OBG Talks to Jhuvarri Bin Majid, General Manager, Sabah Land Development Board
OBG : What is the ideal product mix for Sabahs plantations in light of efforts to increase overall output?
JHUVARRI: The consensus is that oil palm will remain the primary driver of output. The crop steadily contributes to economic growth because of its varied applications. Rubber trees are also important for their versatility as latex and timber: Latex prices are expected to rise, but will remain cheaper than synthetic rubber: which is adversely affected by high oil prices.
The scarcity of timber and rising demand, especially as Japan rebuilds following the tsunami and the Chinese economy grows will maintain the importance of rubber wood. Due to their importance to food security rice paddies are another priority Currently Sabah imports 70% of its rice. This leaves the region vulnerable to rising oil prices and transport costs. particularly as the state has to bear double handling costs as direct shipments are not allowed except through Port Klang.
This will have an adverse inflationary effect on the price of imported rice. Uncertain weather conditions and natural disasters are also cause for concern for rice producers.
Most of Sabah’s imported rice is from Vietnam where the Mekong Delta is now affected by rising sea levels. Therefore, Sabah should reduce its. dependence on imported rice and move into paddy production soon.
Another important segment is cattle farming, for both dairy and beef output. The government has a school milk programme where a free supply of milk is provided to student. The earthquake in New Zealand limited dairy supplies to Sabah; illustrating the need for self-sufficiency Beef is mostly imported from the Indian sub-continent.
Due to its competitive pricing, still the reliance on imported food, given the exposure to uncertainties in the supply should be reduced.
OBG : What is the forecast for growth in the plantations industry over the next five years? How much will it contribute to overall economic expansion?
JHUVARRI: Sabah has a land mass of 73,997 sq km, of which 48% - 3.5m ha is natural rainforest. To a large extent Sabah has mountainous terrain and. given the strict environmental regulations, this will restrict land development. As of 2009, oil palm plantations accounted for 1.35m ha of land, a 3% increase over 2008.
There are some 100,000 ha of land remaining for crops, owned by private firms and small holders. The projected cumulative growth in plantations for the next five years is 8%. The emphasis should be on higher productivity balanced with environmental preservation. To achieve this, adopting new technology such as precision farming and improvised planting materials, needs to be a priority.
OBG : What are plantation industries doing to limit environmental risks to Sabah‘s eco-friendly reputation?
JHUVARRI: Sabah already has strict environmental laws in place, it is prohibited to clear forest along rivers and streams, to preserve the quality of the water for people living in the vicinity, and buffer zones like the Riparian Reserves provide wildlife corridors that protect species, including the pygmy elephant, proboscis monkey and orang-utan.
These laws are complemented by voluntary adoption of good agricultural practices, such as lSO14001 Environmental Management Standards. Given the concern about the environment, firms are already beginning to adopt these practices, including bans on burning to clear land. For mill operations, lagoons and polishing systems are being installed to treat palm oil mill effluent. and boiler emissions will be monitored to ensure compliance with the Environmental Quality Act, as will proper storage and disposal of waste.
l expect that buyers will put pressure on plantation firms to comply with global standards, how even many companies are voluntarily participating in conservation efforts, We expect that local regulators will conduct regular audits to enforce environmental oversight.
OBG : To what extent will Sa bah be able to develop renewable energy sources from biomass and biogas?
JHUVARRI: From each tonne of fresh fruit bunch (FFB), an estimated 20-2 5% can be recouped as empty fruit bunch (EFB) biomass. while 1.5% per tonne can be transformed into effluent. EFB is generally used for mulching by the oil palm plantations and the effluent emits a methane gas which can be used to produce electricity. ln a recent report, it was estimated that Sabah has some 26m tonnes of biomass from the 144m ha of oil palm plantations. This biomass is equivalent to some 15 MW of energy, which Sabah could really put to good use. given the shortage of electric supply.
However, there are challenges facing the implementation of such activities, including the assurance of a regular supply of biomass for the power producing companies. EFB biomass comes from palm oil mills that are owned by different companies These latter firms have competing uses for EFB, sometimes using it to power their own mills or sending it back to the fields for mulching.
There is more biomass than needed by these palm oil mills, but unless better incentives are offered to them, owners are not expected to release the biomass to power companies.
The remote and scattered locations that some mills are in is an added challenge to the accessibility of EFB, and this is equally problematic for power producers. Due to the locations of the plantations, some oil mills are in the inner-most rural areas of Sabah.
These help to process the FFB supplied by smallholders. However because of the remoteness of these mills, moving the EFB would involve high transportation costs unless the rural infrastructure can be improved to ensure better road accessibility The electricity grid must also be extended to be closer to EFB sources.
There must be a concerted effort between the government and the major plantation players to connect the supply chain from biomass waste to energy A foundation must be initiated by the government by spending on improved roads and electricity grid extensions to reduce the cost of transporting EFB.
The government must also introduce incentives that encourage industry players to support renewable energy projects. This matter needs to be urgently considered. A future with a sustained high oil price, currently above $100 per barrel and threatening to reach $200; is not a myth and should not be dismissed.
The possibility of a hyper-inflationary effect may become a reality and will impact everyone’s livelihood. Sabah's abundant biomass provides an alternative and affordable energy source. The government must play its role and work with the private sector to make this happen.
OBG : Which palm oil-based value-added activities have the most potential for commercial development?
JHUVARRI: Sabah should consider moving into downstream activities such as oleo-chemicals production. To do this, Sabah must first build its own palm oil refinery. rather than sending the crude palm oil to Pasir Gudang or Singapore. The value-added output of refined oil will provide for higher revenue for the state.
This refinery should be owned by the state government so that it can expand its revenue. base further and transform these earnings into income for the man on the street. For this to happen, the major industry players must also support the state government. The implications of more revenue to the state budget, and therefore more money for internal spending, are incredibly significant to the state, its development and its people. This will also mitigate the negative effects of revenue leakage that.
Sabah·is suffers because the large plantation firms are generally not based in Sabah. The other downstream activities that should be explored are pulp and paper processing. as well as fibre-board, which can be created from EFB and tree trunks.
ln addition to adding value, these activities also address the global scarcity of raw materials from normal timber sources and reduce the impact of waste.
Finally, the industry needs be accelerate the growth of dairy cattle operations and the beef industry by developing protein-rich animal feed from oil palm fronds and oil palm seeds The regular pruning of fronds provides steadily available material from which to produce feed and will reduce the expenses associated with importing feed.
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