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News & Events

[ 30-01-2013 ]
SMEs in palm oil urged to venture into refined downstream activities
Think big: SMEs in the palm oil industry should explore sophisticated downstream enterprises, such as cosmetics, perfumes and pharmaceuticals. – SAM THAM/The StarThink big: SMEs in the palm oil industry should explore sophisticated downstream enterprises, such as cosmetics, perfumes and pharmaceuticals. – SAM THAM/The Star

TO enhance the growth and contribution of small and medium enterprises (SMEs) to the country's economy, the Small and Medium Enterprise Corporation Malaysia (SME Corp) is currently mapping out various strategies to boost the performances of SMEs, including those in the palm oil-related sector.

SMEs involved in palm oil sector account for 0.8% of the total SMEs in the country which number about 645,000, according to a census last year. These include 3,853 oil palm planters (of which 4% are smallholders), 584 palm oil wholesalers and 382 palm oil manufacturers.

Small and medium enterprises are the backbone of Malaysia's economy as they make up 97.3% of the total business establishments here, says SME Corp Economics and Policy Planning Division senior director K. Karunajothi.

The SME Corp is a dedicated agency set up by the Government to chart the national policy on SME development, and serves as the central point of reference for information and advisory services for all SMEs.

Under the SME Masterplan (2012-2020), the Technology Commercialisation Platform (TCP) encourages innovative ideas from proof of concept stage to commercialisation of the product, says Karunajothi.

She adds that the TCP also provides support for infrastructure, financing, technical assistance, market information and capacity building.

“The palm oil industry especially those involved in upstream activities that focus on research and development can benefit from this platform. We expect to roll out the programme latest by next year,” she says in her presentation at the recent Palm Oil Economic Review and Outlook Seminar 2013 organised by the Malaysian Palm Oil Board.

The SME Masterplan is also introducing the SME Investment Programme (SIP) which is a non-bank avenue that aims to provide early stage financing to enhance innnovation within SMEs.

“We are looking at non-bank avenue type of funding as at the moment banking institutions and development financial institutions account for 88% of total financing for SMEs,” she says.

Under the SIP, every RM1 that investment companies raise from the private sector, the Government will provide matching funds and this could be through long-term loans.

She says the SIP is based on the successful Small Business Investment Programme in the United States, which has been in existence for more than 50 years and has benefitted companies such as Apple and Hewlett-Packard which have since grown into corporate giants.

“This programme is most suitable for very innovative companies that tend to be high-risk, companies that are not suitable for conventional financing from banks,” she says.

Karunajothi says that SMEs in the palm oil sector are mainly either in the upstream plantation segment, undertaking very simple refinery activities or traders in the service segment.

She stresses on the need for SMEs to venture into more sophisticated value creating downstream activities such as cosmetics, pharmaceuticals including perfumes, oleo derivatives and oil palm-based biomass.

While SMEs are aware of the high growth potential in the palm oil downstream activities, they perceive such ventures as challenging due to the high R&D funding requirement and promotional activities required to market such products, she says.

The Palm Oil Entry Point Projects (EPPs) under the Government'sEconomic Transformation Programme (ETP) are similar to the aspirations of the SME Masterplan, which focuses on productivity enhancement and moving up the value chain, says Karunajothi.

The EPPs target sustainability and improved productivity of upstream activities which include accelerating the replanting and new planting of oil palm, improving fresh fruit bunches yield, enhancing worker productivity, increasing the oil extraction rate, and developing biogas facilities at palm oil mills.

The EPPs are also expected to develop the downstream activities in the palm oil industry that will focus on high value oleo derivatives, commercialising second generation biofuels, and expediting the growth in food and health-based downstream segments.