9.2 Malaysia’s Palm Oil Industry
9.2.1 The Signifi cance of the Palm Oil Industry
As of 2012, palm oil was a major Malaysian export item in terms of value, second only to consumer electronic equipment. Th e oil palm is not native
to Malaysia but an exotic crop that was brought over from West Africa in the late nineteenth century. Th e palm oil industry did not start as a full-scale commercial industry until around the 1960s. Since then, due to a diversifi cation policy intended to move the country from the produc- tion of then-dominant primary products such as rubber and tin, the palm oil industry has grown steadily. In fact, both the planted areas and out- put increased at around 20 % a year on average through the 1960s and 1970s. In terms of absolute output volume, the industry grew 19 times and 28 times over the 20 years from the 1960s until the 1980s, respectively.
Although the pace of the increase slowed slightly at the start of the 1980s, production continued to expand at approximately 10 % annually. From the 1990s, although faced with constraints on the expansion of cultivated land, the pace of production increase stayed at approximately 5 % annually.
Th ere are three notable points that are special to the development of Malaysia’s palm oil–related industries. Th e fi rst point is the rapidness of this industry’s development; that is, Malaysia grew into one of the world’s largest palm oil producers within a relatively short period. Th is is confi rmed by Figs. 9.1 and 9.2 , which present the total production and export market share of Malaysian palm oil. In 1961 Malaysia’s palm
Fig. 9.1 World market share of major palm oil producers (1960–2013) (Source: Author’s calculation based on data from Malaysian Oil Palm Statistics (various years), MPOB)
oil production and global export market share captured only 6.4 % and 15.1 %, respectively, but these expanded rapidly thereafter, attaining the largest global share of export volume in 1970 at 44.4 % and the largest global share of total production volume at 50.6 % in 1980. Th e speed of this industrial growth was astonishing.
Th e second point is the export-oriented nature of this industry’s development. Palm oil can be broadly divided into two categories:
pre- refi ned or crude palm oil (CPO) and processed palm oil (PPO), which is post-refi ned. Figure 9.3 shows the export value of both types of palm oil from Malaysia. As is clearly indicated in this fi gure, Malaysia’s palm oil exports steadily increased from the late 1970s. Palm oil used domestically in Malaysia currently accounts for less than 10 % of the total amount produced in the country, with most of it exported for use overseas (Gopal 1999 ). Th us the Malaysian palm oil industry has been highly export-oriented.
Th e third special feature is the drastic shift of the Malaysian palm oil export structure, by which major changes can be observed in the produc- tion and export of Malaysian palm oil. As seen in Fig. 9.3 , the 1970s
Fig. 9.2 World market share of major palm oil exporters (1960–2013) (Source: Author’s calculation based on data from Malaysian Oil Palm Statistics (various years), MPOB)
witnessed a smooth shift from CPO to PPO as the major type of palm oil exported during a relatively short period. Th is is important to successful industrial development, as refi ned palm oil has more value-added than CPO. However, this shift could not easily be attained. In the 1960s it was more common to have a vertical trade pattern in which unrefi ned palm oil was exported from Malaysia to developed nations such as Europe and America, where crude oil was then refi ned for use in consumer products.
However, by shifting its export structure, Malaysia moved from being a producer of primary products to producing more value-added, expensive refi ned oil. By the end of the 1980s it had reduced the ratio of CPO exports to less than 5 % of its oil export total. Th e expansion of domestic refi nery capacities and the effi cient operation thereof gradually made this change in exports possible. Th erefore, not only volume expansion but also a structural upgrading was achieved in the Malaysian palm oil–
related industries.
Malaysia is situated near the equator, giving it a suitable climate for the cultivation of the oil palm. However, this did not guarantee the immediate
Fig. 9.3 Exports of Malaysian crude and processed palm oil (1960–2013) (Source: Author’s calculation based on data from Malaysian Oil Palm Statistics (various issues), MPOB)
international competitiveness of the palm oil–related industries. In the 1960s, Malaysia remained a cheap CPO exporter because the country did not have processing capabilities, suffi cient palm oil refi nery facili- ties, and advanced technologies in the related areas. Moreover, palm oil refi nery facilities were equipped in palm oil consumer countries and these countries protected their domestic refi neries by imposing high tar- iff s on refi ned palm oil. It was therefore very diffi cult for Malaysia to export refi ned and high-valued palm oil to developed nations. However, as Fig. 9.3 indicates, Malaysia became a large PPO exporter eventually.
Malaysia was successful at upgrading itself from being a traditional pri- mary commodity producer to being the world’s largest PPO exporter.
To overcome the diffi culty of upgrading Malaysia’s export structure, the Malaysian government took a decisive role. Th e government pursued the synergistic application of various industrial and nationalization poli- cies, by which advanced technology and foreign direct investment were brought in from overseas and the entrepreneurial spirit of local capitalists was highly stimulated. Th e following sections review the development stages of the Malaysian palm oil industry to derive a lesson for the suc- cessful industrialization of resource-based industries.