Malaysian companies told to seek rubber plantation land in Cambodia ... due to no restrictions on the employment of expatriates

Monday, April 02, 2012

Malaysian companies told to seek rubber plantation land in Cambodia ... due to no restrictions on the employment of expatriates

Land factor in rubber revival

Monday April 2, 2012
By HANIM ADNAN
nem@thestar.com.my

Ramesh also suggested Cambodia for rubber expansion given the Cambodian government's attractive investment incentives.

This include tax holiday of up to eight years from the first year of profit, repatration of dividends or profits are free from any taxes, profits re-invested are exempted from all corporate taxes and no restrictions on the employment of expatriates.

Plantation companies need to look overseas in order to revitalise industry

PETALING JAYA: The revival of rubber as a major commercial crop for Malaysia can be a success should local plantation companies adopt strategies such as land expansion overseas.

This is apart from acquiring local brownfield and greenfield areas, as well as converting current marginal oil palm land to rubber, said Tradewinds Plantation Bhd head of plantation advisory Ramesh Veloo.

For ventures abroad, he said local players should look at Liberia, Gabon, Cameroon, Indonesia, Cambodia and Latin America.

“These countries have optimum plantation base such as ample contiguous and sizeable land, suitable agro climatic conditions and sufficient labour,” Ramesh added.

Other countries with the right climate and labour supply for rubber also include India, China, Cote d'Ivoire and Vietnam.

Malaysia should look to establish rubber estates in countries like Liberia, Gabon, Cameroon, Indonesia, and Cambodia .

According to Ramesh, land expansion overseas and looking into unexplored opportunities appeared to be a solution to revive the rubber sector in Malaysia and also the consideration of a blue ocean strategy by local players. He cited Indonesia as an option for Malaysian planters seeking rubber expansion.

It was reported that there are seven million to 14 million hectares (ha) of degraded land comprising degraded forest, marginal/waste land, idle/unused land in Kalimantan, Sulawesi, Sumatra, Java, Nusa Tenggara and Papua.

“The nature of rubber as a forest crop also facilitates the potential of the crop for reforestation,” he added.

Ramesh also suggested Cambodia for rubber expansion given the Cambodian government's attractive investment incentives.

This include tax holiday of up to eight years from the first year of profit, repatration of dividends or profits are free from any taxes, profits re-invested are exempted from all corporate taxes and no restrictions on the employment of expatriates.

Africa too hold potential for rubber expansion, said Ramesh. McKinsey Global Institute in 2010 had projected that Africa will see a collective GDP of US$2.6 trillion with US$1.4 trillion in consumer spending by 2020. In addition, there will be 1.1 billion Africans at working age by 2040. Ramesh warned local planters that issues related to rubber investments outside Malaysia would need to be further explored and mitigated to achieve greater success.

Country risk for overseas investment should be carefully weighed prior to making any decision. An investor may choose to pay a higher price and purchase established plantations which can generate immediate income rather than take a risk on political stability during the gestation period for a greenfield development which takes five to seven years.

Other issues include land claims or overlapping claims, land encroachment, sustainability, getting the wrong partners, currency risks, logistics and change of government or civil war.

On the local front, Ramesh said the biggest challenge in reviving rubber as a commercial crop would be labour and attracting skill and professional planters.

The government is also playing an active role in reviving rubber through the replanting and new planting program under the Rubber National Key Economic Area. A total of 40,000ha will be replanted and 30,000ha of new land developed in the next five years.

Risda, Sabah Rubber Industry Board and Sarawak Agriculture Department are the agencies involved in the revival programme. The target of the programme is to have 1.2 million ha planted with rubber trees that could achieve a national average yield at 2,000kg per ha per year by 2020.

As for private investors, there is limited potential in Malaysia for reviving rubber in both brown and greenfield development. Some recent developments were observed in Kelantan, Sabah and Sarawak with the good prices of rubber.

However, it would be economically viable to develop marginal land and converting existing oil palm land into rubber, added Ramesh.

For expansion within Malaysia, he said the land cost for brownfield was higher from RM40,000 to RM70,000 per hectare versus the greenfield ranging from RM24,000 to RM40,000 per hectare.

The replanting or cost to maturing for brownfield was about RM10,000 to RM12,000 per planted hectare while greenfield estimated at RM13,000 to RM15,000.

According to Ramesh, most of the brownfield areas for sale in Malaysia have more than 60% to 70% of trees aged above 15 years with poor bark reserves. “The internal rates of return (IRR) for brownfield is higher than greenfield mainly due to the revenue generated immediately after the land acquisition while the gestation period for greenfield is between six and seven years,” said Ramesh.

As for the conversion of oil palm land to rubber, he said the IRR for oil palm on marginal area was from 8% to 12% compared with rubber on marginal area at higher IRR of 12% to 14%. Oil palm EBITDA margin, when planted in a marginal area is RM3,800 to RM7,300 per hectare versus the EBITDA oil palm planted on non-marginal land at RM6,000 to RM10,000 per hectare.

The EBITDA of rubber (planted on palm oil marginal land) is higher at about RM4,200 to RM7,500 per hectare.