9.2 Malaysia’s Palm Oil Industry
9.2.2 The 1960s and Before: The Early Days
Native to West Africa, oil palms were brought to Malaysia in 1870 (Rasiah 2006 ). Initially, the palm was planted as an ornamental crop in botani- cal gardens. Commercial cultivation started around 1920, and in 1930 an approximately 20,000 ha expansion of cultivation was seen all across Malaysia (Gopal 1999 ). Before World War II and during the post-war colonial era, the expansion of palm oil production was led by estates (plan- tations) owned by UK-based trading companies. At that time Malaysia maintained its position as the world’s top rubber- producing country, but oil palm cultivation began to spread as a substitute for rubber plantation.
Th ere were two main reasons for this. Th e fi rst was the global expansion of palm oil use. In the latter half of the nineteenth century, palm oil started being used as a raw material for soap and margarine; in the twentieth century it began to be used as confectionary shortening and fuel, and for
a wide variety of other purposes. Hence, demand began to grow. Th e second reason was the decline of rubber cultivation. With the downturn of the rubber market after the Great Depression, motivation for produc- tion adjustment among the major rubber producers rose, resulting in the International Rubber Regulation Agreement in 1934. European estates, whose planting of rubber trees was restricted by this, expanded the cultiva- tion of palm oil as one of the commercial crops that could replace rubber (Martin 2003 ).
Th e full-scale expansion of oil palm cultivation started at the begin- ning of the 1960s. Th e main factor was the Malaysian government’s rural development policy. Th e Federal Land Development Authority (FELDA) was a Malaysian government body that played a central role at this time.
FELDA was an independent land development business organization that was established in 1955 prior to Malaysia’s independence. It was an agricultural and rural development unit that reclaimed and cultivated undeveloped land and promoted rural development to allow landless and poverty-stricken farmers to settle on new land. Th is later led to the New Economic Policy (NEP), which aimed at enhancing bumiputra Malay’s economic status.
Economic disparity grew between the majority Malay population living in rural areas and the relatively rich Chinese residents in urban areas, leading to socioeconomic instability. By FELDA’s granting devel- oped land to economically impoverished Malay settlers, it was hoped that the economic gap between the races would be reduced. Cash crops bound for the world markets were cultivated in the settlements. When initially established, FELDA mainly cultivated rubber; however, due to the deterioration of the international market for natural rubber, it sought to diversify its export products in a planned manner. FELDA attempted diversifi cation by planting crops of cocoa, coff ee beans, and tea. However, there was a growing demand for raw materials for edible oils and fats in overseas markets, so it actively promoted the cultivation of oil palms. After FELDA’s initial establishment 80 % of its settlements cultivated rubber, but gradually oil palm cultivation increased and by the mid-1960s oil palms made up 80 % of its crops (Lim 1967 ).
FELDA’s entry into palm oil production is signifi cant and considerable.
First, as shown in Fig. 9.4 , before 1960 palm oil production was exclusively
handled by UK-based trading estate companies. Local small- scale farm- ers organized by FELDA joined this production as producers (Martin 2003 ). Second, FELDA accepted landless farmers and small- scale farmers who used to be engaged in low-value-added agricultural production of orchards, rattan, and others. Th is made it possible to foster the growth of oil palm cultivation. Th ird, FELDA was able to invest in and imple- ment the development of infrastructure essential for palm oil production and the construction of oil mills. Oil palm cultivation was more capital- intensive than was the previously dominant rubber cultivation due to the technical nature of oil palm processing. Although oil palms can harvest year-round, if the oil is not extracted within 24 hours of harvesting the fruit clusters, then the atrium of the fruit will oxidize and the quality of the oil will degrade. Th erefore, investment in infrastructure—including oil palm gardens, processing plants for extracting the oil within 24 hours of harvesting, and roads for smoothly transporting the fresh fruits—is essential. FELDA’s initial contribution was to pioneer, organize, and mobilize unused resources (land and labor) as the country’s main production sector, and to provide investment in basic infrastructure.
Fig. 9.4 Land area of palm oil plantation by ownership (Source: Author’s calculation based on data from Oil Palm, Coconut, and Tea Statistics, Department of Statistics, Malaysia)
By doing so, FELDA created a political and economic environment conducive to Malaysian national capital recapturing palm oil production, which until then was controlled solely by foreign capital. Even in the wake of measures for alleviating poverty among small-scale farmers, the expansion of palm oil production, primarily led by FELDA, could not have occurred without the purposive action of the government. It is by these means that Malaysia in the 1960s made the shift toward oil palms as a crop to replace rubber, a shift mainly led by the estates and also by FELDA. Due partly to the growing global demand for vegetable oil, the palm oil market took a favorable turn, with the area for oil palm cultiva- tion rapidly expanding thereafter.