less input for pesticides, fertilizers and fuel per unit of oil produced.
Palm oil industry in Malaysia has been in existence for more than a hundred years. The
palm oil crop originated from West Africa, and the British was the first to bring it to Malaya in
the 1870s. The first commercial oil palm estate was set up in Selangor, in 1917. It grew quickly
and Malaysia’s present export exceeds 40 percent of the global palm oil export.
Palm oil has become more important where it is grown in more than 15 countries.
Malaysia’s palm oil production in 2006 occupies around 4.2 million hectares. It has increased by
more than 100 percent, compared to the palm oil planted hectareage in 1959, on which only
about 51,053 hectares of land being used (DOS, 2010). South East Asia happen to be the centre
of production with Malaysia and Indonesia together produce more than 80 percent of world’s
palm oil and are the world’s leading palm oil exporter. Malaysia’s palm oil has been exported to
more than 120 countries with China, European Union, United States, Pakistan, India and Japan
as the main importer in 2008. The palm oil products become so vital in Malaysia’s agricultural
exports by which it is the biggest export elements, with export in 2008 reached almost RM60
billion exceeding those rubber and timber. In this regard, what makes Malaysia a vital world
palm oil supplier? Does Malaysia really have comparative advantage in producing palm oil?
This paper aims to explain the factors for the expansion of Malaysia’s palm oil
production and export and evaluate Malaysia’s comparative advantage in the industry since
1964. The paper’s findings indicate that Malaysia has comparative advantage in palm oil
production and suggest that: i) strategic government approach in developing agriculture land, ii)
innovation through concerted initiatives in focusing on research and development, and iii)
favorable trade policy are among the main reasons for explaining the flourish Malaysia’s palm
oil export. Section two is my literature survey which offers some possible explanation for
Malaysia’s flourish palm oil export. Section three presents the Revealed Comparative Advantage
(RCA) Index computation for Malaysia’s palm oil export with some analysis. Section four
highlights contentious issues surrounding palm oil industry and the prospects to move forward.
The final section gives concluding remarks.
II. Brief Literature Review: Palm Oil
Production and Export in Malaysia
Palm Oil Products and Main Export Markets
Palm oil plantation in Malaysia has been in existence for more than a century. The palm oil crop
originated from West Africa, and the British was said to be the first to bring it to Malaya in the
1870s. The first commercial oil palm estate was set up at Tennamaran Estate, Selangor in 1917.
Ever since, palm oil plantation by land area has increased dramatically.
Moreover, Malaysia happens to be among the earliest countries that planted palm oil in a
large scale basis for export. Based on statistical data records, plantation area were only about
51,053 hectares in 1959, but has increased to 193,441 hectares in 1970, rose to 545,462 hectares
in 1980, reached 1,845,781 hectares in 1990 and were planted for more than 3.7 million hectares
in 2006(DOS, 2010). Palm oil now is widely planted in East and West Malaysia.
In about five decades back, palm oil sector only produce crude palm oil. After some rapid
development in the industry, Malaysia commences to be ahead of Nigeria in 1966 as the world’s
leading exporter and producer of palm oil (Harcharan Singh Khera, 1976).
The palm oil industry has evolved dramatically and currently produces crude palm oil,
palm kernel oil, palm kernel cake, oleo-chemicals and finished products. In recent years, crude
palm oil holds the highest share of total palm oil production, followed by palm kernel, palm
kernel cake and crude palm kernel oil. Malaysia’s palm oil export products in 2009 comprise of
crude palm oil, palm kernel oil, palm kernel cake, oleo-chemicals, finished products and
biodiesel (Table 1).
Table 1: Palm Oil Export Products, in 2008–2009
Product
Palm oil
Palm kernel oil
Palm kernel cake
Oleochemicals
Finished products
Biodiesel
Total
2008
Quantity (tonnes)
15,412,512
1,047,418
2,261,268
2,075,897
670,612
182,108
21,649,815
RM million
47,925.90
4,159.80
990.9
8,706.40
2,656.60
610.7
65,050.40
2009
Quantity (tonnes)
15,865,529
1,117,468
2,379,232
2,167,741
579,714
227,457
22,337,141
RM million
36,906.30
3,021.00
495.7
6559.2
1,911.10
605.8
49,499.10
Source: MITI report 2009 (2010)
To date, palm oil has been exported to more than 120 countries with China, European Union,
United States, Pakistan, India and Japan as the main importer in 2008. China has become the
leading importer of palm oil from Malaysia for about 8 consecutive years. In 1964, Malaysia’s
main export markets were United Kingdom, Singapore, Iraq, India, Canada, and Japan.
Possible Determinants of Flourish Palm Oil Export
Geographical location with suitable climate has made palm oil industry flourish in Malaysia.
Global vegetable oil production totals more than 144 million tonnes per year of which over 47
million tonnes is palm oil (Green Palm, 2010). Together with soy oil, palm oil makes up 60
percent of world production (Green Palm, 2010). Among many types of edible oils and fats
available worldwide, palm oil is said to be the most cost-efficient edible oil crop as it produces
more oil per hectare planted than other crops. Its cultivation also requires less input for
pesticides, fertilizers and fuel per unit of oil produced. Besides cost-efficient reasons, Malaysia’s
flourish palm oil production and export performance can be explained by the following:
i) strategic government approach in developing agriculture land and promoting export
As a result of land schemes recommendation made by World Bank in 1955, the government
decided to promote the planting of palm oil to raise the living standards of rural people (Rajah,
2006; Teoh, 2002). Federal Land Development Authority (FELDA) was established in 1956
with the socio-economic responsibility of developing plantation land for the rural poor and
landless. Rubber was the first crop planted under the FELDA program in 1957 and oil palm was
added in 1961. With government strategic role and plan through the resettlement program
palmoil was made as the ‘crop of choice’ (Flectcher 1991).
Within 1950s and 1960s, the government extended the Rural Industry and Smallholders
Development Authority (RISDA) to include oil palm cultivation. The government introduced
land settlement schemes for planting oil palm as a means to eradicate poverty for the landless
farmers and smallholders. The palm oil plantations in Malaysia are largely based on the estate
management system and smallholder scheme (MPOC, 2010).
Moreover, the cultivation of oil palm increased at a rapid rate in the early 1960s under the
government’s agricultural diversification program, which was introduced to reduce the country’s
economic dependence on rubber and tin (MPOC, 2010). Natural rubber had faced declining
prices and competition from synthetic rubber making it more volatile as it holds a considerable
high share on Malaysia’s export.
Efforts to diversify Malaysia’s exports were to reduce the negative effects of poor terms
of trade in rubber and tin (Rasiah, Osman-Rani, and Rokiah 2000). Lessons from the past on
price vulnerability of rubber and tin and the adverse effects of dependence on narrow product
lines which can bring disastrous price fluctuations caused Malaysia’s government to adopt
diversification as a way to sustain production and exports. While rubber cultivation fell sharply
in the 1960s, the area under palm oil increased substantially. The emphasis on processed palm oil
products exports becomes significant. Consequently, while production of crude palm oil
expanded steadily between 1960 and 2000, the production of processed palm oil was even faster
starting in the mid of 1970s.
Many organizations are in place to look after the interests of major players in the supply
chain, from production of fresh fruit bunches, milling, refining of crude palm oil, production of
edible oil products to the manufacture of basic oleo chemicals. Among the industrial
organizations involve are the Malaysian Palm Oil Association (MPOA), the Malaysian Palm Oil
Board (MPOB) and the Malaysian Palm Oil Promotion Council (MPOPC), all of which
considered as the backbone of the industry (Teoh, 2000).
The Malaysian government’s support and the role it plays indeed is the driving force of
the industry. Conducive and supportive government policies with active international trade
mission have somehow advanced our palm oil export performance. On recent trade mission
development, government undertook several Ministerial palm oil promotion missions to selected
countries in 2009. The objectives of these missions were to clarify Malaysia’s commitment for
sustainable palm oil production and to seek greater market access. The countries visited were
Bangladesh and India (December 2009), Japan (May 2009), Turkey (August 2009), Morocco
(August 2009), the USA (October 2009) (MITI, 2010).
ii) innovation through concerted initiatives in focusing on research and development
Innovation in palm oil industry is achieved through continuous effort in research and
development. Concerted initiatives in focusing on research and development by the private
sectors and government institutions also play a pivotal role in sustaining Malaysia’s palm oil
export performance. Among the most vital research efforts and institutions established since the
1960s are:
Period 1: 1960s
Malaysia's Department of Agriculture in the 1960s, established an exchange program with West
African economies and four private plantations formed the Oil Palm Genetics Laboratory
research and development (R&D)
Period 2: 1970s-1980s
In an effort to train agricultural and agro-industrial engineers and agro-business graduates to
conduct research in palm oil, Kolej Pertanian Malaya Serdang was established. In 1971, the
college was merged with Faculty of Agriculture, University of Malaya and became Universiti
Pertanian Malaysia (UPM). Crude palm oil refining resumed in the early 1970s in response to the
government's call for increased industrialization and its emergence marked the introduction of a
wide range of processed palm oil products.
Palm Oil Research Institute of Malaysia (PORIM) was established in 1979 to further
advance research in palm oil. In the 1980s, oleo chemicals industry begins to expand due to
research and development progress and ample supply of palm and palm kernel oil.
Period 3:1990s to present
Malaysian Palm Oil Board (MPOB) was formed in 2000 through the merger of Palm Oil
Registration and Licensing Authority (PORLA) and Palm Oil Research Institute of Malaysia
(PORIM). The MPOB is a government agency responsible for the development, promotion and
regulation of the palm oil industry with the vision of becoming the premier, Nobel laureateproducing research and development institution providing leadership and impetus for the
development of a highly diversified, value-added, globally competitive and sustainable oil palm
industry (MPOB, 2010).
To sum up, the continuous innovation in the industry which is achieved through
consistent effort in research and development have observed a dramatic expansion in Malaysia’s
palm oil industry.
iii) favorable trade policy
Malaysia’s trade policies in the author’s point of view have always been supportive towards the
development of palm oil industry expansion through its product exports.
In Malaysia, trade is considered to be an integral part of the economy and it is widely
perceived that the country is a very open economy (Ariff, 2008; Menon, 2000). Trade openness
is the degree to which a country exhibits a liberal and accommodating trade policy with the rest
of the world by having low trade barriers. Malaysian trade as a proportion of GDP is relatively
large compared to other major ASEAN countries except Singapore and this trend has been
increasing since independence. Openness to trade with low trade impediments is believed to be
among the vital reasons in explaining the expansion of Malaysia’s palm oil export. Some of the
trade policies which may have effects on Malaysia’s impressive palm oil export are:
-
Export-oriented Investment Incentives Act of 1968 is indeed considered as the first major
incentive vital for palm oil firms in making investment decisions (Gopal, 2001). The
investment abatement allowance offered a 40 percent abatement of corporate income tax for
two years, and of excess profit and development taxes over eight years (Gopal, 2001).
Refineries of palm oil that obtained “pioneer status” enjoyed a tax holiday for seven years
(Rajah, 2006). This indeed caused the industry to expand and products produced to diversify.
-
Export duties exemption for processed palm oil after 1976 for instance, has encouraged firms
to switch concentration from crude palm oil only to processed palm oil products. Imposing
export tax on crude palm oil, while having export tax exemptions on processed palm oil over
the period 1968–84 (Gopal, 2001), have encouraged product specialization and
diversification and this boosted processed palm oil production and export. Prior to large-scale
processed palm oil production took place it was believed that Malaysia did not have
comparative advantage in processing (Little and Tipping, 1972). Export tax on crude palm oil
is among the vital factors causing Malaysia’s export shift from crude palm oil to processed
palm oil. In addition, duties on primary export commodities such as palmoil were reported to
be among the major source of government revenue until the mid-1980s (Athukorala, P. and
Loke, W.H., 2009). Lower export duties were imposed from the mid-1980s, due to the fact
that certain industries was under consistent and severe constraint because of labor shortages
and rising wages propelled by dramatic structural changes in the economy under export-led
industrialisation (Ariff and Semudram 1990).
-
Import duty rates on palmoil increased persistently in the 1960s and 1970s, but have
decreased over the past two decades. Between 2000-2004 the average annual duty rate was
1.1 percent. The decline in trade impediments indeed has encouraged more palm oil trade
between countries.
To sum up, favorable trade policies indeed has encouraged the palm oil industry to expand in
terms of production and exports. However, a note to be stated here, author believes that trade
policy is a second best policy option. Other specific policy targeted to specific problem should be
used first, even though for the case of Malaysia it seems to be favorable.
III. Revealed Comparative Advantage (RCA) Index Analysis
Besides identifying geographical advantages, cost-efficient reasons, innovation through
concerted initiatives in focusing on research and development, strategic government approach in
developing agricultural land and favorable trade policies as the factors explaining Malaysia’s
flourish exports of palm oil, the revealed comparative advantage (RCA) index is computed to
evaluate Malaysia’s comparative advantage in producing and exporting palm oil.
David Ricardo in 1817 wrote ‘Principles of Political Economy and Taxation, in which he
presented the law of comparative advantage. The law of comparative advantage refers to the
ability of a party to produce good or service at a lower opportunity cost (high efficiency) than
other party.
Revealed comparative advantage (RCA) was used by Balassa (1965) to measure relative
export performance by country and industry, defined as a country’s share of world exports of a
good divided by its share of total world exports. RCA indeed measures a country’s trade
specialization in a commodity group and is defined as a country’s sectoral share divided by the
world sectoral share. The IRCAmk measures the index of revealed comparative advantage of
country m in commodity k as follows:
IRCAmk 
X mk X m
X wk X w
where Xmk represents country m’s export of commodity k, Xwk represents world exports of
commodity k, Xm represents the total exports of country m, and Xw represents total world
exports.
The index value ranges between zero and infinity with values greater than unity indicating
specialization in that commodity group, while a value between zero and one indicates no
specialization in that commodity group. A comparative advantage is “revealed”, if RCA is
greater than one. If RCA is less than unity, the country is said to have a comparative
disadvantage in the commodity / industry.
Here RCA Index of palm oil (4222) is computed using data under Standard International Trade
Code (SITC) classification (Revision 1, at 4 digit level) obtained from UNCOMTRADE. The
result is presented in the next section.
Results
In addition to geographical advantages, cost-efficient reasons, innovation through concerted
initiatives in focusing on research and development, strategic government approach in
developing agricultural land and favorable trade policies as the factors explaining Malaysia’s
flourish exports of palm oil, Malaysia’s comparative advantage in palm oil production and export
also explain the performance. The revealed comparative advantage (RCA) index is computed to
evaluate Malaysia’s comparative advantage in producing and exporting palm oil and it is
presented in Table 2.
Table 2: Revealed Comparative Advantage (RCA) Index
Year
1964
1970
1975
1980
1985
1990
1995
2000
2005
2008
2009
Revealed
Comparative
Malaysia's
Palm
Oil
Advantage (RCA) Export, as a % of World’s
Index *
Palm Oil Export *
45.43782931
34.49632934
72.82969627
43.7134132
124.8256334
59.94738377
84.35182851
62.54845031
71.52796515
66.11480483
78.12318037
73.44355362
43.82045682
68.66806486
34.63060428
55.48748524
31.97811799
45.53258981
33.09527596
43.16258638
28.73256754
41.35808499
Malaysia's Palm Oil
Export as a % of Total
Export *
2.390588085
5.118111084
14.29504676
8.932292384
10.47942987
4.723738118
4.866801995
2.411346238
3.036700579
6.430814468
5.917116972
Notes: * by authors computation. Trade data is obtained from United Nations Commodity Trade Website.
Referring to table 2, based on the computed Revealed Comparative Advantage (RCA)
Index, Malaysia is seen as having comparative advantage in specializing in palm oil industry
even since the 1960s. The RCA index has always exceeding 1 indicating specialization and
Malaysia’s comparative advantage in producing palm oil during the periods under observation
(1964-2009). Malaysia’s palm oil export as a percentage of world’s palm oil export was about 34
percent in 1964. It holds approximately 73 percent share of world export in 1990 and supplying
about 41 percent of total global palm oil export in 2009 (See table 2 and figure 1). The drop in
Malaysia’s export as a percentage of world’s export share after 1990, can be attributed to rapid
growth in palm oil export in Indonesia and other countries due to rise in world demand especially
during the second half of the 1990s. Malaysia’s export pattern has always been the same with the
world export trend shown at figure 1, indicating Malaysia’s huge world palm oil share supply.
The gap between Malaysia and world‘s palm oil export started to widen in present decade due to
expansion of palm oil export by other competing countries.
Figure 1: Malaysia and World Palm Oil Export
Source: data obtained from United Nations’ Commodity Trade website
On the contribution of Malaysia’s palm oil export to the country’s external sector, the
data recorded a rise in its export share compared to previous decade. Comparing with the decade
in the 1970s and 1980s, present contribution (in percentage) is lower. This may be attributed to
the expansion and relative importance of manufacturing sector to the economy. Recent data
shows that palm oil export contributed about 6 percent of the nation’s total export in 2009.
IV. Awareness and Perception on ‘Best Practices Standard’
Methodology and Data
A structured questionnaire consisting of close-ended questions constructed for the study. The
questionnaire is originally prepared in English and then translated into Malay. A short nationwide questionnaire survey was circulated randomly to Malaysia’s palm oil companies aiming at
eliciting their awareness and perception on ‘best practices standard’ or the palm oil sustainability
standard promoted by an international body called the Round Table on Sustainable Palm Oil
(RSPO). The questionnaire was distributed to a total of more than 100 palm oil companies in
Sabah, Sarawak and Peninsula Malaysia.
The instrument included four items to extract the respondent’s overall view of the ‘best
practices standard’ or the palm oil sustainability standard promoted by RSPO. The respondents
had to express their level of agreement to the following statements: (a) Palm Oil’s Best Practices
for Sustainability Standard set by RSPO is good for all (b) Palm Oil’s Best Practices for
Sustainability Standard set by RSPO vital to be implemented (c) Palm Oil’s Best Practices for
Sustainability Standard set by RSPO must be made compulsory to be implemented (d), Palm
Oil’s Best Practices for Sustainability Standard set by RSPO must not be made compulsory to be
implemented
To enable the study and gather the respondents’ perceptions on best practices of palm oil
sustainability standard set by RSPO, four different statements were posed to them. The
statements are measured on a five point Likert-scale (from 1 = strongly disagree to 5 = strongly
agree). The results are in the next section.
Results
Late reply which may due to time constraint has caused small number of companies to
respond/participate to the questionnaire (only 30). In addition, some have replied and express
their intention not to participate. More than 50 percent of companies who participated are those
located in Sabah. Besides, all who participated are the one operating under smallholder farmers
land.
The descriptive statistics of the main results based on the four statements on the
questionnaire can be viewed at Appendix A. The main findings of the questionnaire feedbacks
are more than 50 percent of respondents are uncertain/not sure pertaining the above mentioned
four statements, indicating they are not really aware of the RSPO agenda of promoting
sustainable palm oil. However, it is vital to be noted that it does not mean that the respondents do
not agree with all the good objectives of RSPO (or against sustainability) since none of the
respondents have indicated that they disagree/strongly disagree to any of the four statements.
Specifically from the questionnaire feedback:
 Less than 50 percent of the respondents agree/strongly agree that Palm Oil’s Best
Practices for Sustainability Standard set by Roundtable Sustainable Palm Oil (RSPO)
(called the Principles & Criteria (P&C)) is good for all. The rest tend to be neither agree
nor disagree.
 About 40 percent of the respondents in either agree or strongly agree with the statement
that Palm Oil’s Best Practices for Sustainability Standard set by RSPO (called the
Principles & Criteria (P&C)) vital to be implemented. The rest tend to be neither agree
nor disagree.
 Less than 30 percent agree that Palm Oil’s Best Practices for Sustainability Standard set
by RSPO (called the Principles & Criteria (P&C)) must be made compulsory to be
implemented. The rest tend to be neither agree nor disagree.
 About 33 percent agree with the statement that the cost of obtaining Palm Oil’s Best
Practices for Sustainability Standard Certification by RSPO is expensive and it is hard to
get certification. The rest tend to be neither agree nor disagree.
To sum up, for those operating under smallholders farmers’ land, the awareness on sustainable
palm oil based on the idea promoted by RSPO is considered low. However, respondents may have
understood sustainability differently, since none of the respondents have indicated disagreement
(disagree or totally disagree) with the four statements. It is vital to be noted that this exercise have
some weaknesses such as low number of respondents, very much concentrated to certain
particular area (i.e; Sabah) and participation are solely made by those operating under smallholder
farmers’ land. Realizing the shortcomings of the questionnaire exercise, however, a research signal
outcome of this study indicates that there is a need for government bodies and palm oil producers to
response and ensure that palm oil cultivation and production activities are based on the best practices and
sustainability standard promoted by RSPO. Hence, I propose that policy makers, academicians/scientist
and producers to engage in a dialogue with RSPO and other interactive policy roundtable so that all
contentious issues pertaining best practices for sustainability, carbon tax and trade, possibility of
promoting biodiesel, and climate change could be managed/resolved more efficiently.
V. The Need for Sustainable Palm Oil and its Development in Malaysia
Malaysian palm oil is believed to have largely been planted on agricultural land, on previous
palm oil or rubber estates or on previously logged over areas. An alternative for using forests
land is to use abandoned land or grassland for new plantations. This indeed would create an
environment-friendly plantation activity.
Due to the urgent and global pressure for sustainably produced palm oil, the Roundtable
on Sustainable Palm Oil (RSPO) was set up in 2004 with the aim, promoting the growth and use
of sustainable oil palm products through credible global standards and engagement of
stakeholders (RSPO, 2010). It’s an international body which has been formed to promote ‘best
practices’ by the industry and addressing global warming issues.
The RSPO Principles and Criteria for Sustainable Palm Oil Production (RSPO P & C) are
the global guidelines for producing palm oil sustainably and has been described as the world's
toughest standards for sustainable agriculture production and have been variously adapted for
other crops (RSPO, 2010).
In relation to certification process, there are criticisms as the cost to be incurred of getting
RSPO certification. For instance, it is reported that only about 10.5 percent members of the
Indonesian Palm Oil Producers Association (Gapki) have the Roundtable on Sustainable Palm
Oil (RSPO) certification status due to the high cost for certification and low premiums for
sustainable crude palm oil (CPO) (The Star Online, 2010). Table 3 is the latest list of RSPO
certified producer and supply chain members obtained from RSPO website.
Table 3: List of RSPO Certified Producer and Supply Chain Members
Name
Aarhus Karlshamn
Archer Daniels Midland (ADM)
Cargill BV
Cargill Palm Products Sdn Bhd
Danisco Enablers
FELDA
IOI Group
Kuala Lumpur Kepong Berhad
Kulim (Malaysia) Berhad
New Britain Palm Oil Ltd
PPB Oil Palms Berhad
PT Musim Mas
PT PP London Sumatra Indonesia Tbk
Sime Darby Plantation Sdn Bhd
SIPEF
United Plantations Bhd
Wilmar International Ltd
source: RSPO’s website
Country
United Kingdom
Netherlands
Netherlands
Malaysia
Denmark
Malaysia
Malaysia
Malaysia
Malaysia
Papua New Guinea
Malaysia
Indonesia
Indonesia
Malaysia
Belgium
Malaysia
Singapore
In getting more palm oil cultivation/production certified, efforts such as providing fund is
vital. The funding must be aimed at supporting the community programs such as improve
schools, provide accommodation, hospital and improve roadways surrounding the estate, support
conservation programs such as to increase the biodiversity of the estate and produce sustainable
palm oil.
All in all, challenges in expanding the industry will always be there. Efforts to further
maximize profit achievable through economies of scale by having lower average cost of
production, must not ignore the environmental consequences the industry may bring about.
Efforts to ensure more palm oil producers applied the best Principles and Criteria for Sustainable
Palm Oil Production (RSPO P & C) need to be multiplied. Initiative to reduce the cost of getting
certified by RSPO requires extra attention.
VI.
Conclusion
Malaysia’s comparative advantage in producing and exporting palm oil can be traced even since
the decade in 1960s. Malaysia’s palm oil industry has progressed rapidly over four decades, with
significant contribution to the country's economy. The comparative advantage and dynamic
progress of the industry is largely attributed by geographical and historical reasons, strategic
government approach in developing agriculture land, innovation through concerted initiatives in
focusing on research and development by both the government institutions and private sectors,
and favorable trade policies. In line with the national agenda of empowering the agriculturalbased sector, the palm oil industry should continue to play a pivotal role as a prime mover of the
plantation product despite criticism made upon less sustainable certification obtained and
deforestation activity alleged. Thus, while economic advantages are maximized for the benefits
of the nation, the best practices standard for sustainability need to be applied by palm oil
producers (based on RSPO standard).
A research signal outcome of this study (questionnaire exercise) indicates that there is a
need for government bodies and palm oil producers to response and ensure that palm oil
cultivation and production activities are based on the best practices and sustainability standard
promoted by RSPO. Hence, I propose that policy makers, academicians/scientist and producers
to engage in a dialogue with RSPO and other interactive policy roundtable so that all
contentious issues pertaining best practices for sustainability, innovation in palm oil production,
carbon tax and trade, possibility of promoting biodiesel, and climate change could be managed
and resolved more efficiently. Research and development effort need to be intensified with
planting activity should be made on abandoned land or grassland for new plantations. With this,
Malaysia will be able to sustain its position as the biggest palm oil producer in the world, as the
nation’s export is geared by its comparative advantage.
References:
Ariff, M. (2008), ‘Economic openness, volatility and resilience: Malaysian perspective’,
Malaysian Institute of Economic Research, Kuala Lumpur
Ariff, M. and M. Semurdram (1990) ‘Malaysia’, pp. 23-55 in S. Page (ed.), Trade, Finance and
Developing Countries, London: Harvester Wheatsheaf.
Athukorala, P. and Loke, W.H. (2009), ‘Malaysia, in Distortions to Agricultural Incentives in
Asia, Anderson, K. and Martin, W. (eds) Chapter 5, pp197-221 (Washington,D.C.: World Bank)
Balassa, B. (1965), “Trade Liberalisation and ‘Revealed’ Comparative Advantage”, The
Manchester School, 33, 99-123.
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Appendix A
Q1-Palm Oil’s Best Practices for Sustainability Standard set by Roundtable
Sustainable Palm Oil (RSPO) (called the Principles & Criteria (P&C)) is good for all
Cumulative
Frequency
Valid
Percent
Valid Percent
Percent
Neither
17
56.7
56.7
56.7
Agree
10
33.3
33.3
90.0
3
10.0
10.0
100.0
30
100.0
100.0
Strongly Agree
Total
Q2-Palm Oil’s Best Practices for Sustainability Standard set by RSPO (called the
Principles & Criteria (P&C)) vital to be implemented
Cumulative
Frequency
Valid
Percent
Valid Percent
Percent
Neither
18
60.0
60.0
60.0
Agree
10
33.3
33.3
93.3
2
6.7
6.7
100.0
30
100.0
100.0
Strongly Agree
Total
Q3-Palm Oil’s Best Practices for Sustainability Standard set by RSPO (called
the Principles & Criteria (P&C)) must be made compulsory to be implemented
Frequency
Valid
Percent
Valid Percent
Cumulative Percent
Neither
22
73.3
73.3
73.3
Agree
8
26.7
26.7
100.0
Total
30
100.0
100.0
Q4-The cost of obtaining Palm Oil’s Best Practices for Sustainability Standard
Certification by RSPO is expensive and it is hard to get certification.
Frequency
Valid
Percent
Valid Percent
Cumulative Percent
Neither
20
66.7
66.7
66.7
Agree
10
33.3
33.3
100.0
Total
30
100.0
100.0