Julian McGill, the managing director of UK-based economic advisory firm Glenauk Economics, attributed this to palm oil production being less affected by fertiliser supply disruptions due to the ongoing conflict in the Middle East.
He said that oil palm, Malaysia’s most important crop, accounts for around 75% of the country’s planted area and has several characteristics that put the sector in a safe position.
He explained that food crops such as fruits and vegetables are heavily dependent on nitrogen-based fertilisers, of which the Gulf regions produce a quarter to a third of the global supply.
“With disruption (from the conflict), prices have shot up. The secondary effect is that countries such as China and Russia are restricting their exports,” he said on Bernama TV’s Bernama World programme entitled ‘The Impact of the Middle East Conflict on Global Agriculture’.
McGill said that oil palm, while a heavy user of fertilisers, uses a lot of potash and not nitrogen-based fertilisers.
He added that many big producers tend to pre-buy fertilisers, with up to 60-70% of the required volume already secured.
“We have to see whether the suppliers will honour the contracts with the volatility of prices, but in effect, they have already pre-bought,” he said.
McGill said even if there is a cutback on fertilisers today, it will take a fairly long time, up to two years, to impact production.
“Palm oil can continue reasonably well, even if this (conflict) is causing big problems for the planning and decision-making. We are not going to see an immediate collapse in palm oil production,” he said.
“This puts Malaysia in a strategically better position,” he said.
Moreover, McGill said that in times of crisis and rising energy and crude oil prices, the commodity is important as a substitute for diesel, similar to what Indonesia is doing.
“Although it is more difficult to produce biofuel in Malaysia due to higher palm oil prices and a lack of infrastructure, in theory, it can substitute for diesel.
“Nevertheless, it is a strategic crop to have,” he added.
Global impact on agriculture
Regarding the impact of the Middle East conflict on food and fertiliser supply disruptions on global agriculture, McGill said impacts are yet to be seen.
“The reason why it’s not yet serious is that the first point is the Gulf is not a major food-producing region. So unlike in previous crisis situations, such as the Russian invasion of Ukraine, we haven’t seen any immediate impact.
“The other is that we are coming off a period of many record bumper crops,” he added.
McGill also said agriculture moves much more slowly than other industries.
“You have to follow nature with agriculture, the planting of the seasons; you plant and wait, and therefore it is an industry that rewards patience, but it is also one where we don’t see an immediate impact.
“Not like a factory where you run out of inputs, you stop immediately. What we’re seeing is concern over the next harvest, over six months from now.
“We don’t see a crisis yet, but it is very tense, and we are monitoring the situation closely, like everyone,” he added.