Tuesday February 17, 2009

Barter trade to the rescue

Palm oil in exchange for other commodities works especially in economic downturn

Commodities Talk - By HANIM ADNAN

BACK in the early 1990s, the palm oil barter trade under Malaysia’s palm oil credit and payment arrangement (POCPA) was mostly for exchanging finished goods like jet fighters and railway infrastructure.

The situation, however, has changed drastically from 2000 onwards especially during the recent commodities boom where Malaysia is more inclined to counter trade palm oil with basic commodities, which are more economical to import or totally unavailable in the country.

To support the country’s engine of growth sectors, namely construction and plantation, the Government is seen actively reactivating POCPA to counter trade goods such as steel billets, magnesia clinker, cement and fertiliser.

In fact, many believe that the POCPA scheme – introduced since 1992 with the support of Bank Negara as credit guarantor – actually holds the key to boost the current lacklustre local palm oil exports given the current global financial turmoil.

At the same time, Malaysia via POCPA can also assist those developing nations that are lacking hard currency to buy palm oil in exchange for their commodities, be it coal, iron ore, cement etc.

Through POCPA, the recipient countries can defer payments for two years at a Libor (London Interbank Offered Rate) interest for US dollar-denominated loans, and in other standard reference rates for loans denominated in other currencies, such as the yen.

Currently, some 22 countries have been offered POCPA credit. Those which have utilised the facility include North Korea, Pakistan, Sudan, Algeria, Pakistan, Iran, Iraq, Myanmar, Cuba and Bosnia-Herzegovina.

Of the US$500mil (RM1.8bil) allocated by the Government, the credit utilised to date was about US$245mil (RM900mil).

For the local palm oil industry, POCPA’s role has become more significant when the industry was hit by fertiliser prices, which escalated by over 200% last year. (Fertiliser represents about 60% of oil palm planters’ total cost of production.)

POCPA, in fact, came to the rescue last month when the Government and Bank Negara approved the barter of US$70mil palm oil for fertiliser with North Korea and Russia.

This move will help reduced Malaysia’s high fertiliser import bill as well as source new markets, apart from depending on existing major suppliers like Canada.

Plans are also afoot for barter trade with other fertiliser-producing countries like Morocco, Jordan, Syria and Iran.

Going forward, barter trade is indeed set to flourish among companies and countries.

The worldwide organised barter exchange and trade industry has grown to US$8bil a year and is now used by thousands of businesses and individuals. The advent of the Internet and sophisticated relational database software programs have further advanced the barter industry’s growth.

l Hanim Adnan is assistant news editor at The Star. She thinks bartering does benefit companies and countries that give mutual benefit in exchanging goods and services rather than cash, especially during hard times.

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