Boston, MA -- (ReleaseWire) -- 12/26/2012 -- BMI View: While we view positively Malaysia's strategy for the agriculture sector to climb the value chain in the long term, we believe that much more must be done to keep it ahead of the competition. The fact that the government may incentivise refiners to move further downstream is a good step towards this goal. The sugar industry could benefit from this trend given a government proposal to further explore the use of palm oil waste for industrial sugar. Regarding the declining cocoa sector, we believe Malaysia's goal to ramp up output is overly optimistic.
- Palm oil production growth to 2015/16: 14.2% to 20.8mn tonnes. Companies are expected to replant mature estates, and yields are likely to improve as a result of better technology. Domestic refining capabilities will also need to improve in response to the new tax regime change in Indonesia, which is aimed at boosting the refining industry.
- Poultry production growth to 2016: 9.9% to 1.4mn tonnes in 2015/16. More investment in the sector, as outlined in the 10th Malaysia Economic Plan, will boost growth.
- Cocoa consumption growth to 2016: 13.4% to 339,270 tonnes. In contrast with production, we expect demand for cocoa in Malaysia to remain strong owing to combination of rising incomes and population growth.
- BMI universe agribusiness market value: 3.4% year-on-year (y-o-y) rise to US$24.6bn in 2011/12, forecast to grow on average 8.8% annually between 2010/11 and 2015/16.
- 2012 real GDP growth: 3.8% (down from 5.1% in 2011, forecast to average 4.3% from 2011 to 2016).
- 2012 consumer price inflation: 1.7% (up from 2.6% in 2011, forecast to average 2.2% from 2011 to 2016).
- 2012 central bank policy rate: 2.75% (down from 3.0% in 2011, forecast to average 3.3% from 2011 until 2016).
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Malaysia's reaction to increased competition from Indonesia (the country reduced maximum export taxes on palm oil processed products from 25% to 13% while only decreasing maximum taxes on crude palm oil (CPO) from 25% to 20% in order to boost its refining capacity) has been relatively measured so far. Reports indicate Malaysia could reform its CPO export duties to support refiners affected by Indonesia's new export tax structure. The country is also considering providing special funding incentives to refiners to move further downstream. Continuous investment from the Malaysian government in the sector is likely to maintain the country's head start in the refinery industry in terms of boasting well-established networks and technologies, especially as its export regime is already favourable.
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