Mid Term Review ELEVENTH MALAYSIA PLAN 2016—2020 Strategy Paper on Agricommodities

OVERVIEW

Delivering ELEVENTH MALAYSIA PLAN, 2016 – 2017: PERFORMANCE  Land Use Economic and  Yield  Smallholders Participation  Gross Domestic Product  Trade Performance Social  Employment

ISSUES AND CHALLENGES Prosperity  Declining Productivity  Demand for Sustainably Produced Commodity Products and Food Safety Concerns  Low Value Add through  Lack of Technology and Automation

ELEVENTH MALAYSIA PLAN,2018-2020: Agricommodity WAY FORWARD Macro Strategies:  Enhancing Productivity  Building Leadership in Sustainability  Accelerating the Shift to Higher Value Added Activities  Expanding Exports  Strengthening Human Capital

INDUSTRY-SPECIFIC: STRATEGIES AND KEY PERFORMANCE INDICATOR  Palm Oil  Rubber  Timber  Cocoa  Pepper  Kenaf

NKEA PALM OIL AND RUBBER  Performance  Way Forward

CONCLUSION

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

HIGHLIGHTS ELEVENTH MALAYSIA PLAN, 2016—2017: AGRICOMMODITY ACHIEVEMENTS

7.4% RM122.6 1.04 RM82.1 billion million billion 15.6%

7.7% RM140.3 1.13 RM90.4 billion million billion 15%

Contribution to Export value & Number of GDP in terms of share smallholders percentage and value

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

6.89 532,590 2016 million workers hectares

6.93 565,976 2017 million workers hectares

Planted area Employment *excluded Sago

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

I. OVERVIEW

1. The agricommodity sector comprises palm oil, rubber, timber, cocoa, pepper, kenaf and sago, which is under the purview of the Ministry of Plantation Industries and Commodities. This paper presents the performance of the agricommodity sector in 2016-2017 and agricommodity specific strategies for 2018-2020.

2. In 2016-2017, the contribution of agricommodities to real Gross Domestic Products (GDP) remained unchanged. However, exports of agricommodities expanded both in absolute term as well as a share of total exports. The sector continued to support more than 1 million smallholders and witnessed a general increase in their household income.

3. In 2018-2020, the strategy focus will be to enhance productivity, expand exports, achieve sustainable production, promote higher value added products and strengthen human capital. In this respect, strategy focus is alligned directly to three of the strategic thrusts of the Eleventh Malaysia Plan, namely Thrust 1: Enhancing inclusiveness, Thrust 4: Pursuing green growth and Thrust 6: Reengineering economic growth for greater prosperity. Strategic actions proposed will also contribute to the United Nations’ Sustainable Development Goals (SDGs) particularly towards Goal 1: End poverty in all its forms everywhere, Goal 2: End hunger, achieve food security and improved nutrition and promote sustainable agriculture and Goal 15: Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss.

II. ELEVENTH MALAYSIA PLAN, 2016-2017: PERFORMANCE

4. In 2017, the agricommodity sector contributed 7.7% or RM90.4 billion to the GDP. This amount constitutes an increase of 10.1% from RM82.1 billion in 2016. Meanwhile, the exports earnings from agricommodity sector in 2017 amounted to RM140.3 billion or 15% of the total product exports.

5. Despite being the third largest exporter after the electric and electronic (E&E) and the oil and gas (O&G) sectors, the agricommodity sector consistently recorded significant positive trade balance and was the largest net exporter. The sector occupied numerous world leading positions across its value chain. In 2017, Malaysia was the world’s largest exporter of rubber gloves, second

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity largest producer and exporter of palm oil, fifth largest producer of natural rubber and pepper, seventh largest cocoa grinder and eighth largest exporter of wood furniture.

Land Use

6. In 2017, agricommodity planted area occupies 6.93 million hectares or 63.3% from total agriculture land and 21% of total land area in Malaysia as in Exhibit 1. Oil palm occupies 83.9% of agricommodity planted area, followed by rubber 15.6%, sago 0.7%, cocoa 0.3%, pepper 0.2% and kenaf 0.03%.

Exhibit 1 Agriculture Land Use in Malaysia

Yield

7. Yield is an important determinant of output and smallholder income given that the opening up of new land for plantation is limited. In 2017, average yield of oil palm fresh fruit bunches (FFB) and natural rubber increased to 17.89 tonnes/hectare and 1.42 tonnes/ hectare respectively. Average yield of cocoa beans was at 0.27 tonnes/hectare and average yield of pepper increased to 5.8 tonnes/hectare. See Exhibit 2.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Exhibit 2 Average Yield of Agricommodity

Smallholder Participation

8. In 2017, there were 1.13 million smallholders involved in the agricommodity sector with a total planted area of 2.96 million hectares, which constitutes 42.7% of total agricommodity planted area. See Exhibit 3. From this, 59% was oil palm smallholders and 38% rubber smallholders. The remaining 3% constitutes pepper, cocoa and kenaf smallholders.

9. The smallholders include independent smallholders and organised smallholders under the purview of Federal Land Development Authority (FELDA), Federal Land Consolidated Rehabilitation Authority (FELCRA) and Rubber Industry Smallholders Development Authority (RISDA).

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Exhibit 3 Number and Planted Area of Independent and Organised Smallholders in 2017

Agricommodity Peninsular Sabah Sarawak Total

Oil Palm 197,547 40,717 59,597 297,861 MPOB Independent 538,502 Ha 220,208 Ha 220,405 Ha 979,116 Ha 98,240 1,647 99,887 FELDA - 401,622 Ha 9,669 Ha 411,291 Ha 100,055 2,540 12,340 114,935 Organised FELCRA 116,908 Ha 7,560 Ha 27,241 Ha 151,709 Ha 125,634 13,837 14,619 154,090 RISDA1 378,024 Ha 50,684 Ha 53,316 Ha 482,024 Ha 521,476 58,741 86,556 666,773 Total Oil Palm Smallholders 1,435,056 Ha 288,121 Ha 300,962 Ha 2,024,139 Ha 296,509 55,978 81,468 433,955 Rubber1 578,886 Ha 174,724 Ha 158,266 Ha 911,876 Ha

Cocoa 2,908 5,241 5,577 13,726

175 157 16,393 16,725 Pepper 93 Ha 23 Ha 3,247 Ha 3,363 Ha 646 646 Kenaf - - 1,462 Ha 1,462 Ha 821,714 120,117 189,994 1,131,825 Grand Total 2,018,557 Ha 469,628 Ha 469,294 Ha 2,957,478 Ha

Source: Pangkalan Data Pekebun Kecil (PDPK), MPIC FELDA, FELCRA

10. The average income of the smallholders is highly dependent on landholding size, cost of production, yield and ultimately the commodity market price. The average smallholding size varies from 0.25 ha for pepper and 3.9 ha for oil palm. In 2017, the average monthly income for all plantation smallholder increased except for pepper compared with the previous year. See Exhibit 4.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Exhibit 4 Estimated Average Monthly Net Income of Smallholders

Key indicator Year Oil palm Rubber Cocoa Pepper Kenaf

Average annual 16.00/T 1,380/kg 0.15/T 5.60/T 5.87/T yield per hectare

Average small- 3.90 ha 1.90 ha 2.00 ha 0.20 ha 2.38 ha 2016 holding size

Average monthly RM2,098.46 RM656.13 RM209.25 RM2,127.07 RM582.11 net income

Average annual 17.19/T 1,400/kg 0.27/T 5.80/T 2.1/T yield

Average small- 2017 3.9 ha 1.90 ha 2.00 ha 0.25 ha 3.42 ha holding size

Average monthly RM2,339.73 RM936.49 RM278.01 RM1,461.29 RM656.25 net income

Source: MPIC Note: Average price referred to CPO, SMR20, cocoa beans (Tawau), black pepper and kenaf dried stem

Gross Domestic Product

11. The contribution of the agricommodity sector to real GDP was 7.4% in 2016 and 7.7% in 2017. On average, the upstream component contributed about 60% of the agriculture GDP value added while the rest was from downstream activities which accounts for about 12% of the manufacturing value added. The biggest contributor was palm oil 61.8%, followed by rubber 16.3% and timber 15.6%. See Exhibit 5 and Exhibit 6.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Exhibit 5 Agricommodity’s Contribution to GDP

Source: Department of Statistics Malaysia

Exhibit 6 Agricommodity’s Contribution to GDP by Sector

Source: Department of Statistics Malaysia 8

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Trade Performance

12. In 2017, the export value of agricommodities was RM140.3 billion, accounting for 15% of the total merchandise exports. Exports of palm oil and palm-based products being the largest contributor of 55% or RM77.8 billion, followed by exports of natural rubber and rubber-based products at RM32.3 billion (23%). See Exhibit 7 and Exhibit 8.

Exhibit 7 Export Earnings of Agricommodity

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Exhibit 8 Trend of Trade Balance for Agricommodity Sector

13. In 2017, the agricommodity sector remained the largest net exporter in Malaysia with a surplus trade balance of RM100.8 billion. The biggest component of the trade surplus in 2017 was palm oil with RM68.3 billion followed by timber, RM18.5 billion; rubber, RM12.5 billion; cocoa, RM1.2 billion and pepper, RM232.18 million as illustrated in Exhibit 9.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Exhibit 9 Trade Performance of Agricommodity Sector, 2017

TOTAL TRADE 15% RM179.8 Billion 16.3% 4.7% to National to National Export Import TRADE BALANCE RM100.8 Billion 11.3% TOTAL EXPORT TOTAL IMPORT RM140.3 Billion 14.4% RM39.5 Billion 23.3%

EXPORT IMPORT TRADE BALANCE

RM77.8 Billion RM9.6 Billion RM68.3 Billion 14.6% 30.9% 12.6% Palm Oil and Palm Oil-Based Products

RM24.3 Billion RM19.7 Billion RM12.5 Billion 30.2% 33.7% 25.0% Rubber and Rubber Products

RM23.2 Billion RM4.7 Billion RM18.5 Billion 5.0% 20.8% 1.7% Timber and Timber Products

RM5.6 Billion RM4.4 Billion RM1.2 Billion 3.0% 2.4% 18.2% Cocoa and Cocoa Products

RM1.1 Billion RM1.1 Billion RM12.7 Million 29.8% 36.3% 109.3% Tobacco and Tobacco Products

RM308.9 Million RM76.7 Million RM232.2 Million 37.0% 44.7% 34.0% Pepper and Pepper Products

RM343.0 Billion RM252.9 Billion RM90.1 Billion 19.2% 20.5% 15.7% Electrical and Electronic

RM127.3 Billion RM91.3 Billion RM35.9 Billion 24.3% 45.6% 9.4% Petroleum and Gas

RM935.4 Billion RM838.1 Billion RM97.2 Billion 18.9% 19.9% 10.3% TOTAL MERCHANDISE

Source: Department of Statistics Malaysia 11

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Employment and Labour Productivity

14. In 2017, 565,976 workers were employed in the plantation sector. Of this, 60% or 340,103 were foreign workers, primarily in the oil palm plantations, engaged in harvesting, weeding and other general tasks. See Exhibit 10.

Exhibit 10 Total Number and Ratio of Workers in Plantation Sector (2015 – 2017)

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

III. ISSUES AND CHALLENGES

15. Although the issues and challenges vary across sectors as well as in the intensity of these issues, the common challenges encountered by the agricommodity sector across all the commodities are: i) stagnant or declining productivity; ii) demand for sustainably produced commodity products and food safety concern; iii) low value added activities; and iv) lack of technology and automation.

Declining productivity

16. Since 2010 and through 2016 and 2017, the productivity, particularly yield per hectare for most of agricommodities have remained relatively unchanged and in some cases declined. The main factors contributing to the decline are weather conditions, uneconomic size holdings, age of crops, poor planting materials and management practices including pre and post harvest handling. For the case of palm oil, the prolonged hot weather and drought induced by the El Nino phenomenon in 2016 affected productivity in terms of lower national average yield of fresh fruit bunches (FFB) and the oil extraction rate (OER). The production of CPO declined by 13.2%, from 19,961,581 tonnes to 17,319,177 tonnes. The average FFB yield was reported at 15.91 tonnes/hectare, a decrease of 13.9% as compared to 18.49 tonnes/hectare achieved in 2015. The percentage of OER also experienced a decrease of 1.4% to 20.18% in 2016 against the 20.46% recorded in 2015.

17. The productivity of the agricommodity downstream activities also has not been encouraging. The common factors affecting productivity include shortage of raw materials and difficulty in obtaining labour.

Demand for sustainably produced agricommodity products and food safety

18. There is currently an increasing demand for sustainably produced agricommodity products and food safety concerns, particularly from developed countries such as the United States, European Union (EU) and Japan. The palm oil industry, in particular has been facing

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity unfair and baseless attacks, especially from the EU by associating oil palm planting and processing with non-environmental activities such as deforestation, biodiversity loss, greenhouse gas emission and destruction of wildlife habitat. Palm oil is also being unfairly discriminated against other competing vegetable oils such as soya and rapeseed. In addition, Malaysian timber products are also required to implement standards and certification as well as traceability measures along its value chain to ensure sustainable production before they can be accepted in international market. This is, especially in trade to the EU and Japan.

19. There are also increasing concerns on food safety, especially for palm oil based products and this has added greater challenge for the Malaysian palm oil industry to penetrate the global oil and fats market. A multi-pronged strategy has been adopted to address these challenges including consistent advocacy and engagement to clarify presentation of facts and scientific evidence as well as commitment to produce sustainable palm oil through the mandatory implementation of the Malaysian Sustainable Palm Oil (MSPO) in 2019 and the compliance to Programme for the Endorsement of Forest Certification (PEFC) through the Malaysian Timber Certification Scheme for timber.

Low value added

20. Generally, Malaysia is a primary bulk exporter of agricommodity products, including crude palm oil and natural rubber. Despite Malaysia’s long history in the rubber and palm oil industries, the proportion of exports in value added products is still relatively low. Total of palm oil exports in the form of crude and processed palm oil was 70% in 2016 and 68% in 2017. The proportion of primary output going into producing more high value added and premium products that can generate higher export value remains low. The potential available in the downstream sector has not be exploited.

21. For example in the case of timber, Malaysia is currently ranked as the eight largest exporter in the world for wooden and rattan furniture which mostly originates from Original Equipment Manufacturing (OEM). However, the shift to the Original Design Manufacturing (ODM) and Own Brand Manufacturing (OBM), which can generate higher returns and generate a premium for Malaysian produced furniture is still low.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Lack of Technology and Automation

22. The progress towards modernisation of the agricommodity sector is still sluggish. The highly reliance on labour is evident in the upstream industry, especially in the oil palm, rubber and furniture industries. Despite the employment opportunities offered by agricommodity sector, local workforce participation is low due to: i) lack of interest among the local workers due to 4D (dirty, dangerous, difficult and dull) job nature in the agricommodity sector; ii) job market competition from other sectors such as manufacturing and services, which offer the same minimum wage but with better working conditions and convenient workplace location in urban or semi urban areas; and iii) the rubber glove industry expansion plan to capture 65% share of world market requires a large number of workers, which can only be supported by the foreign workers.

23. Furthermore, low uptake of automation and mechanisation in the upstream segment due to high cost of mechanised tools hinders efforts to reduce the reliance on foreign workers. For the downstream industries such as rubber glove and furniture, the existing automation incentives is not sufficient inducement for further investment to be made by the industries.

24. In order to adopt Industry 4.0 technology in the agricommodity sector, there is a need to equip itself with the required capability, infrastructure and human capital. The use of digital and e-commerce is also lower compared with the other sectors of the economy.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

IV. ELEVENTH MALAYSIA PLAN, 2018-2020: WAY FORWARD

RM146 568,068 8%

billion workers

2020 TARGETS

Contribution to GDP Export value Employment in plantation sector

25. In 2018-2020, the agricommodity sector will continue to remain an important contributor to the economy as well as the socio-economic development of the nation. Apart from palm oil, rubber and timber products, the potential of other agricommodity crops namely cocoa, pepper and kenaf will be further exploited.

26. The key 2020 targets for agricommodities include increasing its contribution to real GDP, increasing employment, increasing average income of smallholders, increasing yield/productivity, increasing exports and achieving sustainable production. To achieve these targets, address cross-cutting challenges faced and to take the agricommodity sector forward, five macro strategies have been identified as presented below.

Enhancing Productivity

27. Given the limitation of land to increase production, it is pertinent to increase productivity, specifically yield per hectare to ensure adequate raw material supply to meet the demand of downstream agricommodity activities, and to expand or maintain global market share. As yield per hectare for all agricommodities have either remain stagnant or declined, particularly for smallholdings, it is necessary to take drastic and concerted measures to reverse this trend. In the same breath, it is also crucial to further increase productivity of the downstream segment. Among the initiatives that will be taken to raise productivity are:

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

i) develop and commercialise innovative, efficient and cost-effective technologies to increase yield and quality of agricommodities at the pre and post harvest stage; ii) promote and accelerate replanting and rehabilitation programmes, particularly for smallholders supported by comprehensive extension services; iii) institute adoption of good agricultural practices and mandatory certification throughout the value chain; and iv) promote and facilitate adoption of automation and mechanisation including relevant Industry 4.0 technologies also focused on reducing dependency on foreign labour. In this regard, programme such as the Oil Palm Industry Mechanization Incentive Scheme (OPIMIS) and Oil Palm Mechanisation Fund (OPMF) for oil palm will be escalated.

Building leadership in sustainability

28. Standards setting and certification are crucial to ensure sustainability produced agricommodity products throughout its value chain. This is critical to meet the increasing demand for green and sustainably produced products, particularly in developed countries. It is most urgent for palm oil, timber and rubber based products. It is also necessary to address the anti-palm oil campaign particularly from EU.

29. Among the initiatives that will be taken are: i) accelerate the roll out MSPO to become mandatory by end of 2019; ii) intensify the forest management unit certification through MTCS; and iii) contribute to the national commitments made under the Kyoto Protocol, United Nation Framework Convention on Climate Change (UNFCCC) to reduce the GHG emissions intensity by 40% by 2020 based on national GDP by:  usage of palm oil based biodiesel in blended petroleum diesel to reach 407,917 tonnes of palm methylester (PME) with potential

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

emission reduction of 1,223.75 kt CO2eq; and

 biogas recovery from palm oil mill effluent (POME) treatment through full compliance of 25% of total palm oil mills by 2020 in implementing biogas capture facilities to achieve potential

emission reduction of 3,001.89 kt CO2eq.

Accelerating the shift to higher value added activities

30. In order to maximise the returns from agricommodity, particularly with limited scope to increase primary production, it is pertinent to move more aggressively to higher value added downstream activities. Malaysia needs to focus on specialised, niche and premium products and become a global leader for these products.

31. During the Plan period, the Government will target to increase the ratio of downstream export products to primary products - 20:80 for palm oil products, 70:30 for rubber products, 60:40 for timber products and 85:15 for cocoa products. The production of palm-based oleo-chemicals derivatives is targeted at 29% of GDP contribution from palm oil industry by the end of the Eleventh Malaysia Plan.

32. In order to accelerate the shift to higher value added downstream products among the initiatives that will be taken are: i) create local demand for high value added products; ii) encourage establishment of strategic joint ventures and international partnerships to venture into value added products and to access markets; iii) intensify research and development (R&D) to create new uses and products; and iv) incentivise Small and Medium Enterprise (SMEs) and midsize companies to invest in value added products.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Expanding exports

33. The focus will be to realise the targeted export earnings of RM146 billion in 2020 by exploring new potential markets as well as strengthening foothold in existing markets for agricommodity products. It is targeted that the market share of agricommodity products will grow between 1% to 5%.

34. The agricommodity sector has contributed significantly to exports earning of the country. Although the exports of major agricommodities such as palm oil, rubber and timber products have continued to increase, it is facing increasingly stiff competition from other producer countries, mainly within the region. The share of the global market is also slowly declining. Efforts to boost exports are crucial to achieve more stable prices, increase income for the industry and smallholders as well as to ensure continued surplus in the current account of the balance of payments. The target is to increase exports earning to RM146 billion in 2020.

35. Among the initiatives that will be taken to boost exports are: i) intensify promotion and marketing activities abroad and domestically; ii) strengthen market intelligence through the regional offices; iii) explore new markets and promote Malaysian Brands agricommodity products, by leveraging on the Free Trade Agreements (FTAs) signed by Malaysia; and iv) promote the use of e-commerce platform to penetrate and expand market reach.

Strengthening human capital

36. The quality and shortage of workers is a key issue faced by the plantation sector both downstream as well as upstream. This has impeded improvement in productivity, depressed production, and constrained efforts to move into higher value added activities. It is also noted that continued dependency on foreign workers will not be sustainable. The target is to produce 78,000 skilled workers by 2020.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

37. In order to address the issue of human capital the following initiatives will be undertaken: i) leverage on Technical Vocational Education and Training (TVET) Programme to produce the skilled workforce required, particularly to produce skilled local workers; ii) scale up programmes under the Institute of Plantation and Commodities Malaysia (IMPAC) including for skilled machineries and equipment operators to be groomed as supervisors/managers in the plantations. IMPAC will be strengthened by ensuring the relevance of its curriculum to impart knowledge and create job opportunities for local workers in the plantation and commodity sector. IMPAC’s curriculum will also be harmonised with TVET programmes in order to promote interest of younger generation to work in the plantation and to meet industry demand; and iii) capacity building programmes for smallholders will be intensified particularly with respect to Good Agriculture Practices (GAP) to improve productivity.

PA L M O I L Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

V. INDUSTRY-SPECIFIC: STRATEGIES AND KEY PERFORMANCE INDICATORS

A. Palm oil

RM178 RM83.3 41,600 6 million billion billion jobs hectares

Contribution to GNI Export value Creation of new jobs Planted area

25% of 1.22 100% total palm oil mills tonnes Certified

Sustainability: Sustainability: Sustainability: Biogas trapping CO avoidance Total palm oil mills 2 certified with MSPO

38. In 2017, oil palm planted area occupies 5.81 million hectares or 53.1% of the total agriculture land area, with 40% of planted area under smallholders. Palm oil contributes 4.8% of real GDP. The export value of palm oil and products were RM77.8 billion, accounting for 55.5% of total agricommodity and agrocommodity-based products and 8.3% of total merchandise exports. Malaysia remains the second largest producer in the world with 19.9 million tonnes of crude palm oil (CPO) in 2017. The performance of palm oil industry in 2017 is in Exhibit 11.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

FFB 23.2 t/ha EU 28% OER 20.75% 23:77 29% China 45% India 40%

Annual average Product export ratio High premium value Market share (Downstream & added (Oleo- yield TARGETS 2020 Upstream) chemical based products)

100% 407,917 Certified tonnes

Sustainability: Green product: Total planted area PME certified with MSPO

39. By 2020, Malaysia’s palm oil sector is targeted to achieve the GNI by RM178 billion, palm oil export value of RM83.3 billion and expected to create 41,600 new jobs.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Exhibit 11 Performance of Oil Palm Industry in 2017

Issues and challenges

Declining productivity

40. Average FFB yields and percentage of OER declined mainly due to the severity of the El Nino phenomenon. Shortage of labour also contributed to low FFB yields. Low OER is attributed to labour shortage, low processing capacity and lack of enforcement to ensure quality of fruits.

41. Other factors affecting yield, particularly among smallholders are low quality of seedlings and planting materials. The Government introduced replanting and new planting schemes since 2011 in order to ensure that smallholders receive good quality agriculture inputs. However, lack of training and weak understanding good agriculture practices among smallholders resulted in low productivity. Training and extension services were constrained due to shortage of MPOB Tunjuk Ajar dan Nasihat Sawit (TUNAS) officers at the district level.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

42. High dependency on foreign labour, especially in the upstream side also affects productivity. As at 2017, the total number of workers needed in the palm oil plantation is estimated at 726,393 workers but only 430,856 workers are currently working in the plantations. The plantations also face challenges in attracting local workers and the younger generation due to the perception of it being 4D (dirty, dangerous, difficult and dull). In addition, the adoption of mechanisation and automation has been slow.

Demand for sustainably produced palm-oil products and food safety concern

43. Negative perception of palm oil. The palm oil industry has been negatively linked to the environment. The perception is that the palm oil industry leads to deforestation, biodiversity loss and climate change.

44. In recent years, the palm oil industry has been viewed negatively due to misinformation, distortion of facts as well as negative labelling of food products. The EU Resolution on Palm Oil and Deforestation of Rainforest negatively impact Malaysian palm oil trade into Europe. Similarly, the “No Palm Oil” labelling and advertising campaign has grown tremendously in Europe in recent years. Currently, there are more than 1,600 products with palm oil free labels in the European market. If this is left unchecked, it has the possibility of spreading to other markets.

45. Food safety concerns. Although food safety concerns of palm oil were raised in the past, the presentation of scientific evidence have eased the concerns. Most recently, the European Food Safety Authority (EFSA) released an opinion on 3 May 2016 on 3-monochloropropanediol (3-MCPD) and Glycidly Fatty Acid Esters (GE) as a process contaminant occurring in vegetable oils with palm oil showing the highest level. The occurrence of the contaminants, 3-MCPD and GE in all oils and fats also occurs in other vegetable oil including olive, soya, rapeseed, corn and sunflower. The challenge is for the palm oil industry to reduce the 3-MCPD and GE level to fulfil the requirement of the importing countries, particularly in the EU market and efforts will need to be intensified to address issues of food safety.

Challenges to Move Downstream

46. Over reliance on upstream. Overall, the proportion of exports of palm oil in high value added form is still relatively low. For instance in 2017, about 67.9% of total

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

palm oil exports were in the form of crude and processed palm oil. To ensure the sustainability of the palm oil industry in Malaysia, the industry should shift its activities from upstream to downstream. This will also reduce the fluctuation of crude palm oil (CPO) prices and increase economic returns to the industry.

47. In addition, due to natural product life-cycles, many products across the value chain have become commoditised, extracting little incremental value add. Therefore, it is important for Malaysian palm oil industry to continuously innovate and develop to move further downstream.

48. With only about 19 million tonnes of CPO production, the industry faces a challenge of overcapacity in the refineries with 52 refineries having a total capacity of 26 million tones.

Increase Competition

49. In 2017, Malaysian palm oil showed a slight increase in its global market share as compared to previous year. Malaysia remains as the second largest producer of palm oil with 29.6% of world market share. See Exhibit 12.

Exhibit 12 World Major Producers of Palm Oil Country 2014 2015 2016 2017 (‘000 T) % (‘000 T) % (‘000 T) % (‘000 T) % Indonesia 31,500 52.4 33,400 53.2 32,300 54.7 36,500 54.2 Malaysia 19,667 32.7 19,962 31.8 17,319 29.3 19,919 29.6 Thailand 2,000 3.3 2,068 3.3 1,804 3.1 2,450 3.6 Colombia 1,110 1.8 1,273 2.0 1,144 1.9 1,620 2.4 Nigeria 910 1.5 940 1.5 960 1.6 1,000 1.5 Guatemala 455 0.8 522 0.8 730 1.2 710 1.1 Honduras 460 0.8 480 0.8 580 1.0 652 1.0 Ecuador 490 0.8 535 0.9 587 1.0 610 0.9 Papua New 525 0.9 500 0.8 530 0.9 560 0.8 Guinea Brazil 370 0.6 400 0.6 415 0.7 485 0.7 Cote d'Ivoire 400 0.7 390 0.6 400 0.7 410 0.6 Cameroon 253 0.4 260 0.4 250 0.4 265 0.4 Others 1,986 3.3 2,070 3.3 2,079 3.5 2,215 3.3 TOTAL 60,126 100.0 62,800 100.0 59,098 100.0 67,396 100.0

Source: Oil World Annual 2016 & Oil World Weekly 24 March 2017 MPOB for data on Malaysia 25

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

50. The production increase in other markets also affected Malaysia’s export position. See Exhibit 13. The imposition of export controls by several countries also impeded market access. As an example, palm oil faces a high import tariff of 40% compared to other vegetable oils at 5% - 26% in Iran. In addition, the Iranian Government also put limitations on palm oil imports at 30% out of total imports of oils and fats.

Exhibit 13 World Major Exporters of Palm Oil Country 2014 2015 2016 2017 (‘000 T) % (‘000 T) % (‘000 T) % (‘000 T) % Indonesia 22,950 51.6 26,548 55.0 23,360 53.2 27,330 55.6 Malaysia 17,306 38.9 17,454 36.2 16,046 36.6 16,555 33.7 Guatemala 330 0.7 471 1.0 688 1.6 654 1.3 Papua New 515 1.2 487 1.0 510 1.2 530 1.1 Guinea Honduras 330 0.7 342 0.7 436 1.0 505 1.0 Colombia 246 0.6 404 0.8 373 0.9 710 1.4 Ecuador 227 0.5 275 0.6 313 0.7 330 0.7 Cote d'Ivoire 247 0.6 229 0.5 235 0.5 205 0.4 Others 2,298 5.2 2,061 4.3 1,917 4.4 2,337 4.8 TOTAL 44,449 100.0 48,271 100.0 43,878 100.0 49,156 100.0

Source: Oil World Annual 2016 & Oil World Weekly 24 March 2017 DOSM for data on Malaysia

51. Palm oil remains as the largest contributor to the world’s oil and fat requirement. About 30% of the demand is met by palm oil. However, the recent developments in Europe as well as the growing demand for other competing oils such as soybean and rapeseed oil have slightly impacted the market share of palm oil. See Exhibit 14.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Exhibit 14 World Production of Oils and Fats Oils/Fats 2014 2015 2016 2017 (‘000 T) % (‘000 T) % (‘000 T) % (‘000 T) % Palm Oil 60,126 29.8 62,800 30.4 59,098 28.7 67,396 30.6 Soyabean Oil 45,096 22.3 48,951 23.7 51,875 25.2 53,831 24.4 Rapeseed Oil 27,026 13.4 26,194 12.7 25,306 12.3 25,291 11.5 Sunflower Oil 16,236 8.0 15,258 7.4 16,516 8.0 19,083 8.7 Lard 8,538 4.2 8,558 4.1 8,600 4.2 8,780 4.0 Tallow 9,198 4.6 9,194 4.4 9,370 4.6 9,550 4.3 Butter 7,957 3.9 8,110 3.9 8,180 4.0 8,230 3.7 Palm Kernel 6,571 3.3 6,878 3.3 6,391 3.1 7,157 3.2 Oil Cottonseed Oil 4,873 2.4 4,671 2.3 4,070 2.0 4,240 1.9 Groundnut Oil 3,897 1.9 3,734 1.8 3,750 1.8 4,140 1.9 Corn Oil 3,142 1.6 3,341 1.6 3,870 1.9 4,170 1.9 Coconut Oil 3,008 1.5 2,975 1.4 2,549 1.2 2,438 1.1 Olive Oil 3,367 1.7 2,992 1.4 2,930 1.4 2,810 1.3 Fish Oil 921 0.5 902 0.4 850 0.4 880 0.4 Sesame Oil 796 0.4 834 0.4 830 0.4 830 0.4 Linseed Oil 626 0.3 700 0.3 740 0.4 760 0.3 Castor Oil 645 0.3 685 0.3 700 0.3 680 0.3 TOTAL 202,023 100.0 206,777 100.0 205,625 100.0 220,266 100.0

Source: Oil World Annual 2016 & Oil World Weekly 24 March 2017

Management of Industry Wastage

52. High industry wastage - In general, the palm oil industry generates large quantity of waste, making disposal a challenging task. In a typical palm oil plantation, almost 70% of the FFB in the form of empty fruit bunches, fibre, shells and liquid effluent is turned into waste.

53. The conversion of palm oil mill waste to generate energy and other by-products is desirable for both economic and environmental reasons. These by-products have high potential to be converted to value added products or clean energy to generate additional profit for the palm oil industry as well as exports of electricity to the main grid.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Volatile Palm Oil Prices

54. The price of palm oil is influenced by many factors including weather, yield, competition from other oils, supply and demand conditions as well as speculation. This creates uncertainty, particularly to smallholders’ income.

Strategies

Enhancing Productivity

55. Enhancing productivity will be a key focus area for palm oil industry given that the scope for expanding new planting area is limited. Among the initiatives that will be undertaken to enhance productivity throughout its supply chain are intensifying mechanisation, promoting replanting and focusing on R&D and innovation.

a) Intensifying Mechanisation

In the oil palm industry, harvesting and transporting of FFB are two major tasks that rely heavily on labour. Labour has become an increasing cost component in production. It is envisaged that through mechanisation, dependency on labour can be reduced, productivity will be increased and the cost of production reduced.

In order to promote and facilitate greater mechanisation, programmes that have been introduced under the Eleventh Malaysia Plan will be scaled up.

Under the Eleventh Malaysia Plan, the Oil Palm Industry Mechanisation Incentive Scheme (OPIMIS) was initiated where incentive in the form of partial grant was offered to reduce up to 20% of the price of selected machineries hence encouraging estates and smallholders to acquire machines for FFB harvesting and evacuation activities. Under this scheme, RM4.5 million has been allocated for 2016 – 2020. This programme, while increasing productivity will also increase the land to labour ratio. In addition, the third series of International Competition on Oil Palm Mechanisation (ICOPM) and the Mechanisation Fund to explore new and

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

novel ideas to produce new technology will continue. MPOB will also intensify R&D to enhance and develop more efficient and cost effective farm mechanisation technologies.

b) Promoting Replanting

In order to increase yield, the Government will continue to promote replanting and new planting, particularly in Sabah and Sarawak. The Replanting of Palm Oil for Smallholder Scheme (TSSPK) and the New Planting of Palm Oil for Smallholder Scheme (TBSPK) which provide an assistance of RM7,500 per hectare in Peninsular Malaysia and RM9,000 per hectare in Sabah and Sarawak will be continued. Apart from raising the national palm oil output, the schemes will also assist smallholders to adopt good agriculture practices.

The TSSPK Scheme aims to raise productivity of smallholders by achieving a FFB yield rate of 23.2 tonnes per hectare per year by 2020. The scheme encourages replacing of palm trees older than 25 years and those that are no longer productive. The TBSPK scheme is aimed at increasing productivity through the opening of new oil palm planting areas aligned with the target to achieve 6 million hectares by 2020. In addition to increase oil palm production, TSSPK and TBSPK will also help to increase smallholders’ income.

Other initiatives that will continue to be undertaken by the Government to increase smallholders’ productivity and income are crop and livestock integration in oil palm plantation. Under Eleventh Malaysia Plan, RM48 million is provided to implement both initiatives. This will enable smallholders to optimise use of their land and maximise returns.

c) Providing good quality planting materials

Good quality seedlings will contribute to high yield of FFB and high of OER. In order to ensure that all smallholders receive good planting materials, only nurseries certified with Code of Good Nursery Practice for Oil Palm Nurseries (CoPN) are allowed to supply to smallholders. CoPN also provides

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

guidelines to nursery operations for producing high quality oil palm seedlings. As at 2017, 263 nurseries have been certified with CoPN certification. This programme will be continued. d) Increasing FFB yield and OER

The inconsistent quality of FFB processed is also a factor that constraints productivity of the palm oil industry. The Entry Point Projects (EPP) 4 under the National Transformation Programme to increase OER to 20.75% by 2020, by implementing strict quality-control at the palm oil mills, will be continued.

In mills that record an OER lower than the national average, the authorities will monitor the FFB acceptance process so that only ripe FFBs are allowed to be processed. This monitoring will also be enforced at FFB dealers’ premises. By auditing and tracking the compliance of mills to best practices guided by Code of Good Milling Practices for Palm Oil Mills and the MSPO standards, yield is expected to be increased significantly. Independent millers and large integrated plantation companies will also be encouraged to upgrade their equipment in palm oil mills to improve OER.

In the area of oil palm genome, MPOB was the first to publicly release the genetic blueprint of the oil palm via a landmark publication in the highly respected international Journal Nature. This gained international recognition and positive worldwide press coverage as the effort is considered to have major implications in enhancing the future production and sustainability of the oil palm industry. More importantly, MPOB’s effort led to the identification of a gene known as SHELL, which influences oil palm fruit form and is critical for palm oil yield.

Taking advantage of the completely sequenced oil palm genome, MPOB together with private companies such as Sime Darby, Genting, and FELDA have started their own molecular breeding programmes in their pursuit to produce improved planting materials unique to their requirements. All this will lead to significant improvements in planting materials, which will ultimately pave the way for improved productivity and oil yield.

The genomic revolution had a slow start in oil palm but received a boost when MPOB released the information related to the genetic blueprint in 2013. The discoveries are just the beginning and showcases the potential of the technology in impacting yield and sustainable development of the industry. Knowing the

potential in this area, about RM12.5 million will be provided to MPOB’s genome GENOME TECHNOLOGY research programme from 2018 until 2020.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

e) Intensifying R&D and innovation

R&D and innovation will focus on developing quality planting materials including based on oil palm genome to improve yield and productivity. R&D will also be undertaken to improve harvesting technology and post harvest handling. Attaining high productivity and high oil yield is important for Malaysia, especially since there are no more green fields for new oil palm cultivation.

Producing Sustainable Palm Oil

56. Implementing MSPO certification - In order promote sustainably produced palm oil, Malaysia developed and launched the Malaysian Sustainable Palm Oil (MSPO) certification in 2013. It was implemented on a voluntary basis since 2015. The principles and criteria of MSPO were developed based on domestic laws and regulations and benchmarked against international norms so as to ensure its acceptability globally. Due to increasing perceptions that the palm oil industry was negatively impacting the environment as well as strong demand for sustainable production of palm oil from importing countries, the Government has committed that all oil palm produced in Malaysia will be certified sustainable by 31 December 2019.

57. In order to expedite the process and to ensure the target is achieved, the Government, among others, will provide financial assistance to the smallholders, plantation companies and processing facilities for certification. It is expected that all oil palm plantations will be certified by end 2019. As of 2017, 518,794 hectares of planted oil palm land has been certified with MSPO certification.

58. To strengthen implementation and enforcement of the mandatory MSPO certification scheme, MPOB regulations will be amended to link MSPO certification with MPOB licensing.

59. An Electronic Traceability System (ETS) of sustainable production of palm oil along the value chain will be established to enhance the credibility of Malaysian palm oil. In addition, in 2018, MSPO will be reviewed to address gaps and further strengthened to meet market requirements.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

60. Intensifying R&D in food safety and quality - R&D activities will continue to focus on increasing the safety of palm oil based products for public health. Among the initiatives will be to develop appropriate and suitable technologies to reduce the 3MCPD and GE content in palm oil by processing mills and oil palm refineries. RM50 million grant has been allocated to undertake pilot studies to identify suitable technologies to reduce 3MCPD and GE level in palm oil products and derivates.

Diversifying the product base to premium and high value added products

61. It is pertinent to promote and expand palm oil related downstream activities, particularly those that have high value added and are niche`. The potential in food and non-food areas must be exploited. This will increase competitiveness of the palm oil industry and create new markets. During the Plan period, the Government will continue to promote and facilitate investments in high value added activities to increase the ratio of downstream export products to primary products of palm oil with the expected target in 2020 of 20:80.

a) Red palm oil as a premium brand

Red palm oil will be promoted as a premium quality palm oil derivatives which is proven to be rich with precursor of Vitamin A. For this purpose, appropriate marketing and promotion efforts will be undertaken in selected markets. Greater advocacy will be undertaken to create awareness of red palm oil.

b) Expediting growth in food, feed and health-based industries

The Food, Feed and Health-based segments will be earmarked to increase usage of palm oil as a key component in manufacturing.

With new research findings, relating to the health benefits of palm oil and changing perception of saturated fats, it is poised to be an incredible source of nutrients and health products for the world. The Government will continue to provide tax incentives for companies to invest in the manufacturing of high value added palm-based food, feed and health products. Grants will also continue to be made available for institutions and companies to undertake clinical research and development of new palm-based products.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Under the Eleventh Malaysia Plan, a commercialisation fund of RM50 million is available for existing SMEs producing palm-based value added food products. This grant is to assist in capital expenditure to expand their production capacity for local and export markets. Assistance for operating expenditure which covers GMP, Halal and ISO 22000 certifications and advertising cost which is limited to radio/TV, billboard, online and magazine/newspaper advertisements has also been introduced. Assistance for certification will allow SMEs to access new export markets especially in China, India, Japan and in the Middle East. In order to promote downstream palm-based animal feed products, the grant for the production of animal feeds or animal health products will continue to be made available for SMEs and large companies.

A commercialisation grant of RM100 million is available under Eleventh Malaysia Plan for large companies in Malaysia to encourage growth of valued-added food and health-based products including animal feeds.

c) High value oleo derivatives

The Government and the palm oil industry are making concerted efforts to further develop downstream palm oil industries to harness a larger share of the oleo derivatives market. Oleo derivatives have been recognised as higher in value than basic oleo-chemicals in the palm oil supply chain. The production of palm-based oleo-chemicals derivatives is targeted at 29% from the contribution of palm oil industry to the national GDP by the end of this Eleventh Malaysia Plan.

Under the Eleventh Malaysia Plan, the government will continue to support the private sector including SMEs by providing an additional RM100 million to encourage the private sector to invest in the high value oleo-chemical business, with an emphasis on glycerol derivatives, surfactants, bio-polyol, bio-lubricants, agrochemicals, and bio-based chemicals. This highly specialized industry is growing at a Compound Annual Growth Rate (CAGR) of 9%.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

d) Palm-based biodiesel

In 2015, the Government implemented 7% biodiesel blend B7 in the transport sector boosting biodiesel consumption by 350,000 tonnes. The Government will take necessary measures to increase the percentage of biodiesel blend in the transport and industry sector including further engaging the stakeholders and carrying out further trials and R&D.

Maximising waste utilisation to wealth

62. Malaysia has an abundance of resources from wastes from oil palm plantations and mills. The biomass industry in Malaysia has evolved into a source that can be utilised ranging from the generation of renewable energy to the production of bio fertilisers, bio-chemicals, bio-pellets and eco-products. There is a big potential for the biomass industry to become a game changer, both in terms of economic and green growth as well as in enhancing the sustainability of resources. Essentially, out of palm oil processing yield, only 10% are finished products i.e. palm oil and palm kernel oil, and the remaining 90% are harvestable biomass waste in the form of empty fruit bunches (EFB), palm kernel shell (PKS), palm oil mill effluent (POME), palm fronds and mesocarp fibre. Among the initiatives that will be taken are:

a) Converting untapped POME into biogas

The oil palm industry generated about 82 million tonnes dry weight of oil palm biomass from the plantations as well as from the milling sector. In addition to that, from the total of 85.5 million tonnes of fresh fruit bunches processed at the mills in 2016, about 57.3 million tonnes of palm oil mill effluent (POME) was produced. The biogas from POME offers the potential to generate renewable energy for own use in the mills and also for supplying power to the grid.

Currently, there are 98 biogas plants in operation in the country, eight under construction and 144 under planning. Out of the 98 plants, 25 are connected to the grid under the Feed-in Tariff initiative. The biogas is captured for electricity generation for on and off grid use or co-fired with biomass boilers in palm oil mills to power up the mill operation. To enhance the sustainability of the oil palm industry as well as to shift towards greener industry, the Government will continue to encourage biogas capture from POME under the EPP5 of the NKEA.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

b) Promoting oil palm phenolics

Oil palm fruit contains high levels of lipid-soluble antioxidants (vitamin E and carotenoids) and potent water-soluble antioxidants. During the extraction of crude palm oil from the oil palm fruits, a large volume of water-soluble by-products is produced and subsequently discarded. Oil palm fruits contain numerous phenolic compounds and most of these components end up in the aqueous waste channel. MPOB has successfully developed a novel process to recover these valuable bioactives. The water-soluble layer is passed through lipophilic, ion-exchange and molecular weight cut-off membranes to remove residual oil and ionic contaminants, resulting in an aqueous filtrate of oil palm phenolics (OPP). OPP is brownish in colour with a characteristic brown sugar odour. It has a caramelized sugary taste, similar to Chinese herbal prepahamsterions. Besides sugars, OPP contains several types of phenolic compounds; p-hydroxybenzoic acid, protocatechuic acid, caffeosylshikimic acid, cinnamic acid, ferulic acid, coumaric acid, vanillic acid, chlorogenic acid, caffeic acid, catechin, flavonoid rutin hydhamstere, hydroxytyrosol and gentisic acid.

The Government will continue to promote OPP through commencement of several on-going pre-clinical and clinical trials that are progressively conducted.

Strengthening Export Market Share

63. Global consumption of oils and fats over the last decade has been very strong, recording an average annual growth of 6.4 million tonnes per year. Of this, 1.6 million tonnes were used as biofuel and 4.8 million tonnes mainly for food. Biodiesel consumption accounts for approximately 15% of world’s consumption of all oils and fats. The growth in palm oil consumption in the coming years is anticipated to come primarily from the developing economies such as the ASEAN, Africa, Middle East, China and India.

64. In order for Malaysian palm oil industry to increase its export market share, among the initiatives will be taken are: i) promote newer applications of palm oil for the usage of palm oil in selected markets;

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

ii) improve branding of Malaysian palm oil through the framework of the MSPO to strengthen presence in markets that require sustainable palm oil. Malaysia’s sustainable palm oil derived from certification bodies is guaranteed to have met stringent quality and traceability requirements befitting its premium branding as the palm oil of choice for the world; and iii) to leverage bilateral trade agreements and promoting business-to-business linkages and Government partnerships to further expand the market. Targeted promotional programmes would emphasize the nutritional of Malaysian Palm Oil especially in the key regions and countries.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Increase Utilisation of Palm Under the Eleventh Malaysia Plan Focus area, biofuel initiative is to further increased to the B15 programme Based Biofuels using EURO 5 standards diesel by 2020. In 2016, the Government agreed to implement a B10 mandate in

st transport sector and B7 in industrial sector, but this At the 21 Conference of Parties to the United Nations decision had to be deferred to a later date due to Framework Convention on Climate Change (COP21) in certain technical issues and wide price gap between 2015, Malaysia pledged to reduce its greenhouse gas Brent and palm oil. (GHG) emissions intensity of Gross Domestic Product

(GDP) by 45% by year 2030, compared to 2005 levels. Challenges in biofuel development include: Towards this end, decarbonising the transportation i) environmental sustainability - Over the last few and industrial sectors is crucial in achieving Malaysia’s years, a number of Malaysia’s key biofuel export COP21 pledge. Biofuels offer the potential for Malaysia markets have put in place stringent sustainability to decarbonise its transportation and industrial sector requirements for biofuels; and decrease the country’s dependence on fossil fuel. ii) dependency on the first generation biofuel - Laboratory research on palm oil biodiesel began in Industry development is facilitated by the NBP, 1981 by the Palm Oil Research Institute Malaysia, which primarily promotes the production of palm- PORIM (now the Malaysian Palm Oil Board, MPOB). based biodiesel (Palm Methyl Ester – PME); From the mid-1980s to the mid-1990s, laboratory tests iii) low domestic demand - The current domestic and field trials were successfully carried out. Malaysia’s demand is driven by the B7 mandate for National Biofuel Policy (NBP) was subsequently transportation fuel and is not large enough to launched in 2006 to guide the development of biofuel. sustain the biofuel industry; NBP was supplemented by the Malaysian Biofuels Industry Act 2007 to regulate and streamline the iv) resistance from manufacturer - The licensing of the biofuels industry. manufacturers and transportation operators have

raised concerns about using higher blending of A 5 percent biodiesel and 95 percent petroleum diesel biodiesel (B10 and above) due to suspected effects blend (B5 programme) was initiated for the land on the engines; and

transport sector in 2011 for selected states in v) financial competitiveness - The high cost of palm Peninsular Malaysia. Full nationwide implementation biodiesel makes it difficult to compete in the covering both Peninsular and East Malaysia was domestic market without a price support where achieved at the end of 2014. In 2015, full nationwide currently the price difference is incurred implementation of a 7 percent biodiesel blend automatically under free float price mechanism. (B7 programme) began, which boosted biodiesel consumption to about 350,000 tonnes a year.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Moving forward, there is a need to relook at all vii) benchmarking analysis with other countries’ biofuel initiatives holistically by shifting the focus from similar initiatives including future trends. land transport to other biofuels such as bioethanol. Greater emphasis should be put to assess other Apart from reviewing the NBP, cooperation from the untapped market like aviation fuel, marine fuel, industry remains one of the biggest challenge to biogas particularly BioCNG and solid biomass where overcome. Hence, a more effective way to bridge the Malaysia have an advantage in term of its mature palm private sector such as automakers with MPOB to oil industry. collaborate on a joint study or research needs to be developed. To further enhance this measures, any A sound regulatory framework, institutional set-up and procurement under Public Finance Initiative (PFI) sustainable finance should also be reviewed along with relating to the transport sector should have biofuel potential untapped markets. In recognition of this, elements as a selection criteria. there is a need to review and revise the NBP to address current and future challenges and align Local capacity building is also critical in developing the recent national and international policies and biofuel industry. A such, more studies and trials with programmes. Areas to revisit are as follows: universities should be carried out. This can also be a way to explore new technology that can potentially i) review and formulate new measures on the bring down costs of producing biofuel. existing biodiesel programme for land transport

which currently is only up to B7; To ensure local players remain competitive and ii) review and formulate new measures on second remain in the industry, it is imperative that these generation biofuel including BioCNG; players gain access to new markets in countries that iii) review and formulate measures for aviation fuel have made their commitment to utilize second initiatives; generation biofuels as feedstock. iv) review and formulate measures for marine fuel initiatives; v) review current Act, Regulation, Institutional set-up and funding mechanism towards successful NBP implementation; vi) analyst greenhouse gas reduction contribution of each of the above sectors versus life-cycle- assessment especially to meet COP21 and other international standards towards more sustainable palm oil development; and

RUBBER Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

B. Rubber

1.1 mil RM28.7 1,500 hectares billion kg/ha

Planted area Export value Average yield of Natural rubber

65. Total planted area for rubber in 2017 was 1.1 million hectares, 92% of planted area is under smallholders. Matured tapped areas accounts for 493,000 hectares and produced 740,278 tonnes of natural rubber (NR), with cuplump (94%) and latex (6%). Rubber industry contributes 1.2% to national GDP. Due to higher natural rubber prices in 2017, export earnings was RM32.3 billion or 3.5% of total export of merchandise. Key indicators of the rubber industry in 2017 is illustrated in Exhibit 15.

66. The focus of the rubber industry is to increase the productivity, modernize the smallholders and enhance competitiveness of the downstream segment to maximize the industry’s contribution to the national economy. Measures will be taken to further consolidate and integrate its forward and backward linkages in both upstream and downstream.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

China increase 18 70:30 1% annually

Green product Product export ratio Market share of Total of agreement (Downstream & rubber glove signed of EkoprenaTM & Upstream) TARGETS 2020 PureprenaTM)

Exhibit 15 Performance of Rubber Industry in 2017

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Issues and challenges

67. The industry faces several challenges including with respect to declining productivity and shortage of labour.

Productivity

68. Smallholder’s productivity averages at 1.42 tonnes/hectare/year against the potential of 1.5 tonnes per hectare. Productivity in the upstream sector is affected by a host of factors namely, shortage of labour with its ageing workforce, decline in area due to conversion to other commodities, the uneconomic size of smallholding, ageing rubber trees and low yielding clones. The downstream sector on the other hand is affected by shortage of supply of raw materials, particularly latex.

Shortage of labour

69. The industry suffers shortage of labour in both the upstream and downstream segments which is filled by foreign workers. Malaysians are not willing to work, particularly as tappers as well as in manual processing activities. The difficulty in automating several activities along the value chain has resulted in increasing dependency on foreign workers.

Standards and market access

70. Product standards are essential to improve quality, enhance safety, facilitate trade and build consumer confidence. However, the lack of standardisation for dry rubber products negatively impacts the ability to penetrate global markets. The influx of cheap and low quality rubber products and dominance of SMEs also impedes improvement in product standards.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Strategies

71. The rubber industry will continue to focus on increasing productivity and competitiveness, and modernising the predominantly smallholder sector in order to maximise its contribution to the national economy. In line with increased competitiveness and consumer demand, the rubber industry will be further consolidated and integrated to cover a wider range of activities with forward and backward linkages in both upstream and downstream segments. R&D will be exploited to expand the product base to new value added rubber and rubber products.

Enhancing productivity

72. Under the Eleventh Malaysia Plan, continuous efforts will be taken to ensure sustainable supply if domestic raw materials for downstream value added activities through the following strategies: i) maintaining 1.1 million hectares of rubber area through replanting and new planting and 1.0 million hectares tappable area to increase local supply to 0.8 million tonnes by 2020; ii) increasing smallholdings productivity to 1.8 tonnes/hectare/year through replanting and new planting programme. Under this programme, smallholders will be given high quality planting materials such as new RRIM 3001 clone and encouraged to participate in the cluster-management concept and adopt GAP to increase productivity; iii) implementing vertical integration and production of high quality raw materials and non-rubber components based on smallholders’ clustering concept which will include the introduction of Pusat Pengumpulan Getah (PMG) to shorten the entire supply chain. The PMG concept includes grouping smallholders into clusters or co-operatives to increase volume of raw materials (latex or cuplump) and selling directly to the processors/ manufacturer. The PMG concept will also enhance ability of the smallholders to market their output. Under this concept, the smallholders will sign long-term contracts with the processors. This approach is targeted to increase local supply of latex up to 100,000 tonnes by 2020; and

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

iv) encouraging undisrupted production of rubber including during low prices or monsoon season through existing incentives - Rubber Production Incentives (IPG) and Bantuan Musim Tengkujuh.

Reducing foreign labour dependency

73. Several measures will be undertaken to address the shortage of labour and high dependency on foreign labour as follows:

a) Strengthening human capital

Training programme will be up scaled for smallholders to increase their knowledge on GAP. Malaysian Rubber Board will also conduct training under the Getah untuk Peribumi and also for semi-skills and skilled labour in midstream and downstream to improve their capabilities. The targeted number of workers to be trained for the rubber industry is 10,000 by 2020.

b) Offering scholarships

In order to attract top talent into the rubber industry, the Malaysian Rubber Export Promotion Council (MREPC) Scholarship will continue to offer students to pursue undergraduate courses at local universities. In addition, the Industrial Technical and Advisory Services or ITAS has been established by MRB to provide technical advisory services to local rubber product manufacturing via the A5 Programme or Key to Success Programme. The programme aims to improve current manufacturing practices which will indirectly help to reduce dependencies to labour.

c) Offering remunerative income

Private sector will be encouraged to attract local workers by offering remunerative income, better work conditions and attractive employment package.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

d) Automation

Downstream players will be encouraged to adopt automation and mechanisation to reduce dependency on labour, except in areas such as quality control (QC), cleaning and maintenance which require manual physical labour.

Intensify R&D

74. R&D will focus on expanding and diversifying into innovative rubber products especially for niche applications and commercially viable products, such as application of specialty grade rubber material in tyre manufacturing and High Damping Natural Rubber (HDNR) for seismic bearing. The MREPC Industry Linkage Fund which was established to enhance rubber industry-university/research institution linkages for the development of the industry and to improve competitiveness of Malaysian products in global market to foster synergy between R&D activities undertaken by MRB with the needs of the industry will be strengthened.

Improving standard and market access

75. MRB will identify ways to increase export revenue of dry rubber and latex based products. MRB will continue to review current standards/regulations and guidelines to improve local rubber product consumption. This will include the ability to run tests according to standards set for rubber and rubber products in order to penetrate global market. The initiatives to improve standards and market access are as follows:

a) Improving raw material supply

Malaysian latex-based industry will be made sustainable through increased supply of local raw materials, new innovation based on better natural rubber formulations, blends of natural and synthetic rubbers and new additives. MRB has invested RM1.2 billion to build advanced R&D centre at Sungai Buloh that will be used to further enhance Malaysia technology and innovation for rubber industry. MRB’s Integrated Rubber Processing Centre (IPC) which is almost complete will support and contribute to mid-stream rubber processing and production such as latex concentrate, specialty rubber technology, value added products from rubber waste and zero waste effluent treatment concepts.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

b) Increase downstream products

In order to accelerate the growth and development of the downstream sector in rubber industry, efforts will be taken to increase world market share of rubber glove to 65% by 2020, besides promoting new and green products and encouraging import substitution of general and industrial rubber consumer products.

c) Create new demand for rubber

Efforts will be taken to create and increase new demand for natural rubber and specialty rubber material for local consumption, through impactful initiatives such as rubberised road, tyres, hoses, safety shoe, rubber seismic bearing for construction, paint and adhesive, rail rubber pads, dock fenders and rubber isolators. This will be pursued under NKEA EPP 11: Commercialisation of Ekoprena® and Pureprena® whereby rubber product manufacturers will take advantage of MRB technology to enhance competitiveness of their product in collaboration with industry players to secure commitments for Ekoprena® sales target as well as procuring technical data for promotion and marketing that will help to boost new demands from new markets. Through collaboration with Ministry of Work (KKR), the strategy is to encourage 10% of the estimated 200,000 km to be resurfaced with rubberised road each year and this will use 48,000 tonnes of rubber each year. This is about 10% of Malaysia’s total natural rubber consumption.

In addition, Thailand, Indonesia and Malaysia under the platform of the International Tripartite Rubber Council (ITRC) will increase NR domestic consumption up to 10% annually. This is equivalent to 300,000 tonnes starting 2016, which indirectly will stabilise the rubber price.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Improving Institutional Framework

76. To strengthen and streamline rules and responsibilities, cross agency working arrangements and coordination is pertinent. The current framework where agencies under two different Ministries are responsible for rubber industry development leads to lack of clarity and accountability, especially on matters relating to smallholders’ productivity. In order to improve coordination, it is proposed that MRB and RISDA come under a single ministry. This will facilitate better planning and better implementation of the national rubber policy, as well as enabling a single coordination Ministry for LIGS in Sabah and JPS in Sarawak.

TIMBER Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

C. Timber

130,000 RM25.6 RM12 20 hectares billion billion FMUs

Planted area of Total export value Furniture export MTCS Certification: Forest Forest Plantation value Management Unit

77. Timber industry is third largest contributor to the agricommodity sector after palm oil and rubber. In 2017, timber industry export value was RM23.2 billion and accounted for 16.6% total export of the agricommodity sector. Most of the timber products recorded an increase in terms of export value. The highest export growth was for sawn timber, which has increased by 14.8% (RM3.89 billion), followed by wooden and rattan furniture 6.1% (RM8.08 billion), plywood 5.6% (RM4.61 billion) and moulding 3.3% (RM849.14 million). Key indicators for the timber industry in 2017 are in Exhibit 16.

78. Overall, global demand for timber products is expected to continue to grow due to a combination of favourable demographic developments, a modest global economic recovery as well as some one-off catalytic drivers. The overall KPI for timber is to increase the sector’s contribution to Malaysia’s national exports. By the end of the Eleventh Malaysia Plan, the target for exports of timber and timber products is RM25.6 billion and for Malaysia to move up to be the 7th largest furniture exporter with a targeted furniture export value at RM12 billion.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Japan - 18% 380 CoC 60:40 USA - 14% India - 9.5%

MTCS Certification: Chain Product export ratio Market share

of Custody (Downstream & Upstream) 2020 TARGETS 2020

Exhibit 16 Performance for Timber Industry in 2017

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Issues and challenges

Inadequate supply of raw materials

79. The timber industry is experiencing inadequate supply of raw materials, especially for the downstream sector. The volatility of raw material supply, especially the rubber wood sawn timber has affected the manufacturing of furniture and other downstream activities that rely heavily on this raw material. The main reason for the shortage was due to the decrease in the rubber replanting area by Rubber Industry Smallholders Development Authority (RISDA) in the Peninsular. In 2017, the rubber replanting area decreased to 15,964 hectares as compared to 2016 of 21,200 hectares. Based on the current replanting area, it is estimated that there will be 690,488 meter cube (m3) of rubber wood sawn timber supply for the downstream industry. The industry, however, requires around 850,000 m3, yearly. In addition, the shortage was also contributed by the conversion of rubber cultivation area into oil palm and other crops.

Evolving international trend impacting timber trade

80. The timber industry must keep abreast with evolving market requirements and demand in the international market for timber and timber products. The enforcement of various international regulations on timber products by the major importing countries such as the US Lacey Act (United States), the Australian Illegal Logging Prohibition Act (Australia) and the EU Timber Regulation (European Union) are to be complied with by the industry in order to maintain market access. The rising demand for certified timber globally is also a challenge to gain market access for Malaysian timber products.

81. There are also a broad array of timber product standards pertaining to the marking, labelling and packaging set by regulatory authorities in the importing country that the timber industry must strive to meet. For example, for products to be exported to the US, local manufacturers need to comply with formaldehyde emission standards for composite wood products set by the US Environmental Protection Agency (EPA) which will be made mandatory by December 2018. In Europe, certain wood and wood-based construction products sold within the European Economic Area (EEA) would require CE marking. In Japan, manufacturers and exporters of wood products such as plywood, MDF, particleboard, flooring and other laminated timber products need to comply with the country’s

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

formaldehyde regulations to address what they call “The Sick House Syndrome”. Under the new regulations, the Japanese Government will restrict further the emission of formaldehyde from products used in the interior construction of buildings to protect the health and safety of the people.

82. Apart from that, Malaysian timber products are also facing competition from non-wood substitutes like Polyvinyl Chloride (PVC) and aluminium. PVC has been gaining market share at the expense of timber in major European markets like Germany, United Kingdom, Netherlands and Belgium. In South Africa, aluminium is a serious competitor to Meranti for the manufacturer of doors and windows.

Heavy reliance on foreign workforce and low productivity

83. The timber industry also faces challenges in terms of workforce. A study conducted by Malaysian Timber Industry Board (MTIB) in 2013 revealed that the timber industry is still reliant on foreign workers. Out of 162,041 workers in the timber industry, 41.8% (67,783) comprised of local workers and the remaining 58.2% (94,258) were foreign workers. Among the reason that draws local workers away from this industry is due to the less conducive working environment.

84. Apart from that, employee productivity in timber industry was found to be low at RM45,000/person/year as compared to the national productivity of RM75,000/person/year. This is due to the lack of mechanisation and automation in timber industry as well as shortage of skilled workers.

Declining investment and financing

85. Total investment by both foreign and domestic investors in the timber industry has decreased dramatically from 2013 to 2016. The total investment in 2013 was RM1.3 billion, while in 2016 it declined to RM678 million.

86. The industry also faces difficulty in obtaining loans and insurance coverage as this industry is categorized as highly combustible by the financial institutions, intermediaries and insurance companies. In addition, the issue of furniture factories operating without license and the perception of unpleasant working environment in this industry also presents challenges to obtain for financing.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Low absorption for competitive furniture design

87. Malaysian furniture industry has been operating predominantly on an Original Equipment Manufacturer (OEM) model centered on rubber wood furniture. This is because the initial investors in Malaysia were Taiwanese companies, who adopted the OEM model to provide visibility of volume to justify the investment required. Due to the successful model of OEM, the industry has grown tremendously, and Malaysian furniture is in great demand.

88. However, the furniture industry cannot stay as OEM producers as the rising cost of labour and shortage of raw materials are affecting the total cost of production compared to Vietnam whose labour and raw materials are more competitive. Therefore it is necessary for the furniture industry to transform from being an OEM to Original Design Manufacturing (ODM) or Original Brand Manufacturing (OBM). A study conducted by MTIB in 2012 revealed that 53% of the exported furniture is either from the ODM or OBM category. A study in 2007 revealed that furniture exports in the ODM category was only 33%. The Government is targeting the exports of furniture under the ODM category to reach 70% by 2020.

Barriers of using timber as material in the Malaysian construction industry

89. In Malaysia, the Malaysian Uniform Building By-Laws (UBBL) forbids the use of timber as a structural element in construction. The main concern in Malaysia with regard to the use of timber in building is that timber, being a combustible material, would add to the current buildings’ fire capacity.

90. The construction industry should be exposed to the use of structural engineered wood products such as glued laminated timber (glulam), cross laminated timber (CLT), and laminated veneer lumber (LVL) as high value added products. Also, the current knowledge on the use of timber among architects, engineers and developers is only limited to solid timber materials. Timber is also perceived as non-durable and costly as compared to other conventional construction materials such as concrete, steel and PVC.

Limited Bumiputera participation in the timber industry

91. The contribution of Bumiputera entrepreneurs to the export value of timber industry is relatively small, RM244.48 million or 1.11% of the total exports of timber and timber

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

products in 2016. In addition, the number of factories owned by Bumiputera is small at 354, out of a total of 3,629 and nearly 95% of them are small and micro-sized.

92. Generally, majority of Bumiputera entrepreneurs have limited capabilities and technologies to produce high quality furniture, therefore, unable to compete and increase market share. In addition, Bumiputera entrepreneurs are also too dependent on unskilled workers to manage their mills operations/machineries plus lack of capital to purchase high-tech machineries and raw material to enhance their mills efficiency.

Strategies

93. The timber industry will focus on the development of high value added downstream activities to achieve the targeted ratio of 60:40, where at least 60% will be high value added timber products such as furniture, mouldings and engineered timber products. The key strategies taking the industry forward during the Eleventh Malaysia Plan will include improving supply of raw materials, enhancing export market and strengthening human capital.

Ensuring sustainable supply of raw materials

94. To ensure sustainable supply of raw materials to support the industry, the Government will encourage imports of raw materials, promote domestic supply of sustainable raw material through forest plantation programme, identify new suitable species for forest plantation and the use of new/alternative raw materials. The programmes that will be implemented are as follows:

a) Encouraging imports of raw material through Import Assistance Programme (IAP)

The Government will continue to encourage the industry to import raw materials through the Import Assistance Programme (IAP). IAP is targeted for local timber manufacturers in Peninsular Malaysia, particularly the SMEs to import raw materials to supplement;

b) Forest Plantation Development Programme

The Government has implemented the Forest Plantation Development

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Programme in which the first harvest of the forest plantation will be in 2021. The Government will continue to encourage the establishment and expansion of forest plantation areas in Malaysia, and towards this end, efforts will be made to convert the current soft-loan under the Forest Plantation Development Programme amounting to RM1.045 billion into a revolving fund for establishment of more forest plantation areas. It is estimated that the additional fund would be able to add another 114,000 hectares of forest plantation areas to the current target of 130,000 hectares. In terms of volume of timber, the additional forest plantation areas would be able to produce another 26 million m3 of plantation timbers from the 27 million m3 projected from the current targeted hectarage;

c) Commercialisation of New/Alternative Raw Materials

The commercialisation of new/alternative raw materials such as oil palm trunk (OPT) and wood plastic composite (WPC) are in the early stage of research and development (R&D). More research would be undertaken especially in the process of transforming OPT into plywood and other timber products. The potential for harnessing this alternative, sustainable resource will be further developed.

In this regard, at the national level, the Ministry of Plantation Industries and Commodities (MPIC) has set up the Jawatankuasa Kebangsaan Pembangunan OPT to set out the policy and coordinate all programmes and activities related to the development of high value added timber products from OPT. This Committee comprises representatives from various ministries, agencies, universities and industry will also ensure that all policies concerning the development of OPT in Malaysia will be streamlined across various stakeholders.

It is expected close to 11 million OPT logs will be felled to make way for replanting every year. This alternative source of renewable material will be able to address a large part of raw material requirements. The initial trials undertaken since 2008 by MTIB have indicated that OPT is suitable for use in existing factories. However, some modifications in equipment and processing techniques will be required. A better option would be to design and build mills

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

specifically to process OPT for the production of palm wood products; and

d) Sustaining the supply of rubber wood

In order to achieve furniture export target of RM12 billion, the industry requires at least 28,000 hectares of rubber replanting yearly to supply 1.2 million m3 of rubber wood sawn timber by 2020. In this respect, RISDA will be encouraged to continue replanting of rubber to meet this yearly targeted hectarage.

Improving marketability of Malaysian timber and timber products

a) Improving certification

In addressing the issue of international market requirements, emphasis will be given to strengthen and promote the Malaysian Timber Certification Scheme (MTCS) and Malaysian Timber Legality Assurance System (MyTLAS). Currently, there are 15 Forest Management Units (FMUs) and 350 Chain of Custody (CoC) certified under the MTCS programmes. By 2020, it is expected that there will be 20 FMUs and 380 CoC.

MyTLAS licence which is currently issued for timber exported to Europe will be expanded for export to other countries. As at 2017, a total of 55,211 MyTLAS licenses were issued by Malaysian Timber Industry Board (MTIB).

b) Leveraging FTAs

The existing Free Trade Agreements (FTAs) will be leveraged to promote better market access for timber products. At the moment, there are 13 FTAs that have been concluded and ratified by Malaysia and three FTAs are under negotiations, that is, Regional Comprehensive Economic Partnership (RCEP), Malaysia- European Union FTA and Malaysia – Iran FTA.

Continuous effort to explore new markets and to promote Malaysian Brand timber products will be given priority. Emerging markets in the Middle East, India and ASEAN will be the focus of new marketing strategy. The exports of timber products to these regions is RM7.6 billion which is 30% of the total export value recorded in 2016. The rapid urbanization in India and ASEAN as well as hosting of international events such as Expo 2020 by United Arab Emirates

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

(UAE) and World Cup 2022 by Qatar presents huge potential for Malaysian timber products;

c) Leveraging Malaysian overseas projects

Malaysian brand will also be promoted by leveraging on Malaysian-owned projects overseas such as Battersea Project in United Kingdom (UK) and Alloy MTD in Philippines.

For this purpose, the timber industry will be encouraged to upgrade their facilities and capacity to meet the requirements of importing countries in the aspects of products standards for safety, quality and performance. In this regard, research and development (R&D) that could lead to product improvements will be given emphasis. Establishment of competent local third-party certifications would be encouraged to reduce the costs pertaining to product testing. MTIB which is currently the Certification Body (CB) for plywood, will expand its scope to other materials such as glulam; and

d) Expanding e-commerce

In the era of globalization, digital technology and e-commerce trading platforms have grown tremendously, thus the timber industry players will be encouraged to equip themselves with such information and technology in order to improve market access of Malaysian timber and timber products globally.

In this respect, the industry will be encouraged to participate in the e-Trade programme undertaken by Malaysian External Trade Development Corporation (MATRADE). This programme aims to promote the adoption of e-commerce among Malaysian companies to accelerate exports through participation in leading international e-marketplace.

In addition, industry driven portal such as Trade Assurance Program (in partnership with Alibaba portal) will be promoted among timber industries. The development of these portals will ensure timber products has wider reach.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Developing more skilled workers and increasing productivity through automation

95. Human resource development is vital to develop adequate competent workforce in the timber industry. MTIB as the sole Industry Lead Body (ILB) for the timber-based sector, will continue to develop skilled human resource in the timber-based sector through collaboration with other training providers, institutions and universities. In addition, through NBOS, MTIB in collaboration with Ministry of Education (MoE) will be implementing the Vocational College training programmes in Furniture Processing Technology. The objective of this collaboration is to create competitive and competent skilled workforce for the industry.

96. In addition, the Malaysian Furniture Council (MFC) has developed Furniture Skills Technology Certification Course in collaboration with VTAR Institute. The course is tailor-made for furniture making among youth. This programme is recognized by the Department of Skills Development. Approximately 40 companies have agreed to provide training and coaching for students under this programme. This industry-led initiatives will be expanded and more incentives in the form of tax relief and allowances will be considered for industry to undertake such programmes to develop skilled workers.

97. To further promote the use of automation, particularly in the furniture sector, the Government has allocated RM100 million soft loan in the 2018 Budget and Accelerated Capital Allowance (ACA) up to 200% until 2020. In addition, to further reduce the reliance on foreign labour, the government has also allocated RM1 billion to adopt automation. These initiatives are expected to increase the productivity of the timber industry as well as its competitiveness. The transformation towards the application of new technology also complements the Fourth Industrial Revolution (Industry 4.0) initiatives by the Government.

98. Industry 4.0 will create opportunities for the timber industry to improve manufacturing capacity and efficiency as well as offer new values and services to customers. In this context, the adoption of Industry 4.0, particularly Internet of Things (IoT), Big Data analytics and cognitive computing through artificial intelligence will be promoted.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Establishing a dedicated furniture park

99. To streamline the development and improve the value chain in the furniture industry, there is a need to establish dedicated furniture parks in Malaysia. In this respect, Muar, Johor has been recognized as the furniture hub in Malaysia contributing almost 70% to the total export of timber products.

100. The Federal government in collaboration with Johor state government and Muar Furniture Association (MFA) is developing the Muar Furniture Park (MFP). The main purpose of this park is to create a systematic hub for furniture industry in Muar. This park is expected to generate potential revenue around RM 1.08 billion when it is fully operational in 2020.

101. To attract more companies to relocate to MFP, the Government will consider special incentive packages for furniture companies in the forms of tax exemption and investment tax allowance as well as fostering more business-friendly environment for potential investors including from abroad. MFP is poised to grow and spearhead the development of furniture industry in Johor and Malaysia in general. The Government will encourage more dedicated furniture parks. The MTIB will establish its R&D center for furniture at the MFP to support industry technology needs and provide technical advice.

Promoting private investment through collaboration and smart partnership

102. One of the strategies that will be undertaken to promote private investment in the timber sector is to collaborate with the various timber associations. The timber associations which consist of industry players would be able to secure private investments through Business to Business (B2B) approach. The Government and the furniture industry will continue to increase FDI in the furniture sector through trade promotion and participation in furniture fairs and exhibitions.

Practicing Good Manufacturing Practices for improving productivity and the image of timber industry

103. The timber industry has been negatively perceived as having the most unconducive working environment. To shed this perception, MTIB will continue to organize several

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

projects to improve the image of the timber industry and making it more attractive and safer for local workers. The Lean Management and Good Manufacturing Programme (GMP) – 5S is seen as the next step for timber factories to continue contributing to the nation’s export earnings. These programmes will benefit these companies by encouraging them to reduce wastage and optimise their production flow, thereby reducing rejects and movement time. This will also lead to better optimisation of their existing workers.

104. Risk Profiling and Star Rating Model (MyRISK) will continue to be promoted to counter negative perception. This system enables timber based companies to personally assess their fire safety system at the comfort of their own factories. The system will provide maximum rating of 4 stars. This will increase the access to better insurance coverage.

Strengthening design capability

105. The timber industry needs to re-invent itself to remain competitive. It is expected that the future growth of the industry will be through higher productivity, innovation and technological breakthrough. The timber industry will be encouraged to adopt innovation and modern processing technology in order to move up the value chain from OEM to ODM and OBM based manufacturing. The Government will continue to facilitate by improving access to funding and incentives, especially to the SMEs to enable a more dynamic development of the timber industry. To ensure the development in timber industry, especially in design, MTIB will continue to undertake several programmes that will enhance the creativity and talent in design such as:

i) The TANGGAM Design Centre (TDC) is a Design Centre with the purpose of providing design services and to be a design hub for designers, students, the industries related or connected to design, and any other end-users who want to make full use of the design facilities available. The TANGGAM Design Centre (TDC);

ii) Furniture Design Competition Mobili is an initiative to select, promote and market outstanding designs, designers and furniture products at international level. This will create a portfolio of new exciting designs which have international market appeal and can be manufactured and marketed by Malaysian furniture manufacturers; and

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

iii) Professional Designers Programme (PDP) is a collaboration initiative that will take R&D in furniture production to the next level that is through the development of furniture designs with local and international Professional Designers together with the Malaysian Furniture Manufacturers. PDP’s main objective is to reach the goal of 70% ODM by 2020.

Increasing awareness on the versatility of timber in the construction industry

106. It is important to address common negative perception of public towards the use of timber in construction. Timber has a higher strength-to-weight ratio compared to steel and concrete. Timber used as structures such as columns in large buildings performs better during a fire compared to steel or concrete. Continued efforts will be taken in organising training programmes, conferences and seminars to educate stakeholders such as developers, construction specifiers, architects on the benefits of timber and how timber could complement building construction.

107. MTIB will continue to provide appropriate inputs for the revision of the UBBL 1984. In this context, MTIB in collaboration with research organizations and higher learning institutions have carried out research on fire testing for structural components and gathered data on charring rate and smoke tests for selected solid and engineered timber from tropical species to support the revision of UBBL. The data gathered from this research will be used to revise Malaysian Standards as well as to convince authorities such as Fire and Rescue Department to allow high rise buildings constructed from timber. To date, MTIB has published a total of 10 Malaysian Standards (MS) on the code of practice for structural use of timber in line with its roles as the Standards Development Agency (SDA) for the timber industry. This will encourage and guide the appropriate use of timber as structural material to further enhance its durability and versatility in the built environment.

108. Government agencies, industry and universities will work as strategic partners in carrying out further R&D&C on glued laminated timber (glulam), cross laminated timber (CLT), laminated veneer lumber (LVL) and other engineered timber products in order to encourage the application of such material in the construction sector. Malaysia should emulate other countries such as USA, Europe, Australia, New Zealand, Japan and Korea which have established policies in supporting the use of timber in building.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Increasing Bumiputera Participation in the timber sector

109. To increase Bumiputera participation in the timber industry and enhance their capability, programmes such Skim Usahawan Perabot Bumiputera (SuperBumi) and Certified Timber and Credible Suppliers (CTCS) will continue to be implemented. In order to increase the Bumiputera’s mill capacity, incentives such as loans to purchase high-end machinery and raw materials will continue. Since 2016, a total of RM35 million worth of loans were disbursed by the Government to Bumiputera entrepreneurs for the purchasing of advanced/ automated and high capacity woodworking machineries. In addition, a revolving fund amounting RM16 million was provided to assist Bumiputera entrepreneurs to purchase raw materials to support their market endeavours.

COCOA Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

D. Cocoa

Smallholder 18,670 RM6 0.22 tonne hectares billion Estate 0.30 tonne

Planted area Export value Average yield (tonne/hectare)

110. In 2017, cocoa cultivated area was 17,554 hectares and cocoa beans production was 1,029 tonnes. Approximately 95% of the planted area was cultivated by smallholders. Its export earnings was RM5.6 billion and GDP contribution was RM1.5 billion in 2017. Performance of the cocoa sector is in Exhibit 17.

111. Malaysian cocoa and cocoa products have a broad market coverage and well- accepted by international consumers. The export earnings from cocoa and cocoa products in 2017 decreased to RM5.6 billion. Cocoa butter remained the major contributor to the total export earnings accounting for 29.2% followed by re-export of cocoa beans (24.2%), cocoa powder (22.9%), chocolate (15.6%), cocoa paste (8%) and cocoa shell (0.02%).

112. Moving forward, there is a need to revitalise cocoa planting in Malaysia in order to become an important global player and to take opportunity from the consistently growing global market. The cocoa downstream industry will be further promoted, particularly for specific product segments such as origin-branded chocolate, compound chocolate and non-food products.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

East Europe Asia & 25% Oceania 50% 85:15 Asia & ASEAN 70% Oceania 14% Mid. East 23%

Product export ratio Market share: Market share:

(Downstream & Upstream) Cocoa butter Cocoa powder 2020 TARGETS 2020

Exhibit 17 Performance for Cocoa Industry in 2017

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Issues and challenges

113. The issues and challenges faced by the cocoa industry need to be addressed to ensure the continuous development and to safeguard the future of the cocoa industry as a dynamic and competitive sector.

Imbalanced growth between the upstream and downstream industries

114. Domestic cocoa bean production is inadequate to meet the requirements of local cocoa grinding activity and has resulted in increasing importation of cocoa beans. Over dependency on importation of cocoa beans will expose Malaysian cocoa grinding industry to risk when there is a squeeze in world supply of cocoa beans. Further, the export tax on cocoa beans between 5% to 20% imposed by the Indonesian Government since 2010 has affected the growth of the local cocoa grindings activities. The imposition of the export tax has increased cost, and affected the competitiveness of the local grinders as Indonesia has the advantage of offering lower price for their cocoa products. Imported cocoa beans are also subject to stringent enforcement and quarantine regulations by the Malaysian Quarantine and Inspection Services (MAQIS), Department of Agriculture, Malaysia and Ministry of Health.

115. To address the shortage of cocoa beans, the Government has introduced programmes to increase local production of cocoa beans, especially by expanding cocoa planting areas and improving of farm productivity. This programmes also contributes towards alleviating poverty and improving the income of the cocoa growers.

Ageing cocoa farmers

116. Most cocoa farmers are ageing and their average age is 60 years. There is therefore a need to attract youth to be involved in cocoa farming to ensure sustainability of this sector.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Dependency on the smallholding sector

117. Since estate and plantations are moving away from cocoa, the smallholders dominate cocoa cultivation and constitute about 95 percent of the total cultivated area of cocoa. Due to involvement of smallholders, assistance and support from the Government is required.

Competition for land use

118. The reduction in cocoa planting area since 1990 was a result of conversion in favour for other commodity crops and economic activities. Rapid economic development has increased the competition for land. This has constrained the expansion in land area cultivated with cocoa.

High production cost and price volatility

119. Higher input and labour cost has resulted in the increase in cost of production. Some of the fertilizers and chemicals used are imported where prices are influenced by currency movements. With respect to labour, in addition to the shortage, the cocoa growers face additional costs such as levy and insurance. High production cost coupled with the volatility in cocoa prices poses a challenge to cocoa growers.

Pest and diseases lead to high crop loss

120. The fragile nature of cocoa tree makes it vulnerable to pests and diseases. Each year, farmers lose between 30% to 50% of their farm output due to pests and diseases infestation. This has contributed to the relatively low productivity and decline in cocoa production.

Strategies

121. Malaysia will continue to encourage cocoa planting to take advantage of the consistently growing global market. The business environment for cocoa downstream industry will be enhanced and specific product segments such as origin-branded chocolate, compound chocolate and non-food products will be promoted.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

122. Three major strategies will dictate the development of the cocoa industry during the Eleventh Malaysia Plan.

Re-engineering of cocoa production

123. The upstream segment will focus on the development of smallholders and improve existing programmes and activities towards increasing output and productivity. The key initiatives will be:

a) Productivity improvement programme

Low productivity has affected the overall production of cocoa beans. The level of productivity was between 0.1 to 0.5 tonnes per hectare due to lack of input application and crop loss from the infestation of pests and diseases. The initiatives that will continue to be implemented to increase the productivity of the cocoa farmers are: i) promoting the use of Good Agricultural Practices (GAP) to achieve optimum level of productivity; and ii) transferring modern technology in cocoa production to target groups.

b) Cocoa cultivation expansion programme

Malaysian Cocoa Board (MCB) will undertake several actions to expand the area under cocoa cultivation to increase domestic production of cocoa that is: i) new planting activities for smallholders under the Cocoa Cluster Development Programme; ii) promote the involvement of private sector in the cultivation of cocoa plantation; and iii) the expansion of cocoa area under state-owned land.

c) Capacity building for smallholders

Capacity building for smallholders is one of the critical success factors in achieving higher productivity and yield in cocoa planting. This will be done by encouraging smallholders to adopt Good Agricultural Practices (GAP) to

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

achieve optimum level of productivity, transferring the modern technology in cocoa production to target groups and strengthening the cocoa cultivation cluster system to ensure continuous supply of local cocoa beans. d) Intensification of crop protection and management team (C-Team)

The crop protection and management team will be intensified to identify and resolve major problems in cocoa planting and assist farmers to increase the production of cocoa through increasing yield. e) Intensification of R&D activities

Under the Eleventh Malaysia Plan, R&D activities on cocoa will be intensified to address the need of the whole value chain of the cocoa industry. The research program will be aimed at enhancing competitiveness of cocoa sector through the development of planting materials, productivity improvement, management of cocoa pod borer, integrated pest and diseases management, biometrics, labor-saving technology development, primary cocoa processing improvements, product development, quality improvement of cocoa beans, improvement in engineering processing and cocoa-based pharmaceutical products. f) Cocoa Cluster Development Programme

The Cocoa Cluster Development Program was introduced under the Eleventh Malaysia Plan as a ‘game changer’ to increase the efficiency in the value chain of cocoa industry. This ‘Farm to Table’ approach is aimed at increasing production of cocoa beans on a large scale by increasing productivity and maximizing land use involving community development, increasing the income of farmers through value added activities along the value chain from cultivation to the production of end products; and generating a stable and guaranteed monthly income to the cocoa growers. Three Cocoa Clusters have been set up in Sabah, Sarawak and Pahang involving 1,490 smallholders with the acreage of 1,439 hectares. The MCB targets to establish three cocoa clusters under the Eleventh Malaysia Plan.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

g) Monitoring the quality of local cocoa beans

It is mandatory to grade local cocoa beans according to the specification of Malaysian Standard or commonly referred as the Standard Malaysian Cocoa (SMC) grade. The grading scheme is instituted to ensure compliance to the specifications with respect to moisture contents, degree of fermentation, mouldiness, insect, infestation, bean size and uniformity.

MCB will continuously monitor quality issues that may arise during the various stages of cocoa beans production. The objective is to ensure that the quality of Malaysian cocoa beans is comparable to the best in the world.

Enhancing and expanding downstream industry

124. The development of both grinding and chocolate manufacturing has contributed to export earnings of RM5.6 billion in 2017. In line with the development of downstream activities, market opportunities have also been growing and well accepted by both domestic and international consumers and exported to more than 100 destinations worldwide. In this regard, to ensure the industry remains competitive, existing strategies and programmes will be improved to address the entire eco-system in the downstream sector including marketing, trade, investment and technical support. The key initiatives will be:

a) Developing and promoting Malaysia as a hub for trading cocoa in Asia

Malaysia has been active in the trading of cocoa beans and cocoa products since its involvement in the cocoa industry in the last twenty years. Given its strategic location to the new growth markets in Asia and coupled with favourable incentives provided by the government and excellent infrastructure and political stability provides a strong basis to develop and promote Malaysia as a cocoa trading hub in the Asian region. As a trading hub for the region, Malaysia will produce cocoa beans, import beans as well as process and manufacture various types of cocoa products. The primary commodity and processed products will be exported to the consumer countries. To develop Malaysia as a trading hub, a local ICT Centre will be established to provide an integrated network one-stop centre for cocoa, warehouses will be set up and logistics, shipping and insurance will be provided.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

b) Market development and strengthening of export market share

Export Market Promotion Programme will be strengthened to increase the market share of Malaysian cocoa products in the traditional markets and explore new market opportunities in the People's Republic of China, India, the Middle East, North Africa, Central Asia and the Russian Union. Towards this end, the following activities will be undertaken - coordinate participation of the industry in international trade expositions to promote cocoa and cocoa products; and participate in economic and technical missions and actively participate in international cooperation and collaboration such as the International Cocoa Organization (ICCO), Asia-Pacific Regional Cocoa Breeding and ASEAN Cocoa Club (ACC) Meeting. Market research on cocoa and cocoa products will also be strengthened to support an effective marketing plan.

Developing entrepreneurs and SMEs and implementing the Bumiputera agenda

125. To develop entrepreneurs, the Entrepreneur Development Programmes and the Bumiputera Agenda introduced by the Government to increase income and standard of living of B40 households income from RM2,300 per month to RM5,270 per month will be utilised. Various programmes under the Bumiputera Agenda Leader Units, TEKUN Nasional, Amanah Ikhtiar Malaysia (AIM) will continue to be implemented.

126. Among the measures to drive the growth of entrepreneur development and economic empowerment of Bumiputera are as follows:

a) Development of new entrepreneurs and upgrading existing entrepreneurs

Small-scale entrepreneurs will be upgraded to medium and large scale chocolate entrepreneurs, the participation of retail entrepreneurs and usahawanita will be promoted and new entrepreneurs will be developed under the cocoa cluster program and a licensed cocoa beans trader.

b) Serve as a Reference Analysis Centre and provide technical support

The MCB will assist the industry as an up-to-date reference analysis centre for dealing with issues related to food safety and quality and trade barriers. It will provide analysis of physical, chemical and microbiology on cocoa products

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

including dried cocoa beans to semi-finished products and finished products through MS ISO/IEC 17025 as well as provide laboratory services to the downstream industry.

MCB will also provide technical support by availing chocolate making facilities to entrepreneurs such as chocolate panning machines; providing theoretical and practical training to the chocolate entrepreneurs such as basic and advance Chocolate Making and Chocolate Panning Courses; and supply of couverture and compound chocolate block to entrepreneurs; and provide assurance in terms of guaranteed quality and meet specific and additional requirements in Malaysia and other countries such as ISO and HALAL certification from JAKIM).

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

PEPPER Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

E. Pepper

18,400 RM428 6 hectares million tonnes

Planted area Export value Average yield (tonne/hectare)

127. Malaysia is the world's fifth largest pepper producer. In 2017, total planted area of pepper was 17,078 hectares and was cultivated 98% by smallholders. Production was 30,433 tonnes and contribution to national GDP valued at RM638 million. Export earnings of pepper decreased to RM308.87 million from the previous years due to lower price of pepper. Performance of pepper industry as in Exhibit 18.

128. Known as the king of spices, pepper remains as one of the most sought after spices in the world. Given the increasing demand in the global market due to higher pattern of meat consumption in advanced as well as in emerging countries, the pepper industry hold a strong growth potential.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Japan 31% 3.0kg/ China 15% vine Taiwan 12% Korea 10%

Productivity growth Market share 2020 TARGETS 2020

Exhibit 18 Performance for Pepper Industry in 2017

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Issues and challenges

129. There are a number of issues and challenges faced by the industry both at the upstream and downstream levels. These include:

Upstream level:

130. Low yield

The yield per hectare for pepper averages 5.8 tonnes. This is lower than the target of 6 tonne.

131. Ageing population of farmers

One of the major concerns is the aging population of the current pepper farmers and low involvement of the young generation. Hence, the challenge is to attract the young generation and to create their interest in pepper farming and to present pepper farming as an agribusiness activity with the potential to generate better income. This younger generation have better education and therefore will be more receptive to applying new technologies and techniques.

132. Higher cost of farm inputs

The cost of agricultural inputs such as fertilizer, pesticide and Belian post continue to increase. The cost of Belian post (deadwood support for pepper) is rising due to the scarcity of Belian tree. Therefore, pepper growers have to bear the high cost of pepper production while using live support for pepper such as Gliricidia sp. and Dillenia sp. which require heavy maintenance. In addition, the cost of agricultural inputs, particularly chemical fertilizer, dolomite and chemical pesticides remain high as most of the ingredients are imported. The current price of dolomite (25kg per bag) and pesticide (1kg per packet) have increased by 7% and 48%, respectively due to the weakening of the MYR against USD and therefore increased cost of farm maintenance.

133. Smallholder predominance

Currently, the development and growth of the pepper industry in the country is highly dependent on smallholders. The setback of this is that without subsidy, pepper

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

farmers may stop maintaining their farms at any time, especially when the pepper prices drop below their production costs. On the other hand, there is a lack of private participation and investment in the industry.

134. Minimal extension services

Currently, extension services provided by MPB cover only a limited number of farmers as there is a lack of extension staff to support the entire industry to promote the practice of GAP at the farm level. Given approximately 31,000 registered pepper planters with 35 extension staff, the ratio is to be 1 : 857. Hence, effective extension services could not be achieved.

135. Low impact of R&D&I

There is a need to improve the productivity and sustainability of the crop through effective and high impact R&D activities in order to develop new high-yielding and disease/pest-resistant pepper varieties; establish sustainable planting practices, and pests and diseases control practices; and promote the green farm technologies. At the moment, most of the R&D activities focus on the food sector and remain at non disruptive level. On the other hand, the pharmaceutical and cosmeceutical sector remains unexplored.

Downstream Level:

136. Intense competition

The pepper industry is highly affected by pricing factor due to increasing competition from producer countries as larger producing countries tend to market their products at more competitive prices. In addition, some of the importing countries have imposed certain tariffs on imported pepper impeding market access.

137. Demand for quality pepper with low prices

Consumers are becoming more conscious of food safety requirements. Hence, the industry has to gear itself to meet changing consumer preference. Producing quality pepper with low production cost remains a challenge to the industry.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

138. Lack of investment in downstream activities

The full potential of pepper downstream activities are not extensively exploited as there is a lack of private sector participation and investments. Currently, downstream activities related to the industry are centered within the food related industry and almost no attention is given to explore other possibilities, particularly in the pharmaceutical and cosmetic industries. In addition, there has been no special tax incentive to support the downstream activities related to the industry.

Strategies

139. The strategic directions for the pepper industry development are to increase production, increase income of pepper farmers, strengthen productivity and competitiveness, ensure sustainability and establish new markets. The targets are to increase production from 31,000 tonnes in 2017 to 35,500 tonnes; strengthen productivity growth from 2.5kg/vine to 3.0kg/vine and increasing competitiveness and ensure sustainable production. These will be achieved by the following strategies:

Increasing Production

140. Globally, the total average supply of pepper for the last five years is approximately 376,300 tonnes while the demand is at an average of 426,900 tonnes. Recognising this, there is a need for the country to increase pepper production to meet the supply gaps. This can be achieved with effective application of Good Agricultural Practices which will lead to higher yield and productivity as well improve competitiveness of the industry. The pepper industry is currently facing low yield that is partly due to soil nutrient deficiencies. In response to this, a soil fertility study will be conducted to address the problem and to identify the suitable counter measures and solutions.

Promoting youth participation in pepper farming

141. Youth will be encouraged to participate in pepper farming to address the issue of ageing farmers. Perception with respect to the pepper farming industry will be improved by creating greater awareness of the benefits of the industry among the young, in

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

particular the opportunities and the potential of the industry to generate remunerative returns.

Encouraging alternative farm inputs

142. Chemical fertilizers and pesticides may be effective but the benefits come at a cost. Over the years, the cost of maintenance of pepper has increased steadily making the cost of production per vine become higher. These chemical products are not only NOT eco-friendly but they also pose considerable health hazards to people, animals and environment. In fact, the regular use of these products brings down the quality of the soil. Recognising this, the use of organic fertilizers and natural plant extracts will be promoted as an alternative as it is easy and cost-efficient and will eventually bring down the production cost.

Promoting private sector participation

143. Currently, the industry is dominated by smallholders who require substantial assistance and this is not viable in the long run. Therefore, there is a need to attract private sector to invest in the industry. Private sector involvement in the industry will also create job opportunities and their participation in the industry will be facilitated with minimal support from the Government.

Strengthening extension services

144. Due to limited number of extension staff, the effectiveness of extension services was not achieved in the past. To address this issue, Technology Transfer Programme will be conducted at the farm level for groups of pepper farmers in a particular area, thus optimising the service of extension officers. In addition, the efficiency and effectiveness of programmes under the Eleventh Malaysia Plan will be strengthened.

Intensifying R&D&I activities

145. Focused R&D&I will be undertaken to improve the productivity, quality and sustainability of the crop. This will ensure new high-yielding, disease/pest-resistant pepper varieties, new planting practices, pests and diseases control practices; and development of green farm technologies.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

146. In addition, producing pepper planting materials through tissue culture is now entering a promising phase. Work on identifying useful traits through DNA analysis that has been started by Malaysian Pepper Board (MPB) research team will continue. At the same time, strategic R&D&I initiatives which include establishing pepper genetic database, improvement of fertilizer quality, innovative pepper cultivation, development of new pepper pole, production of quality planting material, better farm mechanization, and commercialisation of R&D outcomes will remain the key focus of MPB research work.

Establishing new market channels

147. For the industry to remain competitive in the market place while ensuring its price stability, new distribution channels such as big super market stores, major distributors and online marketing using e-commerce will be the key focus to drive the brand name of Sarawak Pepper forward globally. New market outlets will be explored both in domestic and international markets to ensure the products stays close to its consumers worldwide.

Increasing awareness on food safety

148. There is a need to consistently educate consumers on the importance of prioritizing food safety over price. By increasing their awareness, consumers will have a better understanding on consuming premium pepper products that are produced according to stringent international food safety requirements. The aim of applying Good Manufacturing Practices (GMP) will ensure that all processed peppers are guaranteed and safe for consumption and free from any contamination. At the processing level, the Board will continue to implement (GMP) to ensure food safety at all times. In addition, to strengthen the quality of processed Sarawak Pepper, various international certification standards will be adopted in the processing initiatives including Halal certification and HACCP regulations.

Promoting strategic downstream activities

149. There is a need for greater downstream activities and export of downstream products while reducing the export of raw materials. This approach will also minimise the role of intermediaries within the supply chains in the pepper market. Therefore, the emphasis will be on the need to produce high quality pepper to meet the niche market.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

150. Currently, pepper is widely used in the food industry and the use of pepper in other industries such as pharmaceutical and cosmetic is still low. Given its potential, more downstream activities will continue to be promoted. Potential entrepreneurs will be identified, and relevant training will be provided. In addition, strategic collaboration between domestic and international players will be promoted.

151. In addition, new Research and Development Complex in Semenggoh, Kuching, Sarawak will provide further support to the development of the sector. Any new and potential discoveries will strengthen the downstream activities and create another platform for aspiring entrepreneurs and investors to exploit the new findings by turning them into innovative products.

KENAF Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

F. Kenaf

7 2,500 tonne/ hectares hectare

Planted area Average yield 2020 TARGETS 2020

152. In 2017, kenaf planted area was 2,214 hectares and production of kenaf dry stem was 2,990 tonnes while the average yield of fibre per hectare was 2.1 tonnes. For seed production, an area of 781 hectares were planted in 2017 with a production of kenaf seeds was 51 tonnes. Performance of kenaf industry in 2017 is illustrated in Exhibit 19.

Exhibit 19 Performance for Kenaf Industry in 2017

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

153. The Government is committed to strengthen and develop the kenaf industry as a new source of growth, and the industry is to be more competitive and sustainable. The Kenaf Development Master Plan 2015-2025 (PIPK) foresees that kenaf industry can GNI of RM374 million by 2025 and create jobs and entrepreneurship opportunities. This can be materialised only with adequate financial resources and transformation of the industry structure.

Issues and challenges

154. The kenaf industry is a newly introduced commodity and faces several challenges as below.

Limited kenaf variety and low seed production

155. The development of kenaf variety plays an important role in the sustainability of kenaf industry in Malaysia. Currently, there are very few varieties that have been commercialised by Malaysian Agriculture Research and Development Institute (MARDI). This is due to limitation over the time in terms of yield and resistance to disease. The mother seed and varietal development takes a longer time before it can be introduced and commercialised at farm level. Currently, only one kenaf seed variety, V36 has been utilised since 2010.

156. Due to this situation, kenaf industry faces challenges to increase the kenaf productivity at upstream level, and also the recent unfavourable climate has decreased the production of seeds and affected overall seed supply in 2016 and 2017. New strategy and approach has been applied to overcome this situation by changing and diversifying the seed production areas throughout Peninsular Malaysia. The National Kenaf and Tobacco Board (NKTB) has ratified the mother seed development programme with MARDI Research Station at Bukit Tangga, Kedah in 2016. At the same time, NKTB is also working closely with international research centre and university for varietal development and transfer of technology from China.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Limited land bank and competition with other crops

157. PIPK has projected 13,944 hectares of kenaf planted by 2025. This target requires at least 7,000 hectare of land with two cycle cultivation. Currently, kenaf industry has secured 3,000 hectares of land areas actively planted for the past three years, whereas most of these areas belong to smallholders from other crop such as paddy, vegetables and corn. The land bank is a crucial issue to kenaf industry since most of the areas available belong to the big plantations and state government. NKTB approached several states and convinced for collaboration on smallholders and rural people development in kenaf activities along the value chain. In 2017, NKTB has approached Perlis, Kedah, Terengganu, Pahang and Johor state authority and manage to obtain almost 1,000 hectares of land bank. The big plantations are still considering kenaf cultivation and processing.

Inadequate supply of raw materials and low productivity of kenaf stem

158. The kenaf industry, especially the downstream sector is experiencing shortage of high quality and consistency in raw materials supply. The quality of raw materials supply, especially the kenaf fiber has significantly affected the export market acceptance due to limitation of capability and readiness of processing centre to comply with the demand.

159. At the same time, the upstream sector also struggles with the low productivity of dry kenaf raw material (stem) supply for midstream sector and it gives substantial impact along the value chain. Currently, the supply of dry kenaf stem is around 10,000 tonnes which produces around 2,000 tonnes of fibre yearly. However, the midstream sector requires supply of at least 30,000 tonnes of fibre by 2020 to meet industry’s requirement, especially in the automotive, biocomposite and construction sector.

Barriers to commercial market

160. Kenaf industry must keep abreast of the evolving market requirements and demand in the international markets for kenaf and other natural fiber products. Currently, the green technology product lobby by the developed countries plays an important role for the green and sustainable crop such as kenaf. Malaysia should take advantage of this situation and needs to progress with awareness programmes at national level to keep kenaf industry moving forward.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

161. Intensive kenaf marketing and promotion activities at international level also needs to be carried out. In addition, the kenaf industry also faces stiff competition from other natural fiber such as jute and hemp in terms of supply, quality and pricing.

162. The kenaf fiber commodity price relies on supply and demand of major commercial natural fibers. As a new industry, kenaf is still uncompetitive and needs some price protection to ensure sustainability of smallholders’ income.

Heavy reliance on government fund and limited private investment

163. The kenaf industry relies heavily on the government. PIPK projected approximately RM925 million investment from government and private sector for the establishment of kenaf industry from upstream to downstream by 2025. In the Eleventh Malaysia Plan, Government allocated RM110 millions to establish upstream and midstream sector and in 2017, NKTB has spent RM41 millions for upstream and midstream development projects.

164. The downstream industry is also facing difficulties in obtaining financial support and loans as this industry is categorised as a new industry by the financial institutions. In addition, lack of success story and reliable reference at downstream has affected the financing support for this industry.

Lack of funding for research & development & innovation & commercialisation (R&D&I&C)

165. Since the establishment of NKTB, research, development, innovation commercialisation (R&D&I&C) has been carried out through collaboration with other research institutions and institutes of higher learning (IPT). The lack of expertise in kenaf industry has slowed down the innovation and commercialisation of the industry as NKTB relies on other research institutions.

166. In addition, since most of the industry players are still at the early stage of their businesses, there is minimal R&D investment and rely on government funding for investment on R&D&I. Due to slow progress of R&D&I&C, kenaf relies on other industry innovation and thus kenaf has become feeder to other industries and serves as a complement material.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Limited Bumiputera participation in midstream and downstream

167. The Bumiputera participation in kenaf industry shows positive trend where most of the upstream players are from rural areas and are Bumiputera. In 2017, 646 smallholders were involved in kenaf cultivation for fiber and seed production. While at midstream and downstream level, the industry players are mostly Bumiputera and micro-sized enterprises. Currently, there are 20 companies involved in midstream and downstream sector in the kenaf industry.

Limited role of NKTB in driving the commercialization of kenaf

168. NKTB’s role as a government agency limits its capability in driving the commercialisation of kenaf to the mainstream market. The lack of expertise and subject matter experts (SME) in NKTB inhibits its ability in facilitating the development of the kenaf industry.

169. Furthermore, NKTB headquarters which is currently in Kubang Kerian, Kelantan and the potential for commercialization and market expansion is sorely lacking. To drive the commercialization of kenaf to the mainstream market, NKTB needs to seek better ways to strengthen its role as a government agency and establish an entity under its purview to enable the commercialisation of kenaf to potential markets, particularly in the Klang Valley.

Strategies

170. Moving forward, the demand-driven approach will be adopted for the development of kenaf industry in Malaysia, with Government facilitating collaboration with the private sector to commercialise the use of kenaf in end-user applications.

171. At the macro level, by 2025, Malaysia aims to be the leader in kenaf industry in South East Asia. To support this vision, four strategic thrusts will need to be implemented as follows:

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

i) Strengthen the organization structure of NKTB NKTB currently undertakes all aspects of kenaf industry including trading and commercializing, which is not aligned to the role of a government agency. NKTB’s role therefore needs to be strengthened as a government agency to define standards, impose regulations and perform R&D on kenaf;

ii) Focus on process improvements at upstream and midstream level and implement kenaf production model The current problems mainly arise at the upstream and midstream levels. Thus, a new kenaf production model is needed for a paradigm shift of the industry. The proposed model should aim to address the issues at both upstream and midstream level in the current production model;

iii) Sourcing sufficient land supply for commercialization To realize the objective of improving current processes and implement the proposed kenaf production model, it is crucial to source sufficient land for the setting up of model farm and plant in order to achieve commercialization and economies of scale; and

iv) Increase awareness and attractiveness of the kenaf industry Kenaf is still relatively an infant industry, as such the public is generally unaware of its existence, potential and high value added applications. Hence, there is a need to highlight the potential value and demand of the kenaf industry through various efforts such targeting niche investors, raising awareness within the financial industry, assist in the provision of tax incentives and organizing trade shows, fairs and exhibitions.

172. The four strategic thrusts highlighted above will be implemented in three phases.

Phase 1: Process improvement and plan for expansion

173. The process improvement should begin with the review of the current NKTB structure. Based on the current analysis, NKTB should be strengthened as facilitator and regulatory government agency to the industry. In this case, the following structure should be adopted as highlighted in Exhibit 20.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Exhibit 20 Proposed Structure for NKTB

174. The adoption of the proposed structure of NKTB as highlighted above will involve the following strategies:

i) NKTB’s role as government agency will focus on facilitating and regulating the industry. NKTB should focus on developing the expertise in kenaf industry by improving the R&D. This agency should not be involved in marketing, promotion and commercialisation of kenaf products. NKTB should continue to empower capable staff, encourage the staff to pursuing higher technical and academic qualification, and hire capable human resources;

ii) the possibility of NKTB’s Headquarters to be relocated to Klang Valley. Current- ly, most of the companies and research institutions involved in kenaf industry are based in the Klang Valley. This will also make the agency more accessible to other potential industries such as automotive, construction and biocomposite;

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

iii) a new subsidiary company will be established under NKTB. Under Section 37 of NKTB Act 2009 [Act 692], the Board may establish or expand or promote the establishment of companies under NKTB. This clause permits the establishment of subsidiary company under NKTB. This company will develop strategy for marketing, promotion and commercialisation of kenaf particularly in the midstream and downstream level. This company will be registered under the Companies Act 2016 and the majority of shareholders will be owned by NKTB. The management of this company should be helmed by people with business acumen. With the setting up of this company, the incentive given by NKTB will be gradually reduced by 2025; and

iv) strengthening the smallholders’ cooperatives. Currently, there are nine cooperatives registered under NKTB with the total number of 1,183 members. The role of these cooperatives should be to focus on facilitating cluster farming, provide mechanisation services and agricultural inputs as well as trading services for semi processed kenaf products. In addition, Suruhanjaya Koperasi Malaysia (SKM) will develop a blueprint for cooperatives in Malaysia to involve in kenaf industry.

175. Once the above structure is adopted, the process improvement at upstream and midstream level will be implemented by the subsidiary company and cooperatives. To enable this process improvement, the following kenaf production model should be adopted as highlighted in Exhibit 21.

176. Based on the model, the following strategies should be implemented as follows:

i) at the upstream level, NKTB will oversee the cooperatives role in securing smallholder farming size between 40 - 100 hectares. Meanwhile, the subsidiary company under NKTB will facilitate the development of privately owned commercial scale kenaf plantation (plantation size of more than 100 hectares);

ii) at the midstream level, the subsidiary company under NKTB will facilitate and identify private company to operate the several processing centres and the Kenaf Thermobonding Non-Woven Plant in Terengganu. This subsidiary company should also encourage private investment in setting up more big scale plant other than the current infrastructures developed by NKTB; and

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

iii) at the downstream level, the subsidiary company needs to create demand for kenaf products particularly for high value added industries. In order to create demands, NKTB through its subsidiary company should engage and collaborate with other Government Agencies and Government Linked Companies (GLC) such as Construction Industry Development Board (CIDB), Public Works Department (JKR), Malaysian Automotive Institute (MAI), UEM Group and Syarikat Perumahan Negara Berhad (SPNB) to encourage the use of kenaf in automotive and construction industry. Instead of collaboration with government agencies, subsidiary company also should develop smart-partnership with upstream player and cooperatives for consistent supply of raw material.

Exhibit 21 Kenaf Production Model

Phase 2: Implementation and expansion

177. In Phase 2, the process improvement through kenaf production model and expansion plan should be industry-driven and self-sustaining. The following strategies should be implemented in Phase 2 as follows:

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

i) the pilot plant in Terengganu can be a commercial model for foreign/private investment to replicate in order to produce high quality fiber. To facilitate this investment, NKTB should promote the existing incentives under Malaysian Industries Development Authority (MIDA) and Malaysia External Trade Development Corporation (MATRADE);

ii) NKTB through its subsidiary company will identify and evaluate champion kenaf company(s) to implement kenaf production model as stated in Phase 1;

iii) the subsidiary company should also develop and execute rigorous marketing strategies to attract private investors through participation in trade missions and international exhibitions;

iv) NKTB will continue to implement their current programs such as 1KUR, 1KIP and Bumiputera Entrepreneur Programs i.e. Usahawan Pusat Pemprosesan Kenaf In-Situ (PPKI) until the year 2020. By 2020, these programs will be taken up by cooperatives and subsidiary company under NKTB; and

v) by 2020, NKTB will be focusing on facilitating and regulating the industry. During this time period, NKTB should develop kenaf grading and standard through collaboration with other Standard Development Authority (SDA) such Malaysian Timber Industry Board (MTIB) and SIRIM Berhad.

Phase 3: Sustainability and development

178. In Phase 3, NKTB will continue to strengthen R&D programs to address the quality issues with fiber and processing technologies.

179. By 2020, it is expected that kenaf will grow into a vibrant, modern and competitive industry that is focused on high value products and able to contribute positively to the national economy. After 2025, it is envisioned that kenaf industry can take the lead in the push for environmentally-friendly products.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

VI. NKEA PALM OIL AND RUBBER

Performance

180. NKEA Palm Oil and Rubber (POR) plays an important role in maintaining the whole chain of supply of the agricommodities, from the upstream to downstream. The NKEA POR ensures the transition from the upstream sector to the downstream sector through strategic and planned resource allocation.

181. Overall, in 2017, NKEA POR scored 136% and this achievement was the highest at the national level and in the history of the Palm Oil and Rubber NKEAs since 2012. Achievement of all EPPs involved in 2017 NKEA POR are as follows:

KPI SCORE (%) NKEA PALM OIL

EPP 1: Accelerating the replanting and new planting of oil palm and increasing smallholders income 1.1 Planted hectares of oil palm by smallholders on gazette Native 62 Customary Rights land in Sarawak (ha) 1.2 Area of replanting and new planting implemented by 107 smallholders (ha) 1.3 Crop integration to be implemented (ha) 210 1.4 Number of individual projects under livestock integration 150 scheme (goat and cattle) EPP 2: Improving FFB yield 2.1 Total FFB sold to mills by all cooperatives by year end (MT) 186 2.2 Number of new cooperative (Koperasi Penanam Sawit Mampan) 100 selling FFB to mills with minimum 500 MT/year 2.3 New area of plantations/smallholders complying with MSPO 197 (ha) 2.4 National average yield (MT/ha/yr) 94

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

KPI SCORE (%) 2.5 National FFB production (million MT) 98 2.6 Number of samples tested using SureSawit kit to assist 102 certification of oil palm nurseries EPP 4: Increasing the Oil Extraction Rate 4.1 Number of palm oil mills certified by MSPO 300 4.2 Oil Extraction Rate (%) 92 EPP 5: Developing biogas facilities at palm oil mills 5.1 Percentage progress of new biogas plant construction for 5 mills 120 5.2 Percentage progress of 5 new biogas plants connected to grid 100 EPP 6: Developing high value oleo-derivatives 6.1 Percentage of take up of the RM2.15 million pre- 124 commercialization and technology acquisition funds EPP 8: Expediting growth of Food and Health-based downstream segment 8.1 Percentage of take up RM20.5 million funds for food and 200 health-based products NKEA RUBBER

EPP 9: Ensuring sustainability of the upstream rubber industry 9.1 Area of replanting and new planting by rubber smallholders (ha) 100 EPP 10: Increasing world market export of rubber and rubber products 10.1 Number of standards met by rubber and rubber products using 100 newly commissioned equipment

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

Way Forward

182. Going forward, MPIC will review several targets and KPIs under the NKEA. It will rationalise the EPPs including redistribute the NKEA allocation according to priority, relevance and its uptake. The review will include:

i) EPP 1 - reviewing the criteria for eligibility as follows:

a) smallholders owning less than 10 hectares of land will be eligible for replanting grant with maximum limit of four hectares. This is to be in line with the maximum limit of four hectares given to FELDA settlers and rubber smallholders of Sarawak Agriculture Department. The remainder 4 - 10 hectares of land will be eligible for loan; and

b) smallholders owning 10 hectares to 40.46 hectares will be eligible for replanting loan.

ii) EPP 6 and EPP 8 - review the grant criteria so that it is targeted at projects that involve new technology, new products, contribute to exports and significant uptake of palm oil; and

iii) EPP 7 - to undertake a study on first and second generation biofuel towards developing a New Biofuel Policy.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

VII. CONCLUSION

183. The Tenth Malaysia Plan and the early part of the Eleventh Malaysia Plan witnessed mixed and slow growth of agricommodity sector in Malaysia due to snowball effect of global economic slowdown, unpredictable weather phenomenon such as El-Nino and volatility of commodity global prices.

184. Moving towards 2020, it is envisaged that the agricommodity sector will remain as major contributor to national economic and socio-economic development. In order to achieve this, the Ministry of Plantation Industries and Commodities will continue with efforts to strengthen the commodity industry performance through various strategies and policy interventions. These include strengthening its competitiveness, addressing sustainability issues, accelerating creation of value added products, strengthening and increasing market share for commodity and commodity based products, upskilling human capital, enriching the SMEs and Bumiputera participation as well as uplifting the quality of life of smallholders’ via sustainable commodity farming or planting.

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

SUMMARY TABLE

STRATEGIES TARGETS

 Enhancing productivity  Contribution to GNI - RM178 billion  Producing sustainable palm oil  Export value - RM83.3 billion  Diversifying the product base to  Jobs creation - 41,600 premium and high value added  Planted area - 6 million ha products  Average yield - FFB 23.2 MT/ha, OER  Maximising waste utilisation to 20.75% PALM OIL wealth  High premium value added products  Strengthening export market share (oleo-chemical based) - 29%  MSPO certifications - 100% planted area, 100% mills  Biogas trapping - 25% of total palm oil mills  CO2 avoidance - 1.22 MT eq.  Market share - EU 28%, China 45%, India 40%  Product export ratio (downstream & upstream) - 23 : 77

 Enhancing productivity  Export value - RM28.7 billion  Reducing foreign labour  Planted area - 1.1 million ha dependency  Average yield - 1,500 kg/ha  Intensify R&D  Green product (Total agreements signed  Improving standards and market for Ekoprena & Pureprena) - 18 access  Market share of rubber glove - China 1% - RUBBER  Improving institutional framework 3% growth annually  Product export ratio (downstream & upstream) - 70 : 30

 Increasing production  Export value - RM428 million  Promoting youth participation in  Planted area - 18,400 ha pepper farming  Average yield - 6 tonne/ha  Encouraging alternative farm inputs  Productivity growth - 3.0kg/vine  Promoting private sector  Market share - Japan 31%, China 15%, participation Taiwan 12%, Korea 10% PEPPER  Strengthening extension services  Intensifying R&D&C&I activities  Establishing new market channels  Increasing awareness on food safety  Promoting strategic downstream activities

Eleventh Malaysia Plan Strategy Paper: Delivering Economic and Social Prosperity through Agricommodity

STRATEGIES TARGETS  Ensuring sustainable supply of raw  Export value - RM25.6 billion materials  Furniture export value—RM12 billion  Improving marketability of  Planted area of Forest Plantation - Malaysian timber and timber 130,000 ha products  MTCS certification - 20 FMUs, 380 CoC  Developing more skilled workers  Market share - Japan 18%, USA 14%, TIMBER and increasing productivity through India 9.5% automation  Product export ratio (downstream &  Establishing a dedicated furniture park  Promoting private investment through collaboration and smart partnership  Practicing Good Manufacturing Practices for improving productivity and the image of timber industry  Strengthening design capability  Increasing awareness of the versatility of timber in the construction industry  Increasing Bumiputera participation in the timber sector

 Re-engineering cocoa production  Export value - RM6 billion  Enhancing and expanding  Planted area - 18,670 ha downstream industry  Average yield - smallholder 0.22 tonnes,  Developing entrepreneurs and estate 0.30 tonnes SMEs, and implementing the  Market share of cocoa butter - Eastern Bumiputera agenda Europe 25%, Asia & Oceania 14% COCOA  Market share of cocoa powder - Asia& Oceania 50%, ASEAN 70%, Middle East 23%  Product export ratio (downstream & upstream) - 85 : 15

 Strengthen the organisation  Planted area - 2,500 ha structure of NKTB  Average yield - 7 tonnes/ha  Focus on process improvements at upstream and midstream levels and implement kenaf production model  Sourcing sufficient land supply for KENAF commercialization  Increase awareness and attractiveness of the kenaf industry