KUALA LUMPUR: When Shell engineer Incham Serdin quit his job four years ago to start a small palm plantation in his native Malaysia, prices of the fleshy fruit bunches used to make the world’s most-consumed vegetable oil were bubbling near their peak.
But prices have since halved for smallholders like Incham, falling 30% this year alone as the Covid-19 pandemic slashes demand and wipes out profits for many farmers with 40ha of land or less.
To survive, smallholders in Malaysia and Indonesia – which together account for 85% of global palm oil production – are cutting back on spending, particularly on expensive fertilisers and replanting old trees.
With small farmers making up a third of output, the cuts are set to hit production, not just in 2020 but also next year when demand for the oil used in everything from noodles to lipstick is expected to rebound as the health crisis eases, farmers and analysts said.
“What you get currently is just enough to pay the workers,” Incham, 59, said by phone from Sarawak, Malaysia’s biggest palm producing state by cultivation area where he has a 40ha plantation.
“For those people with landholdings of 4ha or so, there’s barely enough to put food on the table.”
Fertiliser makes up 30%-50% of the cost of production for smallholders and any lower application of the nutrients typically shows in output six months to a year later. Incham said his yields could fall by 20%-40% as he halves fertiliser usage to 1.5 kg per tree per quarter.
With the price of fresh fruit bunches (FFB) now at about RM330 a tonne, Malaysia’s biodiesel association has estimated that palm oil output this year will fall 10% to about 18 million tonnes. It has yet to give an estimate for next year.
“A lot of people are facing credit crunch and cash flow issues,” said Malaysian Palm Oil Association chief executive Datuk Nageeb Wahab.
In Indonesia, farmers are using the minimum recommended dosage of fertiliser, said Gulat Manurung, chairman of the Palm Farmers Association, likely cutting output to 1.4 tonnes per hectare per month from the usual 1.5 tonnes.
Some farmers, however, are facing a worse dilemma.
Yusro Fadli, a smallholder in Rokan Hulu in Riau province, said the fresh fruit price has dropped below 1,000 rupiah per kg (RM295 a tonne) in his region.
“Whether there is a pandemic or not, if the fresh fruit bunch price is below 1,000 rupiah per kg, forget about fertiliser. Farmers will choose to buy rice instead of fertiliser,” he said. – May 20, 2020, Reuters
