Green thumb: The state is exploring new agricultural segments

Employing around one-third of the state’s population while contributing about a quarter of its GDP, agriculture has long been a lynchpin of Sabah’s economy. At the same time, the plantations sector has recently developed not only as a provider of food but of fuel, making the oil palm segment a key player in the state’s energy plans. The use of palm oil as a biofuel is also being supplemented by the development of downstream processing of this versatile product.

Sabah also benefits from the fact that the federal government has designated both oil palm and agriculture as National Key Economic Areas (NKEAs) – sectors that receive additional federal backing and incentives for private sector participation. Agriculture and palm oil are also key focus areas under the Sabah Development Corridor (SDC), the state-specific development project, giving them important roles in combatting rural poverty and establishing food security.

Plans & Budgets

According to the latest data from the Malaysian Department of Statistics, in 2012 agriculture, including plantations, accounted for 20.8% of the state’s entire economic activity that year and 16.9% of Malaysia’s total agriculture sector. The dominant crop in recent years has been oil palm. The latest figures from the Malaysian Palm Oil Board show Sabah produced 526,124 tonnes of crude palm oil (CPO) in May 2014, nearly 32% of a Malaysian total of 1.66m tonnes. Some 253,173 tonnes of processed palm oil were also produced by the state, some 29.3% of a Malaysian total of 861,548 tonnes. The state’s palm oil has been able to secure a dominant position in the Malaysian sector as a whole.

Palm oil has a variety of uses, from cooking oil and cosmetics to use as a fuel to generate power. Two major projects that demonstrate its functional character are the Palm Oil Industrial Cluster (POIC) at Lahad Datu in the east of the state, and another POIC at Sandakan. Both are part of the SDC initiative. The POICs act as centres for downstream industries in palm oil, such as oleochemicals, food processing and phytonutrients, while also providing liquid and dry bulk terminals for export and import. Both clusters are located conveniently for neighbouring markets in Indonesia and the Philippines, and both are seeking to leverage their locations midway between Australia and China. With the coming of the ASEAN Economic Community (AEC) in 2015, they also provide a doorway to the whole ASEAN market.

Lahad Datu has two biodiesel plants that generate power for the POIC. In 2013 five plantation firms also signed the Biomass Joint Venture cluster agreement at Lahad Datu, which sees them aggregate biomass for the first time, addressing one of the long-standing challenges in biomass development. Sabah currently has some 30 MW of electricity currently supplied to its grid from biomass plants, with this likely to grow as aggregation reduces the difficulty of ensuring a continuous and sustainable feedstock.

Investors in the POICs can apply for full tax exemption on statutory income for 10 years, or an investment tax allowance of 100% on qualifying capital expenditure for five years, among other benefits. Both the state and federal government are investing in developing POICs’ infrastructures, as palm oil is an NKEA. Incentives are available for investment in entry point projects (EPPs), such as work on boosting yields, replanting, and improving worker productivity and mechanisation. The aim is to raise value-added in the sector, by moving away from CPO exports to using CPO domestically to produce refined and associated products.

Another plantation crop receiving attention recently has been rubber. The Pitas agropolitan project has seen some 3600 ha given over for large-scale rubber plantations, with the main goal being to address rural poverty, as the northern district is one of the poorest areas in Sabah. Local farmers are able to tap trees and receive an income from the produce.

Rising Stars

Mechanisation and boosted productivity are also objectives under the agriculture NKEA, as is product diversification. This latter idea is particularly relevant in Sabah, where oil palm has tended to dominate land use. Product diversification helps boost food security for the state, a target Sabah has been working towards. By 2013 Sabah had become self-sufficient in chicken products, and reached 94% and 89% self-sufficiency in fruit and vegetables, respectively.

In other key areas, however, the figures have been less impressive. At that time, some 70% of the rice and meat consumed in the state was imported. Thus, paddy and livestock development have been a recent focus. Regarding the latter, the agriculture NKEA promotes the integration of cattle farming within oil palm plantations. The SDC also has a specific focus on this, with the Integrated Livestock Valley (IVL) being one of its key projects. The Keningau Integrated Livestock Centre (KILC), within the IVL, is the largest cattle farm in Malaysia. The IVL offers a number of incentives for investment in cattle feed, dairy and meat-based product initiatives within its boundaries.


In terms of paddy production, the NKEA on agriculture includes the eventual development of 5000 ha of land at Kota Belud in Sabah, with the Ministry of Agriculture Development and Food Industry of Sabah being the lead agency. In 2013 this project had achieved around 50% of its initial 800-ha goal, according to the NKEA annual report. The project includes the implementation of a range of new techniques, enhancing both crop yields and water management.

In terms of produce, the federal government intends to expand its Permanent Food Production Zones programme to Sabah, with these being integrated supply chain projects for the growing, processing and export of high-value produce, such as star fruit, papaya, jackfruit, pineapple, lettuce, tomatoes and capsicum. This integrated approach is also evident in the Sabah Agro-Industrial Precinct (SAIP) project. Based in Kimanis, it is currently at the end of Phase 1 of its development, with herbal nurseries, essential oil distillation plants and laboratories in place to help process crops into high-value-added products using the latest technologies. Bird’s nests are another expensive delicacy produced in Sabah. The Swiftlet Commercial Centre is an EPP, with 10 different locations identified in the state for the establishment of birdhouses and processing units. Facilities are located in Pitas, Kota Marudu, Kudat, Kota Belud, Tawau and Lahad Datu.

Under The Sea

Another area benefitting both from NKEA and SDC support are the seafood and fishery industries. Sabah has approximately 1600 km of coastline and access to a variety of coastal and deep-sea waters. Under the SDC, investment within the Marine Integrated Cluster in Darvel Bay – which includes Lahad Datu, Kunak, Semporna and Tawau – are eligible for a variety of SDC incentives.

One EPP is the development of mini-estate farming for seaweed, with most of Malaysia’s seaweed cultivation located at Semporna on the east coast. An incursion by Sulu militants in 2013 disrupted the industry somewhat, as it did the Lahad Datu POIC, but the establishment of the Eastern Sabah Security Zone in 2013 should see the sector back on its feet.

Some 22,837 tonnes of seaweed were produced in Semporna in the 11 months to November 2013. Seaweed clusters are also being supported at Semporna, Lahad Datu, Kunak and Tawau.

Another seafood project in Sabah is integrated cage farming, with an integrated lobster aquaculture park now up and running in Semporna. US-based Darden Restaurants announced in 2012 that it was making a $300m investment in this, helping Sabah take a share of a RM12bn ($3.74bn) global market. Sabah also has a number of shrimp and prawn production projects under way, although these have had mixed results due to problems with diseases, such as environmental issues and the price of feedstock. One of the EPPs is a shrimp farm at Pitas that covers slightly more than 1000 ha.

Another EPP focuses on integrated marine fish culture projects, with some 400 ha in the state identified at Kudat for these facilities. Hatcheries, nurseries, cages, processing plants and live feed production plants are to be brought together at the project area. Farming sea cucumbers is another area being developed and incentivised. Four coastal villages have been identified as having potential for growout farms, with these feeding into the SAIP project in Kimanis. Research and development facilities are also to be dedicated to this subsector at SAIP and the Kota Kinabalu Industrial Park’s Technology Park in order to address related issues, such as boosting survival rates of sea cucumbers above 70%. One other area that is now seeing increased development is agro-tourism. Tourists can visit the Sabah Agricultural Park, the Weston Wetland Park and the KILC, with tourism projects also eligible for government incentives once they reach a certain size.


The sector has a wealth of resources on offer, from shrimps to swiftlet nests, with many other potential, high-value products, such as exotic flowers seeking a boost. Logistical issues remain a challenge, such as lacking interior infrastructure and establishing local expertise in high-tech agri-business. Nonetheless, with so much on offer the potential is great for the local market as the AEC expands and finally gets under way.


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The Report: Malaysia 2014

Sabah chapter from The Report: Malaysia 2014

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