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Malaysia's palm oil industry is expected to help the country ride out the current global economic downturn as it did 10 years ago during the Asian Financial Crisis.

Malaysia’s palm oil industry is expected to help the country ride out the current global economic downturn as it did 10 years ago during the Asian Financial Crisis.

Datuk Peter Chin, the Plantation Industries and Commodities Minister, expressed his confidence in the palm oil industry to help Malaysia survive the current economic crisis by providing much-needed jobs and export-earnings. “We’re exporting more palm oil and the sector continues to recruit. So far, I’ve not received any reports on retrenchment,” said Chin.

The palm oil industry has been a historically significant part of Malaysia’s economy. The oil palm tree, originally from West Africa, was first introduced to Malaya in the early 1870’s as an ornamental plant. Commercial planting of the tree took place in 1817 in Tennamaran Estate in Selangor. The industry was largely dormant until the 1960’s, when the Malaysian government launched an agricultural diversification program to reduce the country’s economic dependence on rubber and tin. In the late 1960’s, the government introduced several land settlement schemes for planting oil palm as a means to raise landless farmers and smallholders out of poverty. The government started the refining of crude palm oil in 1970’s, marking the introduction of a wide range of processed palm oil products.

Today, the Malaysian palm oil industry has grown to provide 51 percent of the world’s palm oil production and 62 percent of the world’s palm oil exports. 2004 figures show that over 14 million tonnes of palm oil was produced on 3.88 million hectares of land in Malaysia.

Palm oil is one of Malaysia’s main agricultural products that it exports. In 2008, the country exported over 15 million tonnes of palm oil, the majority of which went to China, the EU-27, Pakistan, the U.S., India and Japan. Palm oil prices reached a record $1,146.86 per metric ton last March and averaged at $862.92 per metric ton. This gave Malaysia RM65 billion ($17.7 billion) in palm oil export earnings in 2008.

But palm oil prices have declined since then to $522.15 in January 2009. Malaysia and Indonesia, the two biggest producers and exporters of palm oil in the world, have recently agreed to take appropriate measures, such as accelerating the replanting of oil palm trees and exchanging production and stock level data on a regular basis, to control the global supply and demand of palm oil and help strengthen and stabilize palm oil prices. They hope to stabilize palm oil prices at comfortably profitable levels.

The palm oil industry is one of the few sectors in the Malaysian economy that is expected to perform relatively well this year despite the global economic downturn.  Palm oil exports are expected to ensure job security for more than one million people working in the industry. Malaysia’s palm oil industry is also expected to hire more foreign workers as it embarks on new plantings and replantings. Benefits from the growing palm oil industry is also anticipated to spread to other sectors, such as the banking and financial sectors, where the rising volume of oil exports may translate to more job opportunities at commodity trading desks.

Even though Malaysian palm oil production and exports are expected to decline this year, the industry is still expected to earn significant profits. Chin said that prices between RM1,400 ($381) and RM1,900 ($517), would be enough to sustain export income from palm oil.

If Malaysia’s palm oil industry can indeed provide sufficient jobs and export earnings, then it is possible that the country can avoid sharing the fate of its neighbors and stave off a crippling recession.
Source: www.AsiaEcon.org

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Source: www.asiaecon.org |

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