Source: MoF

KUALA LUMPUR, Oct 11 – The Finance Ministry, based on its analysis, has indicated that a five per cent increase in the productivity of the oil palm sub-sector will add 0.1 percentage point to the baseline gross domestic product in 2019.

Parallel to this, it said exports and household disposable income are expected to increase 0.07 percentage point and 0.06 percentage point respectively.

“Improvement in oil palm productivity also benefits other industries, including oils and fats which sources 90.3 per cent of its intermediate input from the oil palm industry.

“Furthermore, industries such as flower plants and fertilisers which supply most of its output as an intermediate input to the oil palm industry, are expected to benefit from forward and backward linkages,” the ministry said in its Economic Outlook 2020 report.

In addition, consumer-oriented industries such as motor vehicles and restaurants are expected to gain from rising household demand following improvement in income.

Acknowledging the importance of the oil palm sub-sector to the economy, the government has undertaken various measures to boost production and expand the market for palm oil.

These, it said, include introducing mechanisation, diversifying export markets, endorsing biodiesel usage and complying with international standards.

“These measures are expected to enhance the competitiveness of Malaysian palm oil globally while ensuring the sustainability of the industry, amid issues and challenges facing the industry,” the report said.

Globally, the oil palm crop is facing intensified scrutiny from environmental groups and consumers amid allegations of indiscriminate land clearing for the crop resulting in deforestation, despite the crop utilising only 0.4 per cent of world agricultural land compared with other agriculture produce.

On June 10, 2019, the EU Parliament passed the Delegated Act to ban palm oil biofuel gradually by 2030.

This is expected to affect Malaysia’s exports of palm oil biodiesel to the EU in phases. Apart from the ban by the EU, India, which is another major importer, increased tariffs on Malaysian palm oil to 54 per cent from 40 per cent, the highest level in more than a decade, to protect the country’s rapeseed crop.

However, under the Comprehensive Economic Cooperation Agreement (CECA), India reduced the import duty on CPO to 40 per cent and refined palm oil to 45 per cent in January 2019.

Nonetheless, India increased the import duty on refined palm oil to 50 per cent in September 2019 for six months to curb imports and boost the local refinery industry.

The oil palm sub-sector has become an important sub-sector to the Malaysian economy, accounting for 37.9 per cent of the agriculture sector and 2.8 per cent of GDP in 2018.

 -- BERNAMA