DESPITE the industrialisation boom of the 1990s, Malaysia continued to invest in palm oil as its popularity as an edible oil continued to grow worldwide.

As a result, the amount of land planted with oil palm in Malaysia doubled from 2.5 million hectares in 1990 to 5.85 million.

About 40% of all fresh fruit bunches (FFB) harvested from oil palm was done by smallholders – individuals who worked on estates of between 2ha and 4ha – and by 2017, their numbers grew to 650,000 throughout the country.

But in 2018, the price of oil palm products plunged to a three-year low, slashing smallholder incomes by up to 50%.

Market analysts blamed the drop in prices to a global supply glut of crude palm oil (CPO) from exporting countries, such as Malaysia and Indonesia, and a decline in demand from importers like India.

The 20% plunge in CPO prices and 40% decline in prices for fresh fruit bunches (FFB) from which the oil comes triggered a vicious cycle for smallholders, such as Rahman Surip of Kuala Selangor.

FFB is the raw oil palm fruit harvested in plantations and sold to mills where they are processed into CPO.

“My income dropped by almost 50% since the prices fell. I can’t afford fertilisers or pesticides any more for my estate,” the 77-year-old told The Malaysian Insight when met at his 8.1ha estate.

Typically, every 0.8ha of oil palm that is well maintained is able to produce between one and 1½ tonnes of FFB every month.

“But now, I am only able to get between five and 10 tonnes,” Rahman said of his 0.81ha.

Not so golden

Rahman’s experience reflects the pain felt by many oil palm smallholders.

The “golden crop” has become a key commodity in Malaysia since independence and helped many to crawl out of poverty as seen in the establishment of Felda and the rise of world agriculture giants, such as Sime Darby Bhd and IOI Plantations.

In 1990, about 2.5 million hectares were planted with the crop. In 2018, that number doubled to 5.85 million, according to the Malaysian Palm Oil Board (MPOB).

Smallholders produce about 40% of all FFB harvested in the country. In 2018, the rate was 15.55 tonnes of FFB per hectare, according to the MPOB.

Of the 5.85 million hectares, 17% is owned by private smallholders, such as Rahman, while 61% belonged to giants like Sime Darby, Felda Global Ventures Holdings and IOI Plantations.

Felda, the troubled federal agency that oversees about 112,000 government-managed smallholders known as “settlers”, owns about 12% of all estates. The rest of the planted areas is owned by state governments (6%), Felcra Berhad (3%) and Risda (1%).

Oil palm is the biggest contributor to the gross domestic product of the agriculture sector at 46.6%. The sector itself contributed 8.2% or RM96 billion to GDP in 2017.

Despite its significant presence in the economy, CPO prices and income from the crop have been volatile.

According to a January 17 report by the MPOB, crude palm oil prices have declined from an average of RM2,783 per tonne in 2017 to an average of RM2,322 per tonne in 2018. In December, the CPO price was RM1,794.50 per tonne, the lowest in the past three years.

According to the MPOB, the price of FFB averaged between RM700 and RM750 per tonne in January 2017 depending on region and oil extraction rate grade.

It went down to between RM570 and RM490 per tonne starting in January 2018 and by June last year, after the 14th general election, the price hovered between RM480 and RM430.

In December 2018, prices declined to between RM380 and RM320, a drop of nearly 50% since January 2017.

The plunge in prices has forced smallholders, such as Rahman, to question whether the commodity is still viable in Malaysia.

“I am looking into switching some of the land to padi,” said Rahman, adding that he’s finished a course recently on how to plant rice using specially made bags, a technique being pioneered by some farmers in Pahang.

“I am going to visit some places in Janda Baik to see how it’s done and then I am going to experiment planting them at home. If it works, I will switch.”

Switching not an option

Rahman, however, is the exception among smallholders as he has the extra acreage to experiment with different crops. Most smallholders have only between 2ha and 4ha.

“If I switch to another crop, what am I going to eat while I wait for my trees to yield? Food crops have too many pests, such as monkeys and boars, and that’s not counting the harvests that get stolen,” said another smallholder, Sabil Md Salleh, 80.

“Whether I like it or not I just have to bear with the lower prices and hope that prices go up like they did before GE14,” said Sabil whose yield is between four and five tonnes per month from 2.5ha.

“I can’t afford to buy fertiliser or pesticides as I need to pay RM60 per tonne to hire people to harvest my oil palm. If I used fertiliser, I will not make enough and I can’t work the estate myself as I am old.”

Revenue is further impacted during the rainy season when low FFB prices make the fruit too costly to harvest, said Lehan Sayahan from the Selangor Smallholders’ Association.

“From November till January (this year), I wasn’t able to harvest from my estate because it was flooded. The labour fees to harvest during the rainy season go up to RM80 per tonne,” said Lehan who owns 2.5ha. – February 6, 2019.