This article first appeared in Forum, The Edge Malaysia Weekly on March 20, 2023 - March 26, 2023

In 2015, the government decided that the area under oil palm would be capped at 6.5 million hectares in 2023 to maintain forest cover in the country. This is a worthy objective in view of the importance of forests in containing the threat of global warming.

Now that 2023 is here, will the government walk the talk?

No commodity would have a heyday that lasts forever, except food. Most commodities (particularly industrial crops) will go through the curse of a life cycle: birth, maturing and decline/death. Even our golden crop, oil palm, has lost its first position to Indonesia and its growth in land expansion has slowed compared to the rapid expansion of the 1970s and 1980s.

In the natural course of events, the performance of a commodity over time can be described in terms of archetypes of life cycles. Archetypes are a common set of patterns of behaviour in an industry or organisation that have a tendency of recurring. The behaviour is shaped by the interaction of elements or endogenous variables in the industry system.

Malaysia’s three main industrial crops — rubber, oil palm and cocoa — have exhibited different archetypes of growth curves in the last 60 years. The archetypes describe the story of successes, challenges and failures that shape their trails of growth and decay.

The historical footprints of the three commodities were first laid out by our former colonial masters who wanted to produce raw materials to feed their industrial needs. They started with rubber plantations to expedite their automobile industry and later turned to other areas of industrial consumption. This set the trajectory for the exponential growth of rubber plantations in the early years.

The growth curve of rubber was reinforced by good fundamentals; there was strong demand for rubber products, vast land availability, cheap labour and R&D support from the government. Alas, the exponential growth did not last.

Beginning in the 1970s, the area under rubber began to decline after a sterling performance in the 1960s, where it accounted for two-thirds of agricultural land and Malaysia was the world’s top exporter of natural rubber. By 2020, its share of agricultural acreage had been reduced to merely 14% and its world position had fallen to sixth place.

The area under rubber continues to decline very slowly, sustained by domestic demand for latex and cup lump. The archetype for rubber is called “limits to growth” as limiting factors took charge and curtailed further progress. These include push-and-pull factors such as the rising cost of production, low and unstable prices, competition from cheaper producers and the growing profitability of oil palm and non-agricultural enterprises.

The cocoa phenomenon is categorised as an “overshoot and collapse” archetype or synonymous with a “boom and bust” analogy. This archetype shows an accelerating growth in the early stage of development and later radically decayed.

Both reinforcing and balancing factors were at work in the case of cocoa. The accelerating phases (1970 to 1989) were reinforced by good demand for cocoa and support from the government.

However, beginning from the 1990s, the deceleration began. The industry was struck by a widespread outbreak of cocoa pod borer disease and a low price, with minimal intervention to curb the fallout from these developments.

The relative profitability of oil palm provided a lucrative alternative for small cocoa farmers who were badly hit by these adversities. The pulling out of the estates from the industry caused massive panic among smallholders, which led them to convert their farms into oil palm plantations instead.

Despite the decline of rubber, there was strong conviction among industry players that the rubber estate management technology was replicable with oil palm, hence the beginning of oil palm plantations in a big way both by the private and government sectors. It has proved successful, growing from a humble share of only 2% of agricultural area in the 1960s to three-quarters (5.74 million hectares) of agricultural land in 2021.

The oil palm industry has progressed from primary production to highly diversified value-added production, in both edible and non-edible forms. Its exponential growth curve was accelerated by strong fundamentals (in both supply and demand), massive financial allocation and effective support from the government, innovative R&D and 

availability of land. The growth in acreage still continues at a rate of close to 10% a year through deforestation and conversion from rubber, cocoa and other agricultural crops.

The archetype for oil palm thus far is called “success to successful”, which reflects the reinforcing effect of oil palm’s “success”. However, with the enforcement of the land cap at 6.5 million hectares, the curve may decline (hence mimicking an “S”-shaped or sigmoid curve) or decline sharply (“overshoot and collapse”, as in the case of cocoa). The area cap is a necessity for Malaysia to minimise the impact of climate change, flooding, animal extinction and habitat loss.

It is highly probable that after the area cap takes effect, the oil palm area may decline due to structural problems such as labour shortage, high input cost, low yield and growing environmental concerns from consumers and competition from lower cost producers, particularly Indonesia.

Archetypes do not lie. Life cycle is a compulsive norm. Nevertheless, a decline is not an impasse but an opportunity to rejuvenate. Malaysia’s cocoa has all the potential to flourish again as demand for cocoa never shows a downward trend, particularly from the new emerging and advanced economies. It does not require a large area. With an assured market, this sector requires a big injection of R&D funds and institutional support for its revival. Rubber and oil palm plantations are extractive in nature and not regenerative, which are not sustainable in the long term. Thus, for the medium term in both oil palm and rubber, Malaysia is more than ready to move towards higher value-added products and to be a world leader of sustainable and climate-smart production to be driven by automation and digitalisation.

Prof Datin Paduka Fatimah Mohamed Arshad, FAsc is a research fellow at the Laboratory of Agricultural and Food Policy Studies, Universiti Putra Malaysia, and a senior fellow of the Institute of Democracy and Economic Affairs (IDEAS)

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