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MGB GREEN TECH ORGANIC FERTILIZER

METRONIC GREEN TECH FERTILIZER PROJECT

Executive Summary

Metronic Global Bhd (MGB) in its endeavour to explore new avenues of profit generating business has teamed up with Naturelink Sdn Bhd (NSB), an established fertilizer manufacturer and distributor, to set up a subsidiary MGBS for the purpose of manufacturing and distributing green technology fertilizer to the burgeoning agriculture sector.

The agriculture sector is a steady growth and major contributor to Malaysian economy with fertilizer a major component of the industry. Fertilizer manufacture and trade has grown by leaps and bounds and green technology fertilizer is a market niche of high profit margin promoted in the 2000 decade by a niche market of purveyors and users. Today it accounts for about 10-20% of the fertilizer industry. The main player in the Green Tech Organic Fertilizer is Agrifert Malaysia Sdn Bhd, part of the Kuok Group.

The objective of the newly set-up subsidiary is to make significant inroads in the lucrative green technology bio-fertilizer market underpinned by establishing a regular profit pipeline from trading straight fertilizer on a regular basis.

Metronic Global Berhad subsidiary (MGBS) will form a Joint Venture with Naturelink Sdn Bhd (NSB) by together forming a newco with objective of using existing trade facilities to purchase raw materials for processing into high profit margin in-demand green technology fertilizer to cater to the niche market.

MGBS will provide the trade facilities for financing of raw materials for processing fertilizer and administration of the newco while NSB will provide the technical and scientific know-how, manpower, logistics and established customer base.

The underlying objectives are to:

Expand and cater to a growth-oriented market niche with high potential (note that this market has barriers to new entrants without technical know-how)

Develop a value-added product with recognizable branding and good profit margin

Take advantage of bulk purchase discounting and disintermediation

The newco will comprise a paid-up capital of RM500K with cash infusion of RM300k from MGBS and RM200k from NSB on a 60:40 sharing basis. The operations will be administered from MGBS office.

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We believe that this JV proposal will create a win-win situation for both parties concerned. The fertilizer industry is a deeply entrenched established industry which is recession-proof, cash cow and on a consistent growth trail.

Branding will also be established to create market awareness of our products: the suggested brand name is “MGB Green Tech Fertilizer”

Corporate Profile of the Joint Venture Company (“newco”)

The company will be registered as a new subsidiary company of Metronic Global Berhad with 60% shareholding by Metronic Global Berhad, a public listed company with principal activity in provision of engineering related products and new technological products and the balanced 40% shareholding held by individuals with vast experience in the fertilizer industry.

The company will be managed hands-on by staff from both major shareholders of the 60:40 divide. The administrative office, finances and operation will be handled by Metronic Global while the marketing, warehousing, logistics and supply chain will be handled on a hands-on basis by the remainder shareholders on a daily basis under the supervision of Metronic Global Berhad appointed staff.

1. Delineation of Duties between MGBS and NSB in the JV newco

MGBS as the main provider of trade facilities will be responsible for regulating the purchase of raw materials for the manufacturing process, supervising the cash-flow and accounts of the newco.

MGBS will head the management staff which will oversee the entire financial and supply chain processes.

All paperwork, financial control, management processes and administrative matters will be handled by newco staff appointed by MGBS to safeguard their interests.

NSB will be in charge of the manufacture process, quality control, logistics, sales and marketing and customer relationship management.

2. Safeguarding the long term interest of the shareholders

As the main provider of trade facilities, MGBS shall have overriding interest in regulating the cash and funds flow in the newco: MGBS shall retain prerogative rights in determining how the funds from the trade facilities shall be utilized and choosing customers proposed by NSB.

NSB shall make suggestions on purpose and utilization of the trade facilities and other banking facilities available for purchase of raw materials for processing by determining the pricing and quality of raw materials purchased. The raw materials could be a combination of semi-furnished

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fertilizer from local factory or imported materials from semi-producers overseas. NSB shall ensure that all raw materials purchased shall be of a minimum expected quality and from reliable suppliers and can be sold on its own to the captive agricultural market should the need arise.

NSB shall also avail immediately all technical know-how by enabling MGBS access to agricultural researchers. Technological support from NSB is provided by Dr Teh, Dr Li and wife who are all agricultural and bio-technology experts from Taiwan.

3. Immediate benefits of the JV

Fertilizer raw materials purchased overseas and from reliable local suppliers often command a good pricing cost when purchased in bulk and can be sold for a reasonable profit margin without undergoing manufacture processing. The difference lies in the distinction between a generic non-branded commodity and a product with branding and recognition which commands different market niche and profit margins.

The setting up of the JV company under the auspices of a public listed company and under the stewardship of an established fertilizer producer and distributor will enable market trust in the financial capabilities and product reliability.

Inevitably, it is difficult for any neophyte to break into the established market niches but with the combined support of these two names will ensure a smooth transition of penetration into the entrenched markets. NSB goodwill in the fertilizer industry established in the 1990’s todate and Metronic’s support will enable the JV company to find a firm footing in the burgeoning local fertilizer industry which is worth over RM10 billion per annum (to be confirmed with reference research)

4. Advantages of the JV

The local fertilizer industry is worth over RM10 billion per annum and still growing. It is a recession-proof industry with extensive incentives provided to the agriculture sector and is heavily promoted and subsidized by the Government. Supply of fertilizer cannot cope with local demand and there is often a need to import raw materials: sporadic scarcity also contribute to elasticity of demand factors.

Green technology fertilizer commands market niche in the industry with only a handful of players in the market as traditionally fertilizer market is dominated by chemical fertilizers and compound fertilizers.

With the advent of biotechnology in the 90’s, alkaline conditions and proactive beneficial bacteria have been proven to be highly effective to promoting plant growth and plant health.

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Green Technology Fertilizer utilizing beneficial bacteria bio-enzyme technology is known scientifically to produce the following results:

Enable an alkaline environment to neutralize the high acidity of chemical fertilizer

Reduce the soil erosion and loss of nutrition

Improve bioavailability and nutrition absorption by plants

Improve the yield per acreage

Reduce the number of application and hence improve efficiency & efficacy

With these stated factors and given the encouraging growth of this market niche versus the industry dominance of chemical fertilizers, there is opportunity to carve out a niche in this growth sector of the fertilizer market.

The local fertilizer market is dominated by large companies like Agrifert Malaysia Sdn Bhd, CCM Fertilizers Sdn Bhd and they mainly cater to large plantation houses.

There is a large sizeable market to tap the medium size plantation houses as the majority of them still use chemical fertilizers due to tradition and convention.

The following attachment is a list of medium size plantation companies which are potential customers for organic green technology fertilizer:

SEE ATTACHMENT

Large plantation houses are also consumers of green technology fertilizer ie:

1. IOI CORPORATION BERHAD2. TAIKO PLANTATION BERHAD3. BLD PLANTATION BHD4. BOUSTEAD PLANTATION BHD5. CEPAT WAWASAN BHD6. MSC PLANTATION BHD7. CHIN TECK PLANTATION BHD8. FAR EAST HOLDINGS BHD9. GENTING PLANTATIO BERHAD10. GLENEALY PLANTATION BERHAD11. HARN LEN BERHAD12. HAP SENG BERHAD13. IJM PLANTATION BERHAD14. KIM LOONG RESOURCES BERHAD15. KLUANG RUBBER COMPANY BERHAD16. KRETAM BERHAD17. KULIM ASIA BERHAD

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18. KURNIA SETIA BERHAD19. KWANTAS BERHAD20. MALPAC BERHAD21. MULTI VEST BERHAD22. MHC PLANTATION BERHAD23. NPC PLANTATION BERHAD24. NEGRI SEMBILAN OIL PALMS BERHAD25. PLS PLANTATION BERHAD26. RIMBUNAN SAWIT BERHAD27. RIVERVIEW BERHAD28. TRADEWINDS BERHAD29. SUNGEI BAGAN BERHAD30. SARAWAK OIL PALM BHD31. SARAWAK PLANTATION BERHAD32. GOLDEN LAND BERHAD33. UNICO DESA BERHAD34. BENTA PLANTATION BERHAD35. TA ANN BERHAD36. YNH BERHAD

THE HIGHLIGHTED COMPANIES HAVE DEALT WITH NSB

With current commodity prices pointing northwards and the agricultural sector becoming a more significant contributor to economy, the fertilizer industry is a lucrative industry with many cash-cow plantation houses and affluent plantation owners.

PROFILE OF TARGET MARKETS

The Fertilizer Market in Malaysia is dominated by oil palm plantations which consume at least 60-70% of the fertilizer consumption in Malaysia ie oil palm estates are the largest consumer of fertilizer in the agricultural sector.

The bulk of the reliable customers comprise large scale plantation companies, medium size, small scale estates to individual farmers of small plots.

Our target markets would be focused on:

Medium size plantation houses Small scale plantation estates Principally oil palm plantations which comprise about over 70% usage of fertilizer in

Malaysia

We will not focus on both the extreme ends of the target market ie the large scale plantation companies and individual farmers because of the following reasons:

i. Large scale plantation houses typically purchase fertilizer in bulk quantities and enjoy bulk discounting which reduces the gross profit margin significantly

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ii. Large scale plantation houses may purchase fertilizer in excess of RM5m per transaction and the industry credit term is around one to two months which can create cash flow constraint

MARKET STRATEGIES, SALES PLANS AND PROJECTIONS

The First Phase: Our existing sales force of 4 marketing staff covering Peninsular Malaysia will introduce green technology bio-enzyme fertilizer to an existing customer base of over 30 plantation estates. This will not cannibalize the entrenched customer base as green tech fertilizer commands a different market niche with different profit margins and different market requirements. Typically, the customer will use green tech bio enzyme fertilizer on sprouting plants and maintain their regular fertilizer for maturing and matured plants.

The Second Phase: Advertise on newspapers the advantages of green tech bio-enzyme fertilizer over conventional fertilizer which usually elicit good response and interest. From past experience, the response from the advertisement will more than offset the high cost of advertisement in the mass media and garner new customers. The bulk of customers will however come from existing customers using the green tech fertilizer.

We envisage that initially, the bulk of sales will derive from marketing of conventional straight fertilizer comprising 80% of sales and the balance of 20% of sales will derive from sales of green tech bio-fertilizer. Conventional straight fertilizer commands an immediate market demand but the profit margin is highly competitive at 2% to 5% and arbitrage operations must be initiated to avoid systemic market pricing risk.

Technology and R&D

The formulation for green tech fertilizer and fermentation of bio-tech enzyme are managed by a team of agriculture and bi-technology experts namely Dr Teh and Dr Li, the attachment of their resumes are given in addendum.

5. KEY FACTORS FOR SUCCESS: Cost Savings from existing facilities

The rented warehouse in Port Klang measuring 20k square ft to 30k square ft can be utilized to process the raw materials using a set formulation devised by our in-house agro-biotechnologists namely Dr Teh, Dr Li and his wife specializing in bio-enzyme and bacteria technology.

The raw materials purchased are semi-finished fertilizer combined with imported fertilizer and are mixed according to pre-set formulation devised by our bio-technologists to produce green technology fertilizer.

1. Cost of purchased raw materials

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2. Short term financing and administrative cost3. Warehouse & assembly facilities rental costs = RM15k per month4. Ground staff cost = RM15k per month5. Sales and administration cost = RM15k per month

The fixed cost of operation per month entails about RM45k to RM50k.

Additional costing are:

1. Transportation cost2. Advertising cost

Sales growth is recession-proof & demand outstrips supply. The demand for green technology fertilizer is growing with growth in the double digit figures and the price range is from RM300 to RM2000 per ton catering to all budget tastes and requirements from the high economical to the high-end. Thus, this growing niche within the fertilizer industry can cater to various categories of plantation houses from the humble farmer to the multinational.

The gross profit margin for green technology fertilizer is a minimum of 20% ie for monthly sales of RM2 million, the expected gross profit is RM400k.

We envisage the following sales trend on a conservative basis by assuming sales growth of 30- 50% per annum for the next three years and fixed costs as follows:

ASSUMPTIONS

1. We assume a half-year figure for 2011 with RM2m turnover per month2. We target a modest 20-30% annual revenue turnover growth3. Gross profit margin is fixed at 30%4. Transport cost is fixed at RM50 per tonne5. Marketing and advertising cost is fixed at RM50k per month or RM600k per annum6. Operational cost is fixed at the base of RM50k per month comprising warehouse rental of

RM15k per month, labour cost of RM15k per month, administrative staff and miscellaneous utilities cost of RM20k per month

7. Initial set-up cost of RM200k comprising the relevant machinery and equipment8. Finance cost of 7.5% comprising LC charges of 0.1%, TR charges of BLR + 1% and the rate of

7.5% per annum is charged on the total annual turnover less the profit margin of 25% ie the 7.5% is charged on the gross cost of raw materials

9. Corporate Tax is uniformly assumed at 25% on the total net profit10. The initial investment is RM500k and the ROI or Return on Investment is based on this figure

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FINANCIAL PROJECTION @ 30% gross profit margin

Year Mid-2011 2012 2013 2014 TotalRevenue 12,000,000 37,500,000 50,000,000 60,000,000 159,500,000

@30% profit margin

(8,400,000) =3,600,000

(26,250,000)=11,250,000

(35,000,000)=15,000,000

(42,000,000)=18,000,000

47,850,000

Less Logistics @rm50/ton

(420,000) (1,312,500) (1,750,000) (2,100,000) (5,582,500)

Less Marketing & Advertising

Cost

(600,000) (600,0000) (600,000) (600,000) (2,400,000)

Gross Profit 2,580,000 9,337,500 12,650,000 15,300,000 39,867,500Less

Operating Expenditure

(300,000) (660,000) (726,000) (798,600) (2,484,600)

Set Up Cost (200,000)Finance Costs @ 7.5% pa of product cost

(315,000) (1,968,750) (2,625,000) (3,150,000) (8,058,750)

Profit Before Tax

1,765,000 6,708,750 9,299,000 11,351,400 29,124,150

Less Corporate Tax 25%

(441,250) (1,677,187) (2,324,750) (2,837,850) (7,281,037)

Profit After Tax

1,323,750 5,031,563 6,974,250 8,513,550 21,843,113

ROI @ RM500k

264% 1006% 1394% 1702%

Any product not sold can be sold as straight fertilizer therefore the downside risk is minimal and negligible. Please note that even if we achieved 30% of these expected figures, there will still be profits for the company as demand for green tech fertilizer is highly elastic.

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6. Key Management Profile

Haw Guan Leng (I/C no. 640627-04-5081) works as a Marketing Director specializing in marketing of organic fertilizer, chemical fertilizer and feedmeal for the last decade. He has vast experience, intimate know-how and broad networking in the agriculture industry. He was instrumental in establishing and engaging several large customer accounts and maintaining the accounts successfully for many years.

He graduated from University Malaya in 1989 with a Bachelor of Science Degree.

Since its inception, he is responsible for leading the business strategy, new business expansion and long term growth. He has vast networking in the fertilizer, oil palm and feedmeal industry. Mr Haw works closely with Agriculturists and Botanists on improving the crop yield, enhancing the health and nutrition of plants. He has broad collaboration with various experts in the agriculture field and takes a long term view of the industry.

Tan Kian Hong (I/C no. 851109-04-5487) is the Head of Sales Administration in charge of liaising and maintaining sales with existing customer base as well as advertising and marketing initiatives which complement the sales staff. He is also in charge of logistics, warehousing, transportation and delivery of goods and supervising delivery of goods from supplier to buyer. He liaises with a over a dozen transport companies and several warehouses for stocking of supplies and delivery to customers. He holds a Diploma in Marketing. He has been involved in the fertilizer industry for the last decade and has garnered in-depth knowledge of the fertilizer trade. Ensuring timely delivery of products and meeting up to the expectations and anticipating the needs of clients and customers is the forte of Mr Tan.

Huang Jiunn Min (I/C no. 661020-10-6389) is in charge of finance administration and maintenance of accounts and overall administration of operations. He holds a Masters Degree in Financial Planning and Masters in Business Administration.

7. Products to be sold

Two main categories of products are:

i. Straight fertilizer namely:

The three main categories of straight fertilizer are N, P, K as follows:

N = Nitrogen derived mainly from Urea or Ammonium Sulphate promotes healthy growth of leafP = Phosphate derived mainly from Rock Phosphate promotes strong plant roots and stemsK = Kalium or Pottasium derived mainly from Muriate of Potash promotes flowering and fruiting

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Straight fertilizer comprise chemical based fertilizer which is the predominant fertilizer being used in the market. The market for straight fertilizer is huge and demand usually outstrips supply during inflationary times especially during periods of price increases which cause shortages. The last decade has seen commodity price inflation and fertilizer is no exception to this rule. Straight fertilizer can be either sold as a commodity commanding profit margins of 2-5% and there is a ready market commodity demand for them or used as component ingredients in the formulation of green tech fertilizer. Note that higher quality straight fertilizer can command profit margins between 5-10% while green tech fertilizer profit margins are 20-30%.

ii. Green Tech Fertilizer namely:

Bio-enzyme enriched organic fertilizer which is a formulation of straight fertilizer to provide enriched levels of NPK blended in the correct formulation for efficacy and added with fermented enzymes which can be purchased from reliable supplier sources. This product will be the main focus of the enterprise.

SWOT ANALYSIS

STRENGTH

Green Tech Organic Fertilizer is a growing industry with bright potential to be tapped as it only comprises less than 10% of the fertilizer market, superior profit margins and a captive market. There is a well-established fermentation industry in Malaysia to tap and the resources are widely available with a stable domestic demand.

WEAKNESS

Medium size enterprise without large capital cannot tap the large scale plantation houses due to cash constraint arising from extending credit terms.

Majority of farmers need to be educated on green agriculture concept and long term benefits of bio-technology. This will take time, money and effort.

The established companies have deeply entrenched business relationships with their suppliers and this enterprise will take time to convince addition of supplier.

OPPORTUNITY

Bio-technology and ecological farming products are on the rise with promotions, tax incentives and subsidies provided by the Government. Strategic alliances with others, integration of bio-fertilizer industry, product diversification and economies of scale cost reduction are some of the opportunities available as the enterprise grows in size.

THREAT

Sub-standard and fake products in the market affecting the credibility of bio-fertilizer;Imported bio-fertilizer products at competitive pricing can pose stiff competition

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FERTILIZER INDUSTRY

The Fertilizer industry is a proxy for the oil palm industry in Malaysia as 30% of the component cost of planting oil palm is derived from the usage of fertilizer and 72% of fertilizer consumption is derived from oil palm plantation. The oil palm industry has seen continued growth in terms of plantation acreage and export value and the beneficiary of the sustained rise in oil palm plantation is the fertilizer industry.

Owing to the substantially improved and increased commodity prices especially agricultural produce prices which has resulted in higher profit margins, the Malaysian Government has in recent times put a lot of emphasis on the agriculture sector by way of subsidies, promotions and incentives. Statistics indicate the increased acreage and higher yields auguring well for the continued importance of the agriculture sector to Malaysian economic growth.

The Government is well-aware of: - the significant contribution of agriculture especially oil palm industry to economic growth ie 12% of

2010 Malaysian GDP is from agriculture- agriculture sector is an important engine of labour employment: 16% of population are employed in

agriculture sector- healthy Bumiputera participation in the sector and major driver of rural economy- large and important sector which is vital, stable and reliable income and economic generator- the tremendous growth potential of the agriculture sector considering that technological

application in Malaysia is still at the early stages- synergistic benefits and by-product and related industries can sprout from the agricultural sector

Agricultural sector is a sunrise industry in Malaysia when one considers the following factors:

i. Averaged 10% contribution to economic GDP of Malaysiaii. Heavy subsidies, incentives, tax exemptions and promotions by Governmentiii. Oil palm industry is a major component of Malaysian agriculture and it commands a good

price and healthy profit margin. Majority of oil palm companies are cash cow and consider the fact that one oil palm plantation company can generate over RM3 billion net profits

iv. Despite the world economic downturn in 2008 which slowed down economies in 2008-2009, the resilient oil palm industry has seen resurgent prices and sustained demand

v. Oil palm industry and its corresponding fertilizer industry are entrenched, established, recession proof industries which are proven and stable

vi. Food prices are on the rise and agricultural commodities like fertilizer will only see sustained and rising demand

vii. Bio-technological application on agriculture is still at an early stage in Malaysiaviii. There are still vast tracts of idle land which can be used as arable agricultural land eg local

production of rice cannot cater for local consumption and it was mooted to set up paddy fields in Sabah-Sarawak

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Source of Information: Malaysian Palm Oil Board, MATRADE and International Fertilizer Association

CONSUMPTION OF FERTILIZER MALAYSIA (million tonne) (Source: IFA)

2008 2007 2006 2005 2004 2003 2002 2001 2000 19991381.9 1878.4 1778.4 1606.4 1684.1 1443.4 1220 1140.6 1207.4 1323.8

IMPORT OF FERTILIZER MALAYSIA (million tonne) (Source: MATRADE)

2008 2007 2006 2005 2004 2003 2002 2001 2000 19991574.9 1580.9 1452.3 1215.1 1498.6 1305.5 1342.7 1058.4 1462.8 1403.6

EXPORT OF FERTILIZER MALAYSIA (million tonne) (Source: MATRADE)

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999516.5 496.8 464.3 393.8 386 454.1 492.3 486.8 442.3 326.3

PRODUCTION OF FERTILIZER MALAYSIA (million tonne) (Source: IFA)

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999720.3 748.6 689.3 711.4 690 653.7 586 582 586.7 399.2

OIL PALM ACREAGE (thousand hectares) (Source: MPOB)

2009 2008 2007 2006 2005 2004 2003 2002 2001 20004691 4487 4304 4165 4051 3875 3802 3670 3499 3376

OIL PALM CPKO ANNUAL AVERAGE PRICE (Ringgit/metric tonne) (Source: MPOB)

2009 2008 2007 2006 2005 2004 2003 2002 2001 20002342 3437 2808 1908 2183 2306 1585 1410 1010 1708

Analysis of the statistical trends

The general trends noted are:

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Average Oil Palm Prices have grown significantly in the last decade by almost 40% in line with commodity inflationary trends

Oil Palm Plantation Acreage has also grown by almost 40% in tandem with price inflation growth of oil palm

Consumption of Fertilizer has risen incrementally but not as fast as oil palm acreage. Overall, it has remained stable between 1300-1800 levels

Production of Fertilizer has risen sharply and almost doubled in the last decade

Imports have grown and stabilized in the 1400-1500 region

Exports have grown and stabilized in the 400-500 region

Consumption of fertilizer dropped in 2008 in conservative response to world economic crisis resulting from USA and Europe fall-out

Conclusions

The rise in oil palm prices has made oil palm an attractive commodity and this has correspondingly also resulted in a rise in acreage over the last decade.

Oil palm is the biggest user of fertilizer in Malaysia accounting for 72% usage and while its price and acreage have increased over the last decade, fertilizer usage has stabilized implying that better quality fertilizer has been adopted to compensate for the slower growth of fertilizer usage as compared to plantation growth.

The bulk of the local production of fertilizer is exported ie in 2008, 516m metric tonne of fertilizer was exported from Malaysia while 720m metric tonne was produced locally ie about 70% of local fertilizer production are exported overseas. A high percentage of the local production of fertilizer are exported principally because the grade of fertilizer produced locally is high grade and is in demand by the export market and the higher prices payable by the export market over the local market dictated higher profit margins for the export market.

The import of fertilizer is almost three times export of fertilizer indicating that Malaysian agriculture relies heavily on imports of fertilizer.

Of note is the rather close correlation between oil palm price ebb and flow and the consumption of fertilizer. This is not surprising considering that fertilizer makes up 30% of oil palm costing.

Fertilizer is an integral and substantial part of costing and ingredient of agriculture and the improving quality of fertilizer has resulted in reduced usage of fertilizer albeit more expensive fertilizer is being used. While there have not been any trends or periods of substantial decline in

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fertilizer usage, the statistics indicate a tapering or plateau being reached. Fertilizer industry is a recession proof industry and a staple ingredient in agriculture sector, there is a trend towards reliance on foreign imports of fertilizer as well as focus on better quality fertilizer.

These trends point towards a bright future for green technology bio-enzyme fertilizer as plantation companies and farmers seek better quality fertilizer to provide higher crop yields at reduced application ensuring long term cost savings as well as better environmental protection and long term health of the plantation.

Mineral fertilizer account for slightly over 90 percent of all fertilizer usage in Malaysia ie urea, ammonium sulphate, calcium ammonium sulphate, rock phosphate, ammonium phosphate,potassium sulphate, NPK and PK compound fertilizers. Increase is due mainly to expansion of oil palm cultivation which required a significant amount of fertilizer nutrient usage. The transformation of rubber into more lucrative palm oil estates has also accelerated the consumption of fertilizer.

According to the Chemical Company Malaysia Berhad (CCM Bhd) Annual Report 2009, Malaysia is ranked as the world’s 10th largest fertilizer consumer, accounting for around 1.1% of the world’s total consumption in 2008. Approximately 72% of the fertilizer consumption in Malaysia is used by the oil palm sector followed by other agriculture sectors such as rice and fruits and vegetable crops, which accounted for around 8% and 2.8% of total consumption respectively. The most commonly used fertilizer in Malaysia are potassium fertilizer like Muriate of Phosphate followed by nitrogen fertilizer like urea and finally kalium fertilizer like rock phosphate and ammonium phosphate. Based on the latest data, fertilizer consumption in Malaysia grew at around 8.4% p.a. between 1997 and 2008.

The growth of fertilizer consumption corresponds with the growth of oil palm production which has more than doubled over the last decade.

Fertilizer industry is a matured Industry – most plantations have their own suppliers already – there is obstacles in market penetration and the typical two month credit term is a cash-flow constraint to majority of fertilizer companies except the bigger companies. However re-introducing a market niche product like green tech fertilizer changes the market equation. The credit term extended can be shortened to one month and market niche products like green tech fertilizer often have higher elasticity of demand and are not subject to the vagaries of oil palm price declines. To overcome the difficulty in penetrating established plantation houses, the enterprise will ally with eminent agriculturists and botanical scientists who can leveraged on their status to introduce our products to new customers.

Research has indicated that farmers generally buy fertilizers on credit and repay only when their harvest is sold. Hence, the price those farmers expect to receive for their harvest influences their decision to invest in fertilizers to increase yield and improve crop quality.

Studies have apparently shown that the prices of agricultural commodities have a greater influence on farmers’ decision to spend on fertilizers than do the price of fertilizers themselves .

The rising market price of agricultural commodities tends to push up fertilizer prices rather than the contrary where fertilizer prices move in tandem with agricultural commodity prices but with a time lag.

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This has been proven by price surges in food/soft commodities prices due to a global food shortage, which has pushed fertilizer prices to an all-time high.

On the other hand, falling CPO prices mean oil palm planters are likely to scale back their purchases of fertilizer or alternatively consider buying higher quality green tech fertilizer which enables higher crop yield and reduced applications, thus enabling longer term savings.

In Malaysia, firm CPO prices have been the main driver for the demand of premium fertilizers, namely, compound fertilizers, as smallholders and oil palm plantations attempt to raise yields to capitalize on the crop’s high prices. As a result, compound fertilizer sales in Malaysia generally move in tandem with CPO price movements, although with some time lag. In contrast, oil palm planters tend to switch to cheaper and lower quality fertilizer, such as straight and mixed fertilizer, when CPO prices are low, as a cost-cutting measure, considering that fertilizer cost accounts for around 30% to 40% of total planting costs.

Research has also indicated that timely application of the right fertilizer is still important for yield.

Firstly, the dramatic drop in CPO prices over a very short period in 2010 is considered the worst the players have seen, catching them unprepared in adjusting their production costs and maintaining margins. Although the current CPO price of around RM2,000/ton to RM3,50/ton is still well above the lowest price in 2001 of RM750/ton, production costs have over the years increased significantly as well. This has caused planters to opt to cut their fertilizer cost by reducing fertilizer application or choosing high quality fertilizer which increases crop yield and concomitantly reduced application times.

Secondly, given the strong CPO prices from 2006 up to 2009, planters have increased their fertilizer application quite significantly over this period to capitalize on the high CPO prices, which has resulted in nutrient-rich soil. In the event the planters decide to cut their fertilizer application significantly for the next few quarters, the nutrients in the soil are still seen as sufficient to sustain the growth of oil palm trees for the next few months with a minimal impact on yield.

It was reported that fertilizer consumption in Malaysia dropped by around 23% from 1998 to 2001 during the previous down-cycle in CPO prices. However, this is unlikely to happen nowadays (substantial drop in fertilizer consumption as a result of drop in oil palm prices) due to improved quality of fertilizer used which has reduced application times and enhanced crop yield.

The Government of Malaysia is promoting the use of organic fertilizer especially for sustained management of natural resources and has identified niche market opportunity for fruits and vegetable. The Government promotes re-cycling of agricultural waste and companies which are involved in re-cycling or bio-technology can apply for tax exemption status.

Most of the fertilizer used in Malaysia are produced abroad ie imported because the prilled urea manufactured in Malaysia are high quality and fetches a high price ie are exported.

Malaysia Agriculture Directory and Index 2008 indicated that there are 50 over companies involved in over 350 brands of fertilizer in the fertilizer trade.

Government has stimulated fertilizer usage through subsidy and credit schemes, distribution channels through FELDA, RISDA, FELCRA, packaging of fertilizer smaller than 50 kg for small farmers,

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Majority of fertilizer used are potassic fertilizer due to rapid increase in oil palm plantation.

The ultimate goal of sustainable agriculture is to develop farming systems that are productive, profitable, energy conserving, environmentally sound, conserving of natural resources and that ensure food safety and quality.

Unfortunately, conventional fertilizers, over the long term, have adverse effect to the health of the soil by depleting it of valuable humus, and by reducing the overall biological activity. Depletion of microbial activity leads to resistant soils, which gives rise to plant stresses, and a greater susceptibility to crop diseases.

Green Tech organic fertilizer is safer, environmentally friendly alternatives to chemical fertilizers and has been proven:

Improve soil microbiology Improve nutrient absorption via slow absorption bio-availability Accelerate root development Increase root structure Increase crop yield and density Improvement in overall soil ecology Decrease transplant shock Extend post-harvest longevity Ease of application Longer lasting Cheaper in the long run

It has been tested on a variety of crop, and has benefited large scale commercial growers to home gardeners around the world.

Although green tech organic fertilizer is still quite new in Malaysia, it is slowly but surely gaining the interest of the agricultural sector in hope to make it as one of the nation’s generator for economic growth.

The use of organic fertilizers for various crops has gained popularity due to the promotion by the government for more sustainable use and better management of natural resources. Organic agriculture is also being identified as a niche market opportunity for the vegetables and fruits under the National Agricultural Policy 3. The government has put in effort to promote programmes that encourage the recycling and use of agricultural wastes and other biomass. These include rice straw and husk, empty oil palm fruit bunches, animal droppings, saw dust and palm oil mill effluent (POME). The use of these organic products will also reduce the dependence on mineral fertilizers which are now more expensive. With continued use, the soil fertility will also improve. The move towards more natural and healthier methods of food production have gained good acceptance. The Ministry of Agriculture is actively promoting organic farming through their programmes of certification under Standard Organic Malaysia (SOM) and target to increase the organic production areas in the country. The number of local manufacturers of these organic fertilizers has also increased over the last few years to supply to the

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vegetable and fruit crop areas. Interest in use of green technology fertilizer is also gaining ground in the key oil palm sector. Among the large fertilizer companies of Agrifert Malaysia Sdn Bhd, CCM Trading Sdn Bhd, Behn Meyer Sdn Bhd and Agromate Sdn Bhd, Agrifert Malaysia Sdn Bhd has made inroads by promoting its own green tech fertilizer.

We view that the future prospects of green tech fertilizer are highly positive due to the following reasons:

i. Government support of ecological methods and bio-technologyii. Application of incentives and promotions on bio-technologyiii. Growing body of statistics indicating the efficacy and nutritional benefits of green tech

fertilizer over chemical fertilizersiv. Farmers are willing to experiment and adopt green tech fertilizer due to high prices of

agricultural producev. Increasing education and improved knowledge and exposure of farmersvi. Competitive pricing of green tech fertilizervii. Organic fertilizer comprise about 10% of fertilizer consumption in Malaysia indicating room

for growthviii. Agriculture is a vital, staple, stable and substantial contributor to the economyix. World trends are impelling farmers and agriculturists to adopt ecological and bio-

technological methods and the green wave is also pervading into Malaysian agriculturex. Healthy and sustainable profit margins will encourage further R & D in green tech fertilizer

Source of Information

MATRADE Malaysian Trade Exhibition Library and Database MPOB Malaysian Palm Oil Board IFA International Fertilizer Association Statistics FIAM Fertilizer International Association Malaysia CCM Berhad Annual Reports

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