Boston, MA -- (SBWIRE) -- 10/14/2013 -- We hold a positive outlook on the Malaysian agriculture sector owing to the consistent support from the government in developing its downstream capabilities through public-private partnerships. This boosts the overall value of the country's agriculture industry, especially in the palm oil and cocoa sectors. That said, significant risks, such as a labour shortage and curbs on expansion of palm plantations, will continue to pose a threat to the long-term growth prospects of the industry. Further development of East Malaysia, namely in the states of Sabah and Sarawak, also is likely to buoy growth in the sector.

Key Forecasts

- Palm oil production growth to 2016/17: 9.7% to 20.6mn tonnes. Growth will be supported as companies replant mature estates and yields improve on the back of better technology.
- Poultry production growth to 2016/17: 13.3% to 1.4mn tonnes. More investment in the sector as outlined in the 10th Malaysia Economic Plan is expected to drive growth.
- Cocoa production growth to 2016/17: 107.3% to 10,100 tonnes. Cocoa yields on Peninsular Malaysia (the second largest cocoa-producing region behind Sabah) have increased due to the Malaysian Cocoa Board's distribution of high yielding seeds and incentive programmes for farmers to switch to cocoa.
- 2013 BMI universe agribusiness market value: 4.3% year-on-year (y-o-y) increase to US$25.3bn (contributes 8.2% of GDP)
- 2013 real GDP growth: 4.6% (down from 5.6% in 2012, forecast to average 4.5% from 2012 to 2017).
- 2013 consumer price inflation: 1.9% (up from 1.7% in 2012, forecast to average 2.1% from 2012 to 2017).
- 2013 central bank policy rate: 3.0% average (same as 2012, forecast to average 3.3% from 2012 to 2017).

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Key Revision To Forecasts

- 2012 cocoa consumption estimate revised down 13.7% from 344,000 tonnes to 297,400 tonnes in line with latest revisions from Malaysian Cocoa Board.
- 2013 sugar consumption forecast raised by 1.8% from 1.56mn to 1.60mn.

Key Developments

Higher domestic demand stemming from palm oil by-product developments, such as biofuel, could help to soak up Malaysia's growing stocks, which are currently putting downward pressure on international prices. However, we believe the development of the biodiesel industry in Malaysia is likely to remain sluggish in the coming years. Despite having more than 20 biodiesel plants, with a total annual production capacity of 2.6mn tonnes, Malaysia's biodiesel sector is not yet economically viable. In 2012, it was reported that only two plants out of the 20 were producing biofuel. This is due to the high cost of feedstock in recent years, low domestic demand and stiff competition from Indonesian supplies in export markets.

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