Fertilizers and Oil Palm

A plantation owner talked to me a few weeks ago that it was slow to make money from oil palm business. He is quit new in the business, as a qualified engineer residing and educated in Australia, he was asked by his family to oversee their oil palm business in Sarawak just a few years ago. I told him that the business is sustainable despite of the cyclical trend of crude palm oil and the key of maintaining a good profit is none other than keeping a reasonable cost while trying to realize the maximum site yield potential.

Fertilizer is the most expensive cost which accounts for almost 60 to 70% of the production cost of oil palm but most of the plantation owners or managers are sentiment-driven when come to the application of fertilizers. When the price of CPO is high, everyone will be rushing to increasing the fertilizer input but when the price is low, they will be cutting back on fertilizers to save cost. Such practice is not ideal as when you cut down too much of the fertilizers due to low CPO price, you may potentially encounter a crop decline when the commodity prices recover a year later.

I told him that oil palm is a sustainable business if the cost can be contained within acceptable range and there bound to be up and down of the CPO prices and so the fertilizer regime should be maintained at desirable level so that the crop levels can be satisfactorily sustained through the good and bad time. I told him that he will hit the jackpot once the high crop output coincided with the boom of CPO prices. It rarely happens though, as supply and demand chain is determining the commodity prices and as such, when the production level is high, the price tends to take a dip.

Due to bullish palm oil prices over the past two years, many people incline to put high rates of fertilizers but not realizing that the soils although have the buffering capacity, are not very likely to retain any nutrients applied in excess thus leading to high losses. For example, some estates are applying fertilizers amounting to RM 1500 per hectare to realize a good yield but some others are applying close to RM 2000 per hectare for the same yield level. In other word, a different of RM 500 per hectare if multiply by a big area i.e. 2000 hectare will incur an additional cost of RM 1,000,000 a year and if this is a long term practice over a period of 10 years, than the additional cost incurred will be a whooping RM 10,000,000.00.

I told my friend that if the yield of the estate is limited by other environmental factors such as steep terrain or low palm density or other operational issues such as labour shortage problem, then putting too much fertilizer is not going to bring him a good return and over the long term, will erode the profitability for his estate. He seemed to be convinced by my lengthy explanations but told me that his bosses may not buy this idea and will blame him if he is not able to produce good crop. In that sense, he would rather put more fertilizers despite of the high cost so that there would not be any finger pointing when the crops decline.

In the end, logical explanation is still not good enough to back off sentiment.