Palm Oil Prices Spells Misery

Palm oil prices have plummeted from a March high of 4,486 ringgit (S$1,907) per tonne to less than 1,500 ringgit, due to the financial crisis and the falling price of crude oil. -- PHOTO: THE STAR

KUALA LUMPUR - THE global economic slowdown has sent palm oil prices crashing, spelling misery for countless smallholders who have been forced to watch their harvests rot on the trees.

Hundreds of thousands of farmers in Indonesia and Malaysia, which produce 85 per cent of the world's palm oil, are reliant on the industry which has gone from boom to bust in just a few months.

Palm oil prices have plummeted from a March high of 4,486 ringgit (S$1,907) per tonne to less than 1,500 ringgit, due to the financial crisis and the falling price of crude oil - which reduces demand from the biodiesel industry.

Malaysia's deputy commodities minister Kohilan Pillay said today's prices were close to the production costs of most smallholders, squeezing their earnings and pushing them to the brink of bankruptcy.

Oil mills are causing further hardship by flouting laws that require them to buy fruits from smallholders, whatever the going rate, he said.

'Their excuse is that it is not economical for them to process CPO (crude palm oil) at this time as prices are too low so they just shut down production,' Mr Pillay said.

'Many are waiting for the prices to hit rock bottom before purchasing and this is a problem as the fruits are perishable and so these independent smallholders end up with rotting, unprocessed fruits which they cannot sell.'

Smallholders or independent oil palm farmers account for about 30-35 per cent of Malaysia's total palm oil output and around 25 per cent of Indonesia's production.

'The bigger companies can sustain themselves even if prices fall below 1,000 ringgit per tonne but it is the smallholders who suffer the most,' Mr Pillay said.

In Indonesia, the government is under pressure to help independent farmers who face big losses.

'At present, oil palm growers are on the brink of bankruptcy in the wake of the sharp drop in the price of oil palm fruit bunches,' Mr Yulman Hadi from the West Sumatra Legislative Assembly told the state Antara news agency in October.

'Rescuing the growers from bankruptcy needs serious handling at the national level,' he said, warning that the loss of revenue could create a ripple effect in the region's economy.

Mr Achmad Ya'kub from the Indonesian Peasants Union said smallholders were facing the same kind of problems as their counterparts in Malaysia.

'The big CPO companies that also own plantations prioritise buying palm oil from their own plantations, so the smallholders are really having a hard time selling their stuff,' he said according to Antara.

Malaysia and Indonesia have announced plans to reduce supply by using the slump as an opportunity to replant old trees, and bolster demand by mandating the use of biodiesel.

Malaysia has also scrapped an import duty on fertilisers and plans to further cut fertiliser prices by 15 per cent to reduce production costs.

The hard times are here to stay, according to CLSA Asia-Pacific Markets, which has slashed its 2009 price forecast by 46 per cent to 1,000 ringgit (S$424.8), saying that measures to cut production will not be effective. -- AFP