Primary Commodities and Resource-Based Industries
The primary commodities sector comprises rubber,
oil palm, forestry and other minor crops such as cocoa and tobacco.
In 1997, the sector accounted for 8 per cent of the countryÝs total exports of RM
115 billion and 10.5 per cent of total export earnings of RM 221 billion. The sector
employs 740,000 workers or 8.6 per cent of total of 8.6 million employed in the country.
More than half the sectorÝs employment is in oil palm (51 per cent), followed by
forestry (30 per cent), cocoa (8 per cent) and rubber (6 per cent). Immigrant workers
account for 40 per cent of the workforce in the sector.
The resource-based industries account for 17 per cent of total
manufacturing value added and 10 per cent of the 2.3 million employed in manufacturing
activities. The resource-based industries include the following:
- Rubber-based products (tyres, footwear, gloves,
condoms and catheters);
- Palm oil-based products (oleo-chemicals, margarine,
soap, detergents and personal care products); and
- Wood-based products (sawn timber, veneer, plywood
products, furniture and mouldings).
The issues for the primary commodities are as follows:
- Malaysia is losing competitiveness in natural rubber
due to higher production cost and wage levels, as well as the higher rate of depreciations
of rupiah and baht. Rubber hectarage has declined due to conversion to oil palm and
other urban uses.
- The export values for palm oil are sensitive to exchange
rate fluctuations. A change of US1 cent in rate means a difference of RM38 million
in export value. Further price increases in the palm oil could force substitution
to other oils. Palm oil is sold at US$678 compared with US$634 for soya oil and US$640
for rapeseed oil. The subsector is also faced with higher cost of imported fertilisers
and labour shortage.
- Log supply will decline in the future as the states adhere
to the limits set under the National Forestry Policy. Under the Seventh Malaysia
Plan, the quota is reduced to 45,000 hectares compared with 52,250 hectares under
the Sixth Plan.
- For rubber products, the latex-based products industry is
benefiting from the ringgit depreciation but firms are finding it difficult to gain
access to workers. The tyre manufacturers are losing local market share to imports
from Indonesia and Thailand due to the gradual reduction in import tariffs on tyres.
They are also facing higher cost of imported materials and the downturn in local
demand for tyres.
- In the furniture industry, Malaysian firms are heavily dependent
on middlemen to market furniture abroad since US firms control international marketing.
The middlemen use Thai and Indonesian prices as leverage to push down prices of Malaysian
furniture. There is uncertainty over the supply of rubber wood, which forms nearly
80 per cent of the materials used for furniture making. Despite the publicity in
the mass media on the Small and Medium-scale Industries (SMI) Fund, manufacturers
are still unsure of how to apply to the fund.
The policy recommendations below are intended to meet
two broad objectives:
- To take advantage of the positive impact of the ringgit depreciation
to promote output and exports; and
- To provide a reprieve to industries that are adversely affected
by rising import costs and falling demand.
- Review the funding for rubber replanting with a view to sustaining
rubber output, raise smallholder incomes as well ensuring stable supply of rubber
wood to the furniture industry.
- In replanting rubber, advanced planting materials should be
used to reduce the gestation period before income is received. The use of latex timber
clones will increase output as well as the supply of timber wood.
- Provide fiscal incentives for promoting the export of rubber
products and furniture.
- Provide additional information and publicity to SMIs on how
to gain access to the SMI Fund.
- Establish bilateral payment arrangements with non-traditional
markets such as China, the Middle Eastern countries and the CIS countries that offer
good prospects for the export of Malaysian primary commodities and resource-based
- Provide clear policy directions on immigrant labour and establish
an effective institutional machinery to deploy surplus labour from the construction
and services sectors to the plantations and resource-based industries that need workers.
- Review and extend the duration of work permits for skilled
immigrant workers so as to enable such workers to stay for a longer period of time.
- Encourage the rehabilitation of the 300,000 hectares of abandoned
rubber smallholdings through strategies such as mini-estates by consolidating adjacent
- Increase the hectarage under oil palm particularly in Sabah
- Encourage R&D by PORIM on expanding and improving current
use of palm oil, its production efficiency and quality of products as well as maximise
the full potential of the oil palm tree.
- Encourage R&D by PORIM on zero-waste strategy on using
trunks, fronds and empty fruit bunches in the manufacture of pulp and paper, medium
density fibreboard and furniture.
- Encourage PORIM to explore the use of palm oil mill effluent
as fertilisers so as to reduce the import bill on fertilisers.
- Intensify the promotion of edible (margarine, non-dairy creamers)
and non-edible uses (cosmetics, detergents) of palm oil in food technology and oleo-chemical
industry to reduce imports and increase exports.
- Provide industrial land at reasonable prices for the expansion
of the furniture industry.