Drones, Clones and Chocolate Could Be the Answer for Palm Oil PlanterBy
United Malacca turns to mechanization to beat labor shortage
Crops like cocoa, stevia will help diversify earnings: CEO
One of this year’s best-performing Malaysian palm oil plantation companies is looking to drones, clones and even other crops to overcome challenges from labor shortages and price volatility.
“We started mitigating that risk two years ago - we went all out for mechanization,” said Peter Benjamin, chief executive officer of United Malacca Bhd. “That has helped us cushion all these labor issues. It also helped us a lot as far as the recovery of the crop is concerned.”
Palm oil companies in Malaysia, the world’s second-biggest grower, have been grappling with a tepid rebound in production from the 2015-16 El Nino as well as an industrywide shortage of skilled plantation workers. Futures rallied 15 percent this half on lower-than-expected supplies. Output in most of Malaysia probably peaked in July while production growth is also slowing in Indonesia, according to Godrej International Ltd. director Dorab Mistry.
United Malacca shares have climbed 11 percent this year, compared with the 3.4 gain in the Bursa Malaysia Plantation Index. The stock is the 7th-best performer in the 40 company index.
A lack of plantation workers means fruit can’t be harvested on time, lowering extraction rates and oil quality. United Malacca uses mechanical grabbers to collect fruit bunches, a typically laborious task in hot and humid conditions. It’s also mechanized fertilizer and herbicide application while drones are used for aerial surveillance.
The company is also boosting output through clones and hybrid varieties that yield more oil, Benjamin said. It’s planted about 1,000 hectares (2,500 acres) in Indonesia with clones and will plant another 6,000 hectares with clones and hybrids over the next three years. While the program is initially expensive, “the higher yield and oil extraction rate offsets whatever cost you put in the beginning. The payback is faster,” Benjamin said.
The grower expects to boost yields to an average of 19 metric tons of fresh fruit bunches a hectare in 2018 from 17 tons this year and to 24 tons by 2025. The cost of production is expected to be about 1,500 ringgit ($350) to 1,600 ringgit a ton by the end of April.
United Malacca plans to diversify into crops including cocoa, coffee, coconut and stevia in Indonesia, Benjamin said, as it seeks to mitigate risks from being an upstream business and capture rising demand for those commodities. The company acquired a 60 percent stake in PT Wana Rindang Lestari to help widen its earnings base and reduce its dependency on palm oil.
The company started with 460 acres of rubber in 1910 before diversifying into palm oil in 1966 and remains an industry minnow with 49,000 hectares of land in Indonesia and Malaysia, about 70 percent of which is planted with palm oil. That compares with a combined plantation area of about 1.1 million hectares at Sime Darby Bhd. and Golden Agri-Resources Ltd., about the same size as Jamaica.
United Malacca is also betting that its young trees will boost profits into 2019, according to Benjamin. Oil palms typically start producing fruit at the age of three, with yields peaking when trees are between 10 years and 18 years old then gradually declining, he said. Most of United Malacca’s trees are about nine to ten years of age, he said.
Production that was curbed by El Nino will fully recover and return to normal next year, Benjamin said. Fresh fruit bunch output will increase by 12 percent to 15 percent in the year ending April 30, with an 8 percent to 10 percent increase across its Malaysian estates and 16 percent to 18 percent growth in Indonesia. Earnings this financial year will be “reasonably good” as the rise in output will cushion the impact of softening prices in 2018, he said.
Benjamin expects futures to hold at current levels in the next few months and average between 2,600 ringgit and 2,700 ringgit a ton this year. Prices on Bursa Malaysia Derivatives closed at 2,840 ringgit a ton on Monday.