The prominent economist said many plantation companies are reluctant when it comes to innovating in the industry as they fear their competitors will copy their work.
“They have what we call a free-rider problem because if company A does something and makes a breakthrough, company B, C, D and E can all take advantage of that.
“So this is where the role of the government becomes important. They should tax the companies more and put more effort into R&D,” said Jomo.
He said Malaysia must lead the way in R&D of both the agricultural and industrial application aspects as the country has fallen behind in the industry, with prominent developments happening in countries like Indonesia instead.
“The research should have been done three decades ago, but we should be catching up. We’ve had some important achievements as far as palm oil is concerned but we haven’t had any significant big breakthrough for quite a long time.”
Jomo stressed the need for Putrajaya to create greater demand for palm oil-based products, highlighting that Europe had shifted towards palm oil-based biodiesel since 2006 while Malaysia struggles to attain 10% biodiesel content in diesel sold at petrol pumps.
Last year, Prime Minister Dr Mahathir Mohamad urged the local palm oil industry to join the ranks of countries already using B20 biodiesel like Indonesia, adding that he hoped everyone would be prepared to accept B20 biodiesel fuel by 2020.
It was reported that Malaysia was going on the offensive to inform the European Union about its palm oil policy and also prevent the EU from taking what is being portrayed as a “propensity towards protectionism”.
Plans by the EU to phase out the use of palm oil as biofuel by 2030 has created a challenge for Indonesia and Malaysia, the two biggest producers.
Meanwhile, Jomo added that Malaysia should move away from barter trading deals, acknowledging that it had worked well in the past for the country.
“Let’s face it, the times have changed. During the 1980s, there was a lot of uncertainty about where some countries would get foreign exchange from.
“But today, most countries do not have those same kinds of foreign exchange constraints. So they are not trying to do barter deals any more. And if we keep on trying to do barter deals, I don’t think we will get very far.”