Malaysia may invest more in RI palm oil

Malaysia may invest more in RI palm oil

KUALA LUMPUR (Reuters): Malaysian palm oil plantation operators welcomed Indonesia's agricultural reforms and said they may spur more Malaysian investment in that country's palm oil industry.

Malaysia, the world's largest producer, already has many palm oil joint ventures in the second largest grower Indonesia.

"Investments will definitely grow in the long run if negotiations start now," said a plantation company executive.

But the Malaysian economy and currency need to strengthen before there can be any serious new spending in Indonesia, he said.

Indonesia plans to free up agricultural markets, cut tariffs, encourage foreign investment and scrap state monopolies under a new IMF program agreed last week.

The agreement also pledged that by February 1 all formal and informal barriers to investment in palm oil plantations would be scrapped and curbs would be lifted on investment in the wholesale and retail trade.

Indonesia's currency -- the rupiah -- has suffered worst in the turmoil that has swept Southeast Asia, falling some 75 percent against the U.S. dollar since July last year.

The Malaysian ringgit has fared better, tumbling 41 percent. Malaysian plantation executives said the potential for growth in palm oil consumption in the edible oils industry was enormous.

"Palm oil is a commodity that moves in big volumes," said one plantation executive. "It is a food item with more than 30 percent of the world edible oils market...so there is plenty of room for growth."

Malaysia produced 9.0 to 9.1 million tonnes of palm oil last year and Indonesia produced an estimated 5.2 million tonnes.

Malaysian palm oil industry was boosted last month by an Indonesian ban on the export of crude palm oil and palm olein until the end of March to ensure adequate supplies to its domestic market.

After the end of the ban, its palm oil exports would be subject to tax not exceeding 20 percent.

"This is good news for us. With the export ban in Indonesia, buyers will have to turn to us (Malaysia) for palm products," said a senior trader in Kuala Lumpur. "This will help draw down our stock level."