May 22, 2004, (SUNGAI BULOH, Malaysia) The recent boom in globalcommodities - with palm oil recently hitting five-year price highs - isexposing deep inefficiencies in Malaysia's palm-oil industry, the AsianWall Street Journal reported yesterday.
In an example of how increased demand from China and other emergingeconomies can be a double-edged sword, the appetite for commodities isshowing up Malaysia to be no longer among the world's lowest-costproducers.
Many of its growers rely on antiquated methods that produce low yields.Now those inefficiencies are threatening to unseat Malaysia as the king ofthe world's US$13 billion palm oil trade. Over time, Malaysia's problemscould open the door for new, lower-cost producers of vegetable oils.Indeed, many Chinese buyers prefer soya bean oil, which is often made fromsoya beans grown in the US and Latin America.
Many agricultural analysts believe the continued growth of China, Indiaand other emerging economies will force a reconfiguration of the peckingorder of countries that produce the world's agricultural commodities, theAWSJ said.
Just as in the manufacturing sector, countries that don't update theiragricultural industries are likely to lose ground to more-nimblecompetitors that can produce commodities such as vegetable oil at a lowercost.
Although a stronger dollar and expectations of higher interest rates haveput a damper this year on the long-running, broad-based rally in commodityprices, demand from Asia has helped protein-rich agricultural products,including soya bean oil and substitutes like palm oil, remain strong.
With demand surging from China and elsewhere for food oils, othercountries - such as Brazil - are ramping up production. This means thatdespite the current high prices for palm oil, producers in places such asMalaysia are under pressure. Many of Malaysia's biggest, most-efficientproducers are looking elsewhere to expand their operations.
Malaysia has lost many of the advantages that drew palm oil growers in thefirst place. While palm oil accounts for only about 5 per cent ofMalaysia's exports, it is by far the biggest agricultural commodity.
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