1.

Historical background of forest plantation

development

1.1. Historical resume

Forest plantations are not new in concept and practice for Malaysia. However, interest in forest
plantations lacked the required impetus in the distant past. It has vacillated quite a bit, influenced
on one side from fear of impending timber deficits in the future and poor results from planting
trials. Up until the 1970s, Malaysia was endowed with vast areas of natural forest. Under such
superfluity it was considered unnecessary and unnatural to convert natural forest into unstable
monocultures.

A brief history of forest plantation trials can be found elsewhere (Appanah and Weinland 1993,
Wyatt-Smith 1963). The most notable events in the history of plantation forestry in the country,
especially in Peninsular Malaysia are summarised in Table 1. The situation in Sabah and
Sarawak are more straightforward, and less illustrative to the changing tides in forest
management that Malaysia underwent. Therefore, this chapter will mainly highlight the events
on Peninsular Malaysia, and draw on the principal events in plantation development in Sabah
and Sarawak

Like with the management of natural forests, plantation trials were first begun in P. Malaysia,
and then subsequently in Sabah and Sarawak. Records of planting forest species date back as far
as 1880, when concern for loss of desired species was expressed (Hill 1900). There was concern
over the rapid destruction of the taban forests and it was also becoming increasingly difficult to
obtain railway sleepers. This was the gutta percha era when the nyatoh taban (Palaquium gutta)
trees were heavily felled for gutta percha which fetched a very high price. Interest in plantations
of gutta taban caught on. Wildings were collected and planted in regular plantations. At Ayer
Kroh, Malacca, 500 gutta percha plants were planted (Hill 1900). A scheme for planting
hardwood trees in Sungai Buloh Forest Reserve was also initiated. All mature timber were
removed and the hardwood species were line planted. About this time rubber production became
the new excitement. In 1901, 180 acres of regular plantations of rambong (Ficus elastica) and
para rubber (Hevea brasiliensis) were started in Pondok Tanjong, Perak.

Besides planting of heavy hardwoods, afforesting mining land and BRIS soils and reforesting
forest lands were also of high priority. In 1898, the areas around Pekeliling (Circular Road),
Kuala Lumpur, were planted with species such as Casuarina equisetifolia, Eugenia grandis,
Dryobalanops aromatica, Swietenia macrophylla, Hevea brasiliensis and Fagraea fragrans. For
example, the clumps of trees of C. equisetifolia and F. fragrans found on the Selangor Golf
Course in Kuala Lumpur are remnants of plantings done between 1896 and 1901. Forest planting
was limited to trials of extremely valuable exotics such as Eusideroxylon zwageri and Hevea
brasiliensis, and local timbr species such as C. equisetifolia, F. fragrans, Intsia palembanica and
Palaquium gutta.
After a while all these planting fell out of favour. Plastics replaced gutta percha. Rubber planting
was taken up increasingly by private planters. The reforestation work, experimental in nature, did
not perform well and the results were considered not commensurate with the expenditure.
Nevertheless, some planting trials persisted here and there. Plantings of Intsia palembanica and
Neobalonocarpus hemeii were continued. Besides these, species trial with teak was also
reported. They were first planted by rubber planter in Langkawi Island (Annual Report 1903).

Table 1 Summary of the most notable events in the history of plantation forestry in Peninsular
Malaysia

Year Events
1877 Rubber (Hevea brasiliensis) planted in Kuala Kangsar
1884 - Small trials of exotics started
1900
1900 - Regular plantations of gutta percha (Palaquium gutta) and rubber (Hevea brasiliensis);
1913 Line planting of chengal (Neobalanocarpus heimii) in forest reserves; Experimental
planting in abandoned mining land
1927 - Forest Research Institute set up in Kepong, and experimental plantations in lowlands were
1941 started; Plantation experiments in Cameron Highlands (ca. 1,500 m asl); Teak planted in
Langkawi Island
1945 - Experimental teak plantations in north-west Malaya; Plantings in forest clearings resulting
1950 from distrubances during the war.
1952 FAO Eucalyptus study tour in Australia, and extensive species trials with Eucalyptus spp.
1954 - Species trials with Pinus spp. With potential pulp value were initiated; Experimental
1958 plantations were started on tin tailings; Taungya system tried using Gmelina arborea in
tobacco farms; Line plantings of kapur (Dryobalanops aromatica) were established in
Kanching.
1959 - Large scale experimental planting with Pinus caribaea and P. insularis in the lowlands.
1962 Pinus spp. From Central America and Populus spp. From Kenya were also tested;
Experimental plantings in shifting cultivation areas; Line planting and small scale
plantings of secondary growth of Dryobalanops aromatica, Eusideroxylon zwageri,
Flindersia brayleyana, Fragraea fragrans, Khaya spp., Pentaspadon officinalis, and
Shorea macrophylla.
1963 - Bigger trials of Pinus spp. were conducted in Selangor.
1965
1966 - Under the UNDP assistance, pilot plantations of quick growing industrial tree species were
1970 initiated, mainly for production of pulp. Plantations of pine were expanded in Selangor,
Johore, Pahang, Negeri Sembilan and Kedah; Shorea and Dryobalanops spp. were planted
under the Taungya system in Negeri Sembilan. Jelutong (Dyera costulata) plantations
were expanded in Sungei Buloh F.R.
1971 - Mixed plantations of Pinus and Araucaria were tested on poor soils in Bahau; Enrichment
1976 planting using indigenous species became an important forestry practice.
1981 - The Compensatory Forestry Plantation Project through ADB loan was initiated. Quick
1992 growing tropical hardwoods like Acacia mangium, Gmelina arborea and Paraserianthes
falcataria were chosen for producing general utility timber. The Compensatory plantations
came under review and the planting for sawlog production has been put on hold. Planting
for pulp production continues.
1992 - Planting of teak beagan earnestly event in wetter sites; Sentang (Azadirachta excelsa) is
1996 also given importance as a plantation species.

These were the main developments and by the end of 1912 there were 922 acres of regular
plantations and 4,828 acres were line planted under shade. By that stage results from improved
felling in natural forests were available. These suggested that it was still better to improve the
crop in the natural forest than establish regular plantations (Annual Report 1912). As a result, no
further increase in plantations occurred and in the Annual Report (1920) it was noted that the
area of regular plantations stood at 869 acres.

The Forest Department did most of the plantings but the records were meagre. Initially exotics
were tried but subsequently local species were tested in the belief that they gave better growth.
Foxworthy (1930) recorded that some 130 species were tested in all, but a high proportion of
them yielded poor results. Overall, the plantings were haphazard, initiated by individuals, and
scattered throughout the country. Many of the trials were lost when the officers got transferred.
This was dubbed the “plant and forget” era (Oliphant 1932).

These disappointing results led to a major development in forestry in Malaysia. It was decided
that a central permanent experimental station should be set up in Kepong. It was recommended
that further planting should be initiated only after the species and methods have been tested in
Kepong. The experimental plantations were started in Kepong in 1927. While more species were
added to the trials in Kepong, much of it remained experimental. The emphasis was mainly on
high quality timber species which have a long rotation. These would yield definitive results only
in the decades after 1970. In the early 1930s, the position on planting did not shift as the
researchers were not in favour of planting.

Despite the reservation on planting occasional experimental trials were conducted. In 1931, high
elevation plantations were begun in Mentigi, Cameron Highlands to test out exotics (Annual
Report 1933). In 1936 large scale planting experiments were carried out in Rantau Panjang and
Bukit Sungai Puteh Forest Reserves, Selangor. In 1937, trials were begun to establish
commercial pole crops on denuded areas in Selangor and on the poor BRIS land in Kelantan.
The latter were totally unsuccessful. During the Japanese Occupation (1942 - 1945) many areas
in Forest Reserves were cleared for farming. After the war there were some efforts to line-plant
these areas. Taungya system was also tried. Progress was made but the survival rate was very
poor. In the early 1950s, extensive plantations were established in devastated areas in Malacca,
Selangor and Perak. The experimental teak plantations in north-west Malaysia were stepped up
to test provenances from Java and Thailand (Wyatt-Smith 1961). This was also the period when
many exotics were tried on an experimental plantation scale to gauge the costs. The species
included some of the fast growing species like pines, yemane, and eucalypts. The pines and
eucalypts were planted in the hills and lowlands. The pines were also tried on lalang infested
areas and tin tailings.
In the early 1960s work still continued on trials of more pine species, especially the ones from
Central America. Selection of elite trees of pines and their vegetative propagation were initiated.
Another significant development then was a plan to set up a pulp and paper mill in Peninsular
Malaysia. This resulted in a large programme for the pilot plantation of quick growing industrial
species, carried out with UNDP assistance. Several species of pines and other conifers were
grown on a pilot scale for pulp production. Plantations were started in several states, including
the setting up of seed orchards. The early results appeared promising with Pinus caribaea and P.
merkusii which had increments of above 21 m3/ha/year. Their pulping properties were found to
be suitable for paper manufacture. But before the viability of such plantations could be
ascertained the planned paper mill was scuttled. Thereafter interest in raising plantations for pulp
production diminished as well.

In the early 1960s, following sweeping changes to land-use policy, forestry became confined to
poorer soils and in the hills. With these poorer forests the old management systems were revised
and planting was taken as an option to remedy logged sites which were poor in regeneration. The
Forestry Departments embarked on Enrichment Planting under the Intensive Forest Management
Scheme (Ismail 1964). Planting with potted seedlings and wildings of mainly indigenous species
was carried out in several states, especially Selangor, Perak and Kedah. Such plantings
dominated the Departments’ activities for most of the 1970s. The results were however dismal
despite the high costs (Tang and Wadley 1976). Survival was moderate to low. Growth was good
provided the canopy was kept open for a relatively long period. The species used were not
necessarily the best for the purpose. Thereafter enthusiasm for expensive enrichment planting
faded and is now employed to a minor degree only, to improve highly degraded sites.

As the 1980s approached most of the State Forests were converted and forest resources were
limited to the Permanent Reserves only. These were much poorer in stocking. But meanwhile the
industries had been developed for a much higher capacity than the natural forests would be able
to sustain. This led to speculations that there will be a timber shortage in the future (Chong
1979). This led the Forestry Department to consider planting general utility timber under the
‘Compensatory Plantation Project’. The compensatory plantation was to cover 188,200 ha by the
year 1995 and was supported by an Asian Development Bank loan. The plantations were planned
to produce general utility timber of small saw log dimensions for the domestic market in 15 year
rotations. For the purpose, quick growing tropical hardwoods such as Acacia mangium, Gmelina
aroborea, Paraserianthes falcataria and Eucalyptus camaldulensis were identified. However,
due to difficulty in procuring planting material, the majority of the areas were planted with
mainly Acacia mangium because seed was easily available. The species has not proven to hold
its initial expectations. Growth has remained below expectations, and many of the trees appeared
to be susceptible to heart rot damage in some sites (Hashim et al. 1990). Overall, its performance
for sawlog production remained dismal (Weinland and Zuhaidi 1990). As a consequence,
additional planting of the species for sawlog production has been halted since 1992. But plans for
planting the species for pulp production are being pursued on a big scale with development of
one pulp and paper mill in Sabah and additional ones planned in Sarawak and P. Malaysia.

At present the Forest Department is looking for alternative species for forest plantations. Since
the mid-1980s rubber wood has become an important source of timber for furniture production.
At present the source of rubber wood is mainly from replanting schemes. But the species has also
been planted on a trial basis exclusively for timber production only.

Besides rubber wood, other promising candidates have also been tried out on larger scale. This
includes teak (Tectona grandis) and sentang (Azadirachta excelsa). Teak was confined to the
drier north-west of P. Malaysia before. But nowadays, it is being planted on a small scale in the
wetter southern sites as well. Teak seems to grow just as well, the only drawback being the
absence of close growth rings and therefore veneer quality may not be obtainable. The other
species that has brought some excitement in the plantation scenery is sentang. This too has
shown good growth rates in the early years and is mostly free of pests. The plantings have to
mature somewhat before their true value can be ascertained. A few other species that are also
being considered for planting at the moment include Khaya ivorensis and K. senegalensis, and to
a lesser extent Swietenia macrophylla. Some of the dipterocarp species also appear to be good
and are being investigated as potential candidates. The reason for the new spate of interest in
planting timber species is partly because of the rising labour costs in the country. As a
consequence many rubber and other cash crop plantation owners are looking for alternative and
less labour demanding crops. Timber trees fit that label neatly.

For Sabah and Sarawak the gestation period between research to policy and implementation was
usually shorter, taking off from experiences in P. Malaysia. The path to implementation was
therefore less convoluted and more or less direct. In Sabah plantations were not considered
important in its early forestry history although there were some attempts to test out a few species
on an experimental basis. In the 1970s the planners concluded that more should be done for
forestry development. Unlike with P. Malaysia, Sabah still lacks the momentum to develop its
economy based on the industrial sector.

Forestry remains in the forefront of its economic activity and the planners realized something
must be done if the State is to maintain its timber productivity. Moreover forestry appealed to the
State as it provides the kind of rural development which is more appealing to the people,
considering their lifestyle. SAFODA, the State’s Statutory Bodies spearheaded the reforestation
program in Sabah. Thereafter, relatively rapid progress was made and by 1995 almost a 100,000
ha of plantations have been developed mostly through some of the statutory bodies responsible
for rural development and reforestation (Anuar 1996). Both fast growing hardwoods and high
quality timbers have been planted. Rattan (Calamus manan) has also been planted as an
additional crop. Besides these developments a paper mill was set up in the 1980s and large areas
are being planted up with fast growing pulp species.

In Sarawak too, there never was an urgency to go into plantations, considering the large areas of
natural productive forest in the State. Nonetheless, there was some concern regarding the large
areas of forest land that have become degraded as a result of shifting agriculture. In this regard
some experimental trials were started in the early part of the century, especially with species that
had agroforestry potential (Fahlman 1975, Lee and Lai 1981). In the mid-1960s there were some
attempts to test the potential of pines for reforestation purposes. In the 1970s, fast growing
exotics were investigated (Kendawang 1996). Also included were some long rotation species
which yield high quality timber. But all said, there have been relatively few plantations in
Sarawak although the position is likely to change very rapidly from now on.
1.2. Government policy
Forest plantations have long been recognized as an essential part of the strategic development
plan for the suitable management of forest resources in Malaysia. This strategy dates back to the
beginning of the century when efforts were made to test out both indigenous and exotic species
in the country.

The Government is cognizant of the international debate on tropical rainforests and the concerns
over their rapid degradation and loss. Malaysia’s rainforests are among the most bio-diverse
forests worldwide and therefore their management is critical for the conservation of a vast
number of plant and animal species. Hence, sustainable forest management has become the
‘buzz’ word for forest management. Under the Seventh Malaysia Plan, the Government has
clearly expressed its commitment to protect the environment and ecological services by adhering
to the principles of sustainable management. This would require that the annual felling rate is
reduced by at least 12% over the 5 year period.

Malaysia is currently producing about 35 million m3 of sawlogs annually. With implementation

of sustainable practices the sawlog production is expected to decline to about 27 million m3 by
the year 2000. This is much below the total installed processing capacity. As the timber industry
is already having difficulty sourcing timber the decline in production would affect the
downstream timber industry considerably. New sources of wood like rubber plantations would
assist marginally but most of its wood would be mainly used up for furniture production, and the
need for pulp, utility timber and high quality timber would always remain unfulfilled unless
appropriate measures are taken.

To make up for the impending deficit in timber production, plantations are to be developed.
Besides plantations degraded forest land would be reforested and under-stocked forests would be
line planted. There is an estimated 153,900 ha of degraded forest land in the country. The species
to be planted would be of three different classes.

1.2.1. Wood for pulp and paper production

One pulp and paper mill is already in operation in Sabah (SFI), but it hardly meets the local
demand for paper, and none for newsprint. Additional mills are being planned. For pulp
production Acacia mangium has been identified as the principal species. Another species would
be Paraserianthes falcataria. These would be planted in large-sized plantations so sufficient
amount of pulp is produced in one site in short rotations of about 6 - 8 years. Such schemes
would be developed in State lands.

1.2.2. General utility timber

There is a huge demand for general utility timber for industrial purposes. They go into cores of
plywood and make up the major constituent of fibreboard, particleboard, interior construction
wood, and other low grade use. Several species have been identified for this purpose and include
Shorea spp. (Light Red Meranti group), Hopea spp., Dryobalanops spp., Endospermum
malaccense, Hevea brasiliensis etc. Many of these species would be included in reforestation
and enrichment planting schemes within the Permanent Forest Estate. The species would have
rotations of about 30 - 35 years.

1.2.3. High quality timber

High quality timbers are grown for veneers, panelling, furniture etc. The species identified for
such needs include principally teak (Tectona grandis) and sentang (Azadirachta excelsa).
Additional species include Araucaria spp., Dyera costulata, Swietenia spp., Khaya spp. etc.
These would be grown both in small holdings and larger estates under full plantation conditions.
Although some of the plantings would be located within the Permanent Forest Estate (PFE) most
will be in the State lands and in private holdings. This is to ensure the PFEs are not converted.
The rotations under full plantation conditions would be kept short, at around 15 - 20 years.

In addition, the rapid industrialization in the country has created a labour shortage. This has
resulted in some agricultural sectors becoming less viable like the rubber plantations. Many
small holders have neglected these plantations. Many small rubber estates are also beginning to
experience labour shortage. Under these circumstances low-labour demanding forest plantations
are being explored as a potential alternative to rubber and other labour demanding forms of
agriculture. There are trials to plant timber-latex clones through replanting activities. These
clones will be latex producers that will also maximize timber production.

In Sabah and Sarawak timber plantations are being promoted for social development as well.
Large tracts of forest lands have become degraded as a result of poor shifting cultivation
practices. In these remote sites traditional agricultural cash crops like oil palm and rubber are not
attractive to the lifestyles of these people. In contrast timber plantations provide more attractive
options.

Besides the above, fuller utilization of timber products is being promoted so there will be less
pressure on the forests. Towards that, downstream processing of wood wastes into valuable
products such as flake boards, particle boards and charcoal briquettes are being developed.
Reduced forestry wastage and increased efficiency during processing would help ameliorate
timber shortage, and also be environmentally less damaging. R&D efforts will be directed
towards putting more efficiency into reducing wastage.

Malaysia aims to maintain a forest cover of at least 50% of the land area. In addition, it is
committed to managing the Permanent Forest Estates on a sustainable basis. For achieving
sustainability several policy options have been identified. They include Environmental Impact
Assessments (EIAs) for forestry activities, subsidies for setting up forest plantations,
rehabilitation of forests, and expanding the network of protected areas to include more
ecosystems and thereby protecting the huge biodiversity of the Malaysian forests.

In summary, the objectives of the plantation programme would include:

• To supplement the increasing timber requirement in Malaysia;

• To increase productivity of degraded forest lands;
 • To alleviate rural poverty through implementation of social forest plantation
programmes;
• To reduce excessive loss of foreign exchange by increasing production of raw material
for the timber industry;
• To diversify into low-labour demanding crops timber plantations offer an excellent
opportunity with the increasing shortage of labour in the country; and
• To introduce timber plantations which with their higher productivity would reduce
pressure on the PFE, so the latter can be managed on a sustainable basis.

2. Current status of forest plantation

development

2.1. Area, location, species and ownership

Considering the manner in which forest plantations have developed so far, their current status
may appear to be an eclectic mixture of species with different management objectives, sizes,
species, locations, and ownership. The best way to comprehend the current status requires that
the three areas, P. Malaysia, Sabah and Sarawak are first treated separately. As mentioned
earlier, most of the prospects and constraints of plantations took place first in P. Malaysia. The
States of Sabah and Sarawak were in a position to pick the best options suited for their specific
needs following the trials and the experiences gained in P. Malaysia.

2.1.1. Peninsular Malaysia

The tree plantations in P. Malaysia can be divided into three principal types. There are the
specialty species like teak which was planted in the northern States of P. Malaysia formerly. Into
this category would fall sentang which is now being seriously contending as another species in
the same class as teak. Next are the pine plantations which were originally intended for
producing pulp. In the third category belong the general utility timber plantations with species
like Acacia mangium. Besides the three types of plantations, there are a few hundred species
trials, many concentrated within FRIM, and some scattered throughout the country.

The teak plantations were initially tried out on an experimental basis in the northern State of
Perlis (Mata Ayer), and some in Kedah (Bukit Enggang) (Wyatt-Smith 1957, 1961). These initial
trials in the 1950s have since been expanded into larger scale plantations in the 1960s (Vincent
1964). Interest in planting teak outside the northern States took off in the 1980s and small
hectarages have been planted in all the States from Perlis to Johore (Table 2).

Initially, planting of teak was purely a Forest Department effort. Now there has been a dramatic
rise in interest from the private sector. This has been so because of the rise in the cost of labour
and rubber plantations becoming uneconomical. Many small holders and small estate owners are
looking for alternative crops and are beginning to experiment with teak. Since the 1990s, such
plantings have been ongoing. At present FRIM has embarked on an adoption scheme for small
holders. This too has started attracting many small holders with less than 10 ha of land. So far
such adoption schemes have been initiated in the States of Pahang, Perlis, Perak, Selangor,
Johore and Kedah. The schemes range from 0.4 ha to 10 ha sizes, the total area only amounting
to about 40 ha under the scheme.

Table 2. Teak and sentang plantations in Peninsular Malaysia (plantings <10 ha not
represented)

State F.R/Company Species Hectares Year

Perlis Mata Ayer Teak 16.08 1953-1958
Teak 128.83 1960-1969
Teak 64.29 1980-1989
Teak 145.00 1990-1992
Kedah Tasoh Sentang 40.00
Kaki Bukit Sentang 28.00
Bukit Enggang Teak 31.63 1953-1957
Teak 76.00 1983-1986
Teranak Teak 54.80 1985
Gunumg Raya Teak 40.00 1985
Bukit Berangin Teak 626.30 1985-1990
Rimba Teloi Teak 43.60 1985-1986
Chebar Besar Teak 24.00 1987
Teak 24.00 1988
Bukit Perak Teak 19.00 1989
Mentega Sentang 800.00
Perak Bintang Hijau Teak 20.00 1984
Chikus Teak 45.00 1989
Maju Aik, Trolak Teak 45.00 1993-1996
Sentang 120.00 1993-1996
Selangor FRIM Sentang 6.00
Negeri Kenaboi Teak 150.00 1980-1988
Sembilan Setul Sentang 90.80 1995-1996
LPP-Tampin Sentang 300.00 1995-1996
Malacca IOI Sentang 60.00 1994
Kelantan Temangan Teak 81.00 1983
Jeli Teak 30.00 1983
Relai Sentang 200.00
RISDA P. Malaysia Teak 891.07 1993-1997
Total 4,200.40

Besides teak, sentang is also receiving similar attention these days (Table 2). There are few
plantings that are sizable one being in Trolak, Perak where a private rubber planter has planted it
over about 100 ha. Interest has been expressed elsewhere and plantings may be in progress in
some cases.

In the 1960s there was the introduction of tropical pine plantations. As mentioned earlier, they
were planted for purposes of pulp production. Once the plans for constructing the paper mill was
scuttled these plantations were not managed anymore. Sizable plantations still exist, although
some have been lost to other forms of development (Table 3).

In the 1980s large areas have also been devoted to Acacia mangium and other fast growing
general utility timber species under the Compensatory Forest Plantation Scheme, funded by the
Asian Development Bank (Table 4). The scheme was originally planned to cover some 188,000
ha by the end of the 7th Malaysia Plan. However, A. mangium was found to be prone to suffer
from heart-rot problem and the Forest Deparment scaled down the planting of the species. The
present extent of these plantations stands at around only 64,000 ha (Thai 1995). Some 10,000 ha
were planted under State financing. Other species used in the scheme included batai
(Paraserianthes falcataria), yemane (Gmelina arborea) and some tropical pines (Pinus spp.).
However, A. mangium was the most extensively planted species. Interestingly, rubber (Hevea
brasiliensis) too is gaining interest as a timber species and small trials have been initiated.

Table 3. Pine plantations in Peninsular Malaysia (planting <10 ha not represented)

State FR/Company Species Hectares Year

Pahang Lentang P. caribaea 2,285 1964-1982
Bukit Tinggi
Terengganu
Kemasul
Johore Ulu Sedili P. caribaea 1,932 1975-1983
Selangor Rantau Panjang P. caribaea 903 1950-1974
Ulu Langat
Sungai Buloh
Kepong P. caribae, 66
P. insularis

P. merkusii
N. Sembilan Setul P. caribae 669 1966-1980
Galah P. oocarpa
Lenggeng
Kedah Gunung Bongsu P. caribae 20 1953-1964
 Sengkup P. oocarpa
Bukit Perak P. insular
P. merkusii
Total 5,875

The target of Compensatory Plantations was later revised to 100,000 ha because of lack of poor
and degraded PFEs for conversion to forest plantations and the inherent difficulties encountered
with the species like A. mangium (Thai 1995). Note that with the earnestness to pursue
sustainable forest management, there has been an aversion to convert natural forests into species-
poor plantations.

The above three classes of plantations have been planted on a scale with commercialization
prospects in mind. Besides those trees a huge number of species trial plots exist. They are mainly
concentrated in FRIM, Kepong, but a sprinkling of relevant ones are also found scattered
throughout the country. These were started way back at the beginning of the century, some even
before FRIM was conceived. The information contained in the plots is very valuable for
evaluating the potential of over 150 tree species.

Among these trials the dipterocarps seems to take centre stage. A huge number of species, excess
of 55, from P. Malaysia, Borneo and Sumatra have been tried out in FRIM and several parts of
the country. These represent a vital body of work which will provide the basic data for plantation
development into the future.

Forestry Departments were the main agencies involved in developing tree plantations. The only
crop which was originally planted by foresters and that has since taken over by the private sector
is the rubber tree. It was promoted for the latex. The tide is certainly changing at present. More
interest in tree plantations have been expressed by the private sector and several states companies
have started planting teak and sentang crops in 100 ha parcels in several. Table 5 is a summary
of the timber plantations. Only an insignificant amount, about 3.6% (2801.5 ha) has been
initiated by the private sector initiatives are confined to growing sentang and teak and much of it
began only since the mid-1980s.

Table 4. Compensatory Forest Plantations in Peninsular Malaysia

State/F.R./ State and Size Planted (ha)

Company A.mangium G. arborea P. falcataria Rubber Total
Pahang
- Kemasul 19,569 426 1,426 400 21,821
Johore
- Ulu Sedili 20,254 20,254
Selangor
- Rantau Panjang 4,305 - - 180 4,485
- Bukit Tarek 5,896 - - - 5,896
N. Sembilan
- Setul 1,809 89 4 - 1,902
- Gemas 2,441 - - 30 2,471
Perak
- Chikus 925 - - - 925
- Besut 3,553 - - - 3,553
Kelantan
- Relai 3,417 - - - 3,417
Terengganu
- Merchan 2,461 - 100 40 2,601
Total 64,630 515 1,530 650 67,325

Table 5. Summary of plantation areas in P. Malaysia (ha)

Plantation Type Area (ha) %

Compensatory plantations 67,325 87.0
Pinus spp. 5,875 7.6
Teak and Sentang 4,200 5.4
Total 77,400 100.0

2.1.2. Sabah

In Sabah there are claims that as early as the 1920s there were trials on teak (Rahim and Anuar
1995). In the 1970s the State Government came to the conclusion that forest plantations may be
required to make up for the decline in production from natural forests which were being depleted
rapidly. In 1974 the Sabah Softwoods Sdn. Bhd. (SSSB), a joint-venture company between
Yayasan Sabah and North Borneo Timber was formed to initiate plantations. This was a
creditable move for Sabah thus became the first to start plantations as a private commercial
venture. The SSSB began to test some exotic species. About 60,000 ha of Pinus caribaea and P.
oocarpa were planted in Brumas, southeast of Sabah.

In 1976 the Sabah Forestry Development Authority (SAFODA), a statutory body, was set up. Its
task was to reforest the nearly 200,000 ha of degraded lands that resulted from bad shifting
cultivation activity. In the process SAFODA was further aiming at providing additional
employment in the rural areas.

In the 1980s more commercial forest plantation ventures were established. The first pulp and
paper mill was set up in Sipitang by the Sabah Forest Industries (SFI), a State owned company. It
has now been privatized. SFI expects to reforest up to 130,000 ha with industrial forest
plantations, mainly with Acacia mangium. Next, both SAFODA and SFI have also initiated tree
farming among smallholder in the neighbourhood of their plantation areas in Bengkoka and
Sipitang. In 1987, Innoprise Corporation Sdn. Bhd. (ICSB), the commercial arm of the Yayasan
Sabah initiated the planting of high value timber species and rattan in its 40,000 ha concession
area in Luasong, in Tawau District.

Many more private companies joined the move towards developing plantations. They include
Jeroco Plantation Sdn. Bhd., Sejati Sdn. Bhd. and Koprasa Sdn. Bhd., Sime Darby Plantations
Sdn. Bhd., and Golden Hope Plantations Sdn. Bhd. Golden Hope has started planting sentang on
a 800 ha wasteland in Tenom Valley while Sime Darby is into planting industrial grade wood.
Sejati Sdn. Bhd. has so far planted over 2,000 ha of teak and other species in Lahat Datu, Tawau
and Sandakan.

In the last two decades commercial plantations have grown relatively rapidly in Sabah and at the
end of 1995 there were over 90,000 ha established (Table 6). The Forestry Department too has
planted some but they are mainly trial plots in the Research Stations at Sibuga, Gum Gum,
Kolapis, Segaliud Lokan, Telupid, Sosopodon and Sook.

In Sabah, although the reforestation and tree planting started much later than in P. Malaysia,
overall they have performed better in total hectares planted. In addition, the private sector has
been instrumental in leading the planting of timber trees. Another distinction is that there are also
real large scale plantings of the high quality timber species among the plantings. Without
exception the move towards making planting a private commercial venture and the range of
plantation species being tried would make Sabah the premier State for establishment and
management of timber plantations.

The major species planted are the exotics Acacia mangium, Paraserianthes falcataria, Gmelina
arborea, Eucalyptus deglupta and also rattan (Calamus manan). Their extent is given in Table 7.

In conclusion, the overall picture is that there is a steady growth in the establishment of
plantations in the State. The Government made the decision that Sabah would need to develop its
plantation sector, with the realization that the natural forests may not be able to maintain the
required supply of timber. The types of plantations can be described as follows:

• Industrial pulpwood production mainly with Acacia mangium, principally with SFI pulp
and paper mill in Sipitang;
• High quality timber species planted in reforestation schemes in degraded forests which
are partly aimed at supplementing the income of rural dwellers. The private sector has
also ventured into planting both high quality species as well as general utility ones. The
success in plantation establishments in Sabah may mainly be attributable to the role
played by the private sector.

Table 6. Forest plantations in Sabah as at end of 1995 (Rahim and Anuar 1995)

Organisation Area Total Area (ha)

Fast growing species High quality species
SAFODA 34,363 34,363
Sabah Softwoods Sdn. Bhd. 33,942 33,942
Sabah Forest Industries 12,139 12,139
Sejati Sdn. Bhd. 2,095 174 2,269
SAFODA Small Holders 2,057 2,057
SFI Tree Farming Scheme 1,596 1,596
Innoprise Corp. Sdn. Bhd.
- Luasong 712 712
- Danum 479 479
Koprosa Sdn. Bhd. 1,258 1,258
Bonrich Sdn. Bhd. 1,230 384 1,614
Forestry Department 600 300 900
Lak Sdn. Bhd. 495 495
Sime Darby Plantations 130 130
Kebun Singa Sdn. Bhd. 121 121
Total 90,026 2,049 92,075

Table 7. Species planted in Sabah

Species Area,(ha)
Acacia mangium 55,595
Paraserianthes falcataria 12,049
Gmelina arborea 10,142
Eucalyptus deglupta 5,728
Tectona grandis 1,704
Eucalyptus spp. 786
Pinus caribaea 695
Other spp. (Dipterocarpus, Swietenia, Pterocarpus, Araucaria, Pinus) 3,095
Total 89,758

2.1.3. Sarawak

Like in Sabah, interest in forest plantations in Sarawak began in the early 1920s (Kendawang
1996). But here the forests started with the indigenous species of the Engkabang group which are
important producers of the illipe nut. Some 19 ha were planted in the Semengoh Forest Reserve.
The interest in this species was the need to find species that can be incorporated into the agro-
forestry systems that were being encouraged for the natives who were practicing shifting
agriculture. Besides the engkabangs fruit trees like the durian were also tested. Research has
been continuing, albeit at a small scale, on testing many of the indigenous hardwood species for
inclusion into the agroforestry projects.

No major plantings were done after the initial trials until 1965 when interest in a “Reforestation
Research Programme” was initiated. The objective this time was to test out the fast growing
exotic tree species, especially conifers, for reforesting land which was subjected to repeated
cycles of shifting cultivation. From 1964 to 1968, a total of 200 plots of various provenances of
tropical conifers such as Pinus caribaea, P. insularis, Agathis macrophylla, Araucaria
cunninghamii and A. hunsteinii were tested. The results were poor and the conclusion drawn was
that the fast-growing tropical conifers were not suitable for Sarawak conditions (Fahlman 1975).

The poor performance of the conifers led Sarawak foresters to look for alternatives. In the early
1970s, the Forestry Department began experimenting with some of the fast growing exotic
tropical hardwoods like Acacia mangium, Gmelina arborea and Paraserianthes falcataria.
Species with somewhat longer rotations like Swietenia macrophylla, Durio zibethinus and
Shorea macrophylla were also added to the list. All these species were considered for
reforestation of lands that underwent shifting cultivation.

The problem with shifting cultivation is a major one in Sarawak - the damaged forest areas have
increased tremendously increasing from 2.25 million ha in the 1960s to 3.33 million ha in 1985,
with a small percentage within the PFE as well. In Table 8 the progress of reforestation in
Sarawak can be seen. The localities are shifting cultivation areas within the Permanent Forest
Estate.

Table 8. Progress of reforestation in Sarawak (1979 - 1995) (ha)

Forest Reserve 1980 1985 1990 1995 Total

Niah 13.7 59.9 400.6 5,677.0 6,151.2
Sampadi 303.3 1,176.3 1,583.2 3,062.8
Sabal 876.1 803.5 240.7 1,920.3
Labang 441.7 711.2 1,152.9
Bakas 379.6 379.6
G.Gading 99.4 99.4
Sawal 75.8 75.8
Semengoh 12.4 14.0 11.7 38.1
G. Selang 17.2 17.2
Total 142.7 1,770.8 3,482.9 7,500.9 12,897.2

The extent to which each of the timber species are planted is given in Table 9. Shorea spp. of the
Engkabang group cover about a third of the area, followed closely by Acacia mangium. In
Sarawak rattan, an agroforestry crop, has also been included into the area of plantation. The
pattern of planting can be rapidly gauged from Table 8. Up to 1980 there was hardly any
planting. By 1985, there was about 1,770 ha planted up. The area planted up in the next five
years was double that in 1985. The pace quickened and during the period from 1991 to 1995
about 7,500 ha were planted. This is more than double that of the previous five years. As of late
1995, nearly 13,000 ha have been planted up with various timber species.

Among them are many species of Artocarpus, Pinus, and Ceiba planted in small trials. Although
Acacia mangium has become one of the major species for reforestation the Forest Department
has scaled down the planting in recent years. Numerous adverse reports about its susceptibility to
heart rot has lead to such a decision. The plan in the future is to plant the enkabang and
mahogany for their high value timber.

Things may change more rapidly from now on. For example, Keresa Sdn. Bhd., a private
company has a joint venture with Sarawak Timber Industry Development Corporation to plant
rattan. Borneo Pulp and Paper Co. Sdn. Bhd. has just applied for over 200,000 ha of State land
for initiating pulp plantations.

Table 9. Species planted in Sarawak

Species Area, (ha)

Acacia mangium 3,714.1
A. auriculiformis 0.5
Alstonia & Dryobalanops spp. 17.5
Anthocephalus cadamba 36.8
Anthocephalus chinensis 49.8
Araucaria hunsteinii 4.6
A. cunninghamii 50.2
Artocarpus spp. 0.4
Azadirachta excelsa 97.2
Calamus spp. (rattan) 2,235.6
Ceiba pentandra 3.0
Dipterocarpus spp. 21.3
Dryobalanops spp. 113.9
Durio zibethinus 1,115.7
Eucalyptus spp. 0.4
Gmelina arborea 215.4
Hevea brasiliensis 94.6
Paraserianthes falcataria 175.5
Parkia leucocephala 20.3
Pinus caribaea 3.0
Shorea spp. (engkabang species) 4,780.3
Shorea spp. 31.0
Shorea parvifolia 2.7
Swietenia macrophylla 134.4
Total 12,897.2

The overall conclusion is that the situation differs somewhat in Sarawak compared to that in P.
Malaysia and Sabah. The urgency to develop plantations has so far not been felt in Sarawak,
considering the amount of productive forests still left. The major development in Sarawak was
the problem of reforesting areas that have been degraded through shifting cultivation. Another
related concern was to develop agroforestry systems to assist the rural folk. So the kind of
species tested included many of the fruit trees like the illipe nuts, durian, and Artocarpus which
yield both fruits and timber. In terms of industrial timbers, a safe “wait and see” attitude has been
adopted by the Forestry Officials. This is so far a reasonable attitude to adopt considering there is
no urgency in their case and also the lack of success with many of the industrial species.

The lessons learned in the other regions would ultimately come of value to them. But the
scenario may be rapidly changing. Already many private companies are negotiating with the
State for plantation lands. The State announced opening 500,000 ha for tree plantations to
capitalize on the lucrative pulp and paper industry (Sarawak Tribune 1996). Another report
concluded that if Sarawak succeeded in converting 20% of its natural forests into forest
plantations the State would be able to increase timber production by as much as 200% (Sarawak
Tribune 1996). Perhaps it is timely. With sustainable forest management practices logging of
natural forests may have to be scaled down. Alternative sources of timber may have to be from
plantations.

2.1.4. Malaysia

The plantation scenario for the whole country seems somewhat disparate. Each of the regions
treaded a slightly varied pathway in its plantation development. Sabah with a boost from the
private sector has made the greatest headway despite coming into field only some two decades
ago. Sarawak, on the other hand, took on a cautious path, and is only just beginning to make its
interests in plantations known, now that most of the policies and directions are beginning to be
clearer and some significant advances have already been made in the technical areas. P. Malaysia
is the one that had to sail before the wind and had to look a new after each mishap either from
technical problems or sudden shifts in policies. Needless to say, the experience is a valuable one
and the other regions are in a position to capitalize on it. The existing 180,000 hectares of forest
plantations according to their age class are as shown in Tables 10 and the volume per hectare
(m3/ha) for each of the species are as shown in Table 11. The situation for the country as a whole
is summarized in Table 12.

From Table 12 it is quite evident that only Sarawak has timber surplus against its local
processing capacity. Sabah and P. Malaysia are already or will be facing deficits in timber.
Moreover the present outputs from the PFEs are on the unsustainable level and will have to be
reduced considerably if they are to be managed on a sustainable basis. This would mean a further
reduction in production from the PFEs in Sabah and P. Malaysia. Some 20 - 30% reduction is
expected in the two regions, and similarly for Sarawak. Following that, while Sarawak will be
able to meet the needs of its industry, the deficits for Sabah and Sarawak would magnify further
from the current annual deficit of about 5 million m3 to about 11 million m3/year.

If timber imports are excluded the only recourse for Sabah and P. Malaysia is to develop their
timber plantations. The 180,000 ha of plantations in existence seem paltry against the actual
requirements. The 180,000 ha at a conservative production rate of 10 m3/ha/year would only
produce some 1.8 million m3 of wood annually. An additional 11 million m3 are required in the
equation if Malaysia is going to balance the timber requirements without causing the timber
industry or the natural forests to suffer. The problem here is time - plantations initiated today will
take a while at least one decade before the benefits can be perceived. What can be done in the
interim period is any ones guess.

Table 10. Forest plantations in Peninsular Malaysia by species and age classes

Species <5 years 6-10 years 11-15 years 16-20 years >21 years Total
Pen. Malaysia
Acacia mangium 19,642 39,648 5,340 - - 64,630
P. falcataria - - 724 806 - 1,530
G. arborea - - - 515 515
Pinus spp 40 2,320 1,883 1,632 5,875
Hevea spp 650 - - - - 650
Teak 936 641 371 444 164 2,556
Sentang 1601 38 - - 6 1,645
Total 22,829 40,367 8,755 3,648 1,802 77,401
Sabah
Acacia mangium 15,627 35,502 4,430 - - 55,559
P. falcataria 230 1,980 7,763 2,076 - 12,049
G. arborea - 781 6,335 3,026 - 10,142
Pinus spp - - - - 695 695
Hevea spp - - - - - -
Teak 325 611 515 250 3 1,704
Eucalyptus spp - 1,501 2,718 2,295 - 6,514
Other spp - - 500 500 2,095 3,095
Total 16,182 40,411 22,261 8,147 2,793 89,758
Sarawak
Acacia mangium 700 2,002 1,012 - - 3,715
P. falcataria - - - 176 - 176
G. arborea - - - 215 - 215
Pinus spp - - - - 3 3
Sentang 98 98
Shorea spp - - 1,000 2,000 1,814 4,814
Other spp 1,000 2,877 3,867
Total 798 2,002 2,012 3,391 4,694 12,897
Grand Total 39,809 82,780 33,028 15,186 9,289 180,056

Table 11: Volume (green) per hectare for the different species (m3/ha)

Species >21 years 16-20 years 11-15 years 6-10 years <5 years
Acacia mangium - - 229 152 123
Paraserianthis falcataria - 270 233 229 -
Gmelina arborea - 92 59 41 -
Eucalyptus spp 120 115 95
Pinus spp 128 122 110 - -
Hevea spp
- Estate 190 - - - -
- Smallholding 180 - - - -
Teak 350 280 175 - -
Sentang 315 262 158 - -
Dipterocarps and others 290 - - - -

Table 12. Summary of plantation hectares in Malaysia, compared to the PFE and the current
timber output from them. The production and industries needs reflect the 1990s figures

Region PFE Productive Wood Industries Plantation

(million ha) Area Production Needs Area
(million ha) (million m3) (million m3) (ha)
Sabah 3.35 2.42 7.96 11.34 89,758
P. Malaysia 4.69 2.79 11.38 13.20 77,400
Sarawak 4.46 3.85 16.32 5.65 12,897

2.2. Management objectives

The management objectives with regards to plantations did not remain consistent throughout the
period that interest in plantation was expressed. They varied between the three regions of P.
Malaysia, Sabah and Sarawak. This was obviously decided by the amount of natural forests still
remaining in production, the state of development of the downstream industry, status of research
in plantations, loans from international donor agencies, availability of labour as well as social-
economic development concerns.

In the past the position for plantations remained somewhat hazy and the commitment remained
lacklustre. When some decision was made there were reversals along the way. At present the
forestry sector in Malaysia is undergoing much change. These are influenced by both internal
factors such the growing demand for timber by the industries and external factors that include
international concerns about logging and degradation of tropical forests.

The past events appear to have shaped more concrete plans and objectives in the case of forest
plantations. Under the Seventh Malaysia Plan the management objectives in Malaysia are the
following.

2.2.1. To meet the anticipated deficit in timber supply

The timber industry is a big contributor to foreign exchange earnings with some RM 13 billion
per/year and employing over 200,000 people. If the mills are to remain in supply of the raw
material timber alternative sources besides that from the natural forests have to be explored.
Plantations offer good prospects with year round growing climatic conditions. The biggest
demand will be for general utility timber that can be raised cheaply over short to medium term
rotations. There is also a growing demand for pulp and paper material and Malaysia is importing
considerable and increasing amounts of the material. Therefore, this sector of pulpwood
production has also been identified as critical. A few paper mills are already in the pipeline and
one is already in operation. The need for pulpwood plantations is enormous and the government
has to assist the private sector in developing this sector of plantations.

2.2.2. To reduce pressure on natural forests

Malaysia has traditionally relied on timber from natural forests. However, concern for their
sustainability has become a moot issue these days. If sustainable practices are to be adopted the
total amount of timber would decline. But this has to be balanced against our need for preserving
the environment. Malaysia is committed to preserving a good balance of forest for perpetuity
including the preservation of biodiversity and the ecosystem functions. This would mean that
more timber has to be obtained from other sources. Plantations offer a promising source of
timber.

2.2.3. To ensure better land use

A lot of degraded or under-utilized land is found in the country. This is due to the rapid shift in
the economy of the country and labour shortages have resulted in neglect of many of the
agricultural lands. In States like Sabah and Sarawak shifting cultivation has resulted in
degradation of a significant area of former lands. One attractive solution to these two issues is
plantation development which is a low labour intensive industry. Besides ensuring the lands are
well utilized in the country and there is also the added benefit of bringing social development to
the rural people.
3. Constraints and challenges in forest
plantations

3.1. Strategies in establishing forest plantations - issues to be

resolved
In Malaysia, while forest plantations are a lucrative option to supply the ever increasing demand
for wood on a sustainable basis, the planting of timber trees on a plantation scale is constrained
by a number of other factors that are critical.

3.1.1. Ecology

The establishment of forest plantation involves extensive alteration of the ecosystem particularly
when heavy equipment is employed. The complex closed nutrient cycle in tropical rain forests is
disrupted for a long time. This can lead to reduction of productivity unless meliorative measures
are undertaken. Furthermore, mono-cultures further destabilize the system and require heavy use
of fertilizers and pesticides. Many slow-growing species grown under fast plantation conditions
have poorer quality. There is the problem of species-site matching for the heterogeneous area of
large plantations. The danger of fire may also increase in exotic species plantation.

3.1.2. Land

It is an established fact that land is the world’s most valuable resource and public scrutiny of
land is becoming more intense with each passing year. With increasing population the
competition on land for agriculture and development is ever increasing.

For a forest plantation investment to be commercially viable a large area is required. The size of
the land required will vary with the objective of the plantation. If the timber is for sawmilling
and furniture manufacturing then an area of around 15,000 to 20,000 ha would suffice. On the
other hand, if the objective is in establishing a chip or pulp and paper mill then an economic-
sized plantation should be in the range of 90,000 to 200,000 ha. It would always be desirable to
have a single contiguous piece of land area and if not, the required land area should just be in
about two or three nearby parcels only. This is to ensure easy and efficient management of the
activities. It is always preferable that the acquired land is close to basic amenities and near a
relatively accessible road system and within an economic range to a processing mill or market.
As an example, to operate efficiently a pulp or a chip mill the plantation should be located within
a 100 km radius. Otherwise, exorbitant cost for the transportation of logs would render the
operations uneconomical.

Another factor is that land is under the State’s jurisdiction. This implies that in Peninsular
Malaysia a large plantation project may stretch across state borders. Land being a state
prerogative implies that commercial organisations may have to deal with different procedures
adopted by individual State governments. Often inquiries on information regarding land can
become very difficult. Details for example on information regarding forest reserves are
obtainable from the respective State Forest Departments while that on State land is obtainable
from the Department of Land and Mines or Department of Agriculture. The setting up of a
coordinating agency is desirable to overcome this and thus encourage the easier establishment of
plantation forests.

Besides sufficient land the location with suitable infrastructure and the premium rate for leasing
are also crucial factors. Considering the long period of investment required in forest plantations
many companies in Malaysia have requested that they be given the prerogative of allocating a
fraction of the land leased for planting agricultural plantation crops which can begin providing
some revenue after three years of establishment. This is considered a necessary activity to
cushion the long waiting period before final harvests. However, according to the Forest
Department such a request is not permissible unless the land allocated is State land and lies
outside the forest reserves. Forest reserve land is strictly to be planted with forest trees. If forest
reserves are ever to play a role in forest plantation establishment this issue needs to be reviewed.

The leasing period for land requested by commercial organisations varies. In order to attract their
interest in forest plantations, land should be made available for leasing ranging from a period of
at least four rotations or up to 99 years. The intention is to have tenures long enough to assure
that sufficient returns are obtained for the investments ploughed in.

Another concern that is slowing down the commercial sectors’ participation in forest plantation
investments, either as joint venture partners or outright investments, is the issue of claims for
customary rights by natives residing in affected logged over forest lands where plantations are to
be established. In Sabah for example, although these lands belong to the State and are untitled,
under the provision of the Land Ordinance a native can claim customary rights on them as long
as he or she has been living in it for at least three years. Such issues need to be resolved before
investors would consider investing in forest plantations.

Besides forest reserves, Malaysia has more than 1 million ha of idle lands. Such lands include tin
tailings, BRIS (sandy) soils and ex-shifting cultivation and abandoned paddy lands. A recent
survey jointly carried out by the Forest Research Institute Malaysia and The Forest Department
of Peninsular Malaysia (1996) on land area with potential for forest plantation development is
shown in Table 13. These lands with some inputs could be converted into productive forest
plantations.

Table 13. Land area with potential for forest plantation development (ha)

State Forest Other State Alienated Total

Reserve Reserve Land Land
Perlis - - - - -
Penang - - - - -
Malacca - - - - -
N. Sembilan - - 2,893 - 2,893
Kedah 61 132 2,652 814 3,659
Selangor 1,942 - 5,143 817 7,902
Johore - - 38,902 12,864 51,766
Perak 25,589 - 10,269 16,352 52,210
Trengganu 1,798 - 21,570 44,740 68,108
Pahang 3,600 63 49,129 43,421 96,213
Kelantan 45,100 - 18,550 27,630 91,820
Sabah 98,934 - 475,978 344,163 919,075
Sarawak 66,223 1,459,854* Na Na 1,526,077
Total 243,247 1,460,049 625,086 490,801 2,819,183

(Source: FRIM & FD 1996) * - Native customary land Na - Data not available

3.1.3. Species selection

A review of about 45 reforestation projects in the tropics revealed that about 95% of all projects
utilized exotics in the reforestation programmes. Sixty percent of all projects carried out their
species trials in parallel with their project activities. About 60% of the projects received
additional information during their life span that resulted in new species selection (Evans 1982,
Abod 1995).

For plantations, although indigenous species are available, a greater preference is given for the
selection of exotic species. The reasons for this are:

• There is generally a lack of adequate knowledge in the propagation and silvicultural

management of indigenous species;
• There is generally plentiful supply of seeds of the exotic species;
• The exotic species are easy for handling; and
• The exotics are fast growing and high yielding.

There is a great challenge ahead to carry out adequate studies on the indigenous species to see
their viability for forest plantations.

3.1.4. Inadequate supply of quality planting material

In general high levels of productivity are achieved when genetic and physiological potential of
the species are well matched with management practices which promote rapid growth. Valuable
improvements can be made in important properties such as stem form and wood density through
selection and breeding. One major constraint that is currently perceived is the shortage of good
planting material for the various plantation programmes. Quality seeds and plus trees that have
been selected and reproduced by vegetative methods are inadequate to meet current and
projected needs. While efforts are being stepped up to overcome this problem middlemen and
overnight nurseries are providing planting material whose genetic sources are unknown. FRIM
has now signed MOUs with four private nurseries to step-up production of quality planting
materials of the required species while the Forest Department of Peninsular Malaysia is in the
process of setting up the National Seed and Planting Material Procurement Centre at Lentang,
Pahang to address this need also. In Sabah and Sarawak too similar efforts are underway.

3.1.5. Labour and mechanization

Labour supply is another issue of great concern. In Malaysia the agricultural sector is
experiencing a shortage of labour because of the rural to urban migration of youth to work in
factories. Although the labour requirement in forest plantations is less then in agriculture it still
has to compete for labour in an expanding Malaysian economy where the working conditions in
other industries are usually more conducive.

A natural tendency is for the plantation sector to engage foreign workers. The foreign labour
recruitment process had never been efficient. The weaknesses have been attributed to
inconsistent government policy on foreign workers’ employment coupled with lack of dedication
of the foreign workers resulting in extremely high turnover of manpower. One option to alleviate
the labour shortage is increased mechanization. Machines developed in countries like Finland
and Canada for example are environmentally friendly and highly flexible in their operation in
forest plantations.

3.1.6. Finance and private involvement

The planting of timbers on a plantation scale is constrained by a number of economic factors as

well. These are:

• The high initial capital investment to establish the forest plantations;

• The long period between initial planting efforts and harvesting and thus the
corresponding concern for the high capital cost or interest being carried until harvesting
period;
• The high biological and economic risk involved in forest plantations; and
• Unattractive and inappropriate investment incentives provided by the government for
forest plantation investments in the past.

3.2. Government tax incentives and regulations

Considering the constraints to private venture in forest plantations, in order to attract such
ventures, the Government has recently offered a monetary incentives package in the form of:

• Pioneer Status: Tax exemption from corporate tax of 100% for 10 years on all statutory
income;
• Investment Tax Allowance: An investment tax allowance at the rate of 100% of the
statutory income for 5 years.
The above incentives though in place are not yet sufficient to attract private sector venture into
plantation forestry. Perhaps the situation could be improved if the following could be put in
place:

• Provision of ‘group relief’ which would encourage companies with other business
ventures to undertake forest plantation activities since losses incurred in forest plantation
in the initial years can be offset against income of other profitable ventures.
• Exemption at the state level on royalty payments and quit rent for at least the first rotation
• Setting up of plantation forestry fund which offers a soft loan or subsidy for establishing
new forest plantations and management costs.

3.3. Privatisation
Commercial ventures in forest plantation development are relatively few and new in Malaysia
when compared to USA, Chile, Brazil, New Zealand or Japan and China in Asia. In view of the
rapidly declining resources the Government should formulate new policy directions and
incentives to promote privatisation of the existing forest plantations or even establish new forest
plantations. Only then can long term security of wood and the growth of an expanding wood-
based industry in this country can be assured.

4. Current status of rubber estates as forest

plantations

4.1. Introduction
The Malaysian rubber (Hevea brasiliensis) plantations originally established for latex are
currently regarded as an important source of timber for wood based industries. It is estimated that
annually around 2 million m3 of Hevea wood logs are harvested and utilized for the production
of furniture and furniture components. In terms of Hevea area about 30,000 to 40,000 hectares
are involved yearly. The Hevea wood products are exported to well over 20 countries. The value
accelerated from a mere RM 4.5 million in 1980 to RM 1.4 billion in 1995. Exports in 1997 is
expected to in the region of RM 2 billion.

With the rapid expansion of the Hevea wood-based industry there appears to a short supply of
Hevea wood and this is expected to be serious as more hevea area are converted into other land
use. Measures are in hand to ensure sustainable supply by intensifying research and development
towards high Hevea wood productivity in the existing plantations. Efforts are also initiated to
provide Hevea wood as an alternative source of commercial wood for timber.

4.2. Log production and consumption

Logging for Hevea wood has accelerated over the last ten years. In 1993 Hevea wood
contributed more than 4% of the total log production in Peninsular Malaysia. The heveawood
logs are extracted during replanting which is normally carried out when the trees reach the end of
the 25 - 30 year economic cycle for latex production. The volumetric yield of Hevea logs per
hectare varies with soil, terrain, management practices, diseases, planting cycle and final stand at
logging. On the average the estates and smallholdings can yield 190 m3/ha and 180 m3/ha of
greenwood, respectively. In the case of sawlogs the estates can produce about 57 m3/ha while the
smallholdings provide about 54 m3/ha. After sawing the estates and smallholdings can yield
around 18 m3/ha and 11 m3/ha of sawn timber respectively.

Currently around 200 sawmills, 75 preservative treatment plant, 110 kiln drying plants, 3
plywood/veneer mills, 96 furniture plants, 2 chipboard plants and 5 medium density fiber board
factories are involved in the processing of Hevea wood logs, sawn timber and chips in Peninsular
Malaysia (Lofty et. al. 1997).

4.3. Total area of land under Hevea plantations

Over the years the actual hectares of land under Hevea has been slowly dwindling (Table 14).
This is particularly so in the estate sectors. These areas cleared of Hevea trees have been slowly
replaced with oil palm which have in terms of price and economics when compared to growing
rubber. It is clear that the smallholdings as a whole contribute to the bulk of the latex and Hevea
wood production in the country 86.3% smallholdings as compared to 13.7 % group estates.

Table 14. Planted area of natural rubber in Malaysia from 1980-1996 (‘000 hectares)

Region Sector 1980 1990 1992 1993 1994 1995 1996

Peninsular Estate 491.6 342.4 308.8 291.2 270.6 249.1 219.9
Malaysia Smallholdings 1,205.7 1,193.9 1,182.2 1,172.3 1,162.9 1,125.4 1,120.4
Total 1,697.3 1,536.3 1,491.0 1,464.5 1,433.5 1,374.5 1,340.3
Sabah Estate 12.1 5.4 4.5 4.5 4.5 4.5 4.5
Smallholdings 94.6 85.7 86.7 87.7 88.7 88.7 90.6
Total 106.7 91.1 91.2 92.2 93.2 93.2 95.1
Sarawak Estate 2.4 0.9 0.8 0.8 0.8 0.8 0.8
Smallholdings 197.4 208.3 209.3 210.3 210.5 210.5 213.3
Total 199.8 209.2 210.1 211.1 211.3 211.3 214.1
Total Estate 506.1 348.7 314.1 297.5 275.9 254.4 225.2
Malaysia % 25.3 19.0 17.5 16.8 15.9 15.1 13.7
Smallholdings 1,497.7 1,487.9 1,478.2 1,470.3 1,462.1 1,424.6 1,424.3
% 74.7 81.0 82.5 83.2 84.1 84.9 86.3
Grand Total 2,003.8 1,836.6 1,792.3 1,767.8 1,738.0 1,679.0 1,649.5

(Source: Statistics on Commodities 1997)

Table 15 shows the age class of the existing plantations within the country. Those plantings
ranging from 25 years and above in principle have completed their economic latex production
life and under normal circumstances can be felled for replanting and their logs taken for timber
production. Under this category there is about 700,000 ha which can be felled progressively for
timber production.

Table 15. Hectares under rubber planting in Peninsular Malaysia by age classes

Planting Years Age Class Peninsular Malaysia Sabah Sarawak Total

1953 - 1965 32 - 44 340,519 21,115 67,952 429,586
1966 - 1970 28 - 31 123,508 18,787 39,324 181,619
1971 - 1975 22 - 27 165,848 15,798 18,776 200,422
1976 - 1980 17 - 21 162,634 14,100 25,397 202,131
1981 - 1985 12 - 16 203,438 14,300 23,393 241,131
1986 - 1990 7 - 11 208,833 11,000 14,607 234,440
1991 - 1995 2-6 100,736 - 16,650 117,386
1996 1 34,784 - 7,001 41,785
Total 1,340,300 95,100 214,100 1,649,500

(Source: Statistics on Commodities 1997)

5. Economic viability of Hevea, acacia, teak

and sentang

5.1. Introduction
For all the four species mentioned above a conceptual paper examining the expected returns for
these species incorporating viable alternative options were prepared and presented at a National
Seminar on commercial cultivation of timber trees in 1997. A summary of the economic
feasibility discussed at this seminar is presented here.

In formulating the options for the planting of timber species various factors were taken into
consideration which included different planting cycles, planting densities and agro-silviculture
requirements, and in the case of Hevea clones and period of latex extraction.

5.2. Different options

• Hevea plantations for timber and latex production
 • Hevea plantation for timber production
• Sentang plantation
• Teak plantation
• Acacia plantation
• Mixed plantation: Hevea-Sentang and Hevea-Teak

In each of the option, plantation size of 2,000-ha for estate and 40-ha for consolidated
smallholdings were considered. A 15-year cycle was proposed for the mono-crop options to
realize earlier timber yield. For the agroforestry options proposed for smallholdings involving
integration of Hevea with timber species a 20-year cycle was recommended to take advantage of
longer latex extraction.

5.3. Assumptions
5.3.1. Products

The study assumes the sale of sawlogs and roundlogs as the pricing point as the study is to
examine the viability of commercial planting of timber species from the grower’s viewpoint. No
processing of timber is assumed although the economics of wood processing into sawntimber is
highlighted in the case of Hevea to provide insight on its expected returns and margin where it is
considered important for the purpose of clarification.

5.3.2. Log volumes

Sawlog volumes per tree at final harvest vary between timber species from 0.4 m3 for Hevea
(under high density planting 15-year cycle) to 1.0 m3 for sentang (20-year cycle under mixed
plantation). Details of sawlog and chiplog volumes for the various species at final harvest are
shown in Appendix 1. It is assumed that optimal requirements with regards to soil condition and
appropriate agro-management practices are met for each individual species.

5.3.3. Log prices

Log prices differ by the various timber species and year of harvest. The prices of Hevea sawlog
are based on existing quarterly prices since 1988 and are statistically projected through
regression analysis. The projected Hevea sawlog prices are RM 95/m3 after 15 years and RM
115/m3 after 20 years. The price of teak is projected at RM 600/m3 which is based on plantation
grown teak in Thailand (RM 700/m3), Indonesia (RM 1000/m3) and Myanmar (lowest grade RM
1,5000/m3) which are grown over a longer rotation varying from 40 - 60 years. Projected price of
sentang at the end of 15 years is estimated to be RM 450/m3. This is based on mixed hardwood
prices which at present average around RM 290/m3. For acacia which is also based on the current
mixed hardwood prices but due to its shorter rotation and smaller size the price is conservatively
projected at RM 150/m3. Chiplog prices are assumed to be similar for all wood species at RM
40/m3 at the end of 15-year cycle and RM 45/m3 at the end of a 20-year cycle.

5.3.4. Silviculture and agro-management

It is assumed that combined silvicultural techniques and agronomic management practices have
been properly applied for each option to produce the projected timber and latex yields. Contrary
to the general perception of ‘plant and forget’ these options require appropriate agro-silvicultural
inputs to produce the desired yields under the proposed short period of 15 and 20 year rotation.

Generally these species are well adapted to Malaysian climate and require good, deep and well-
drained soil. However, Hevea being a domesticated species needs selected clonal planting
materials and good agronomic inputs in the early years of establishment. In the case of sentang
and teak greater care is required to control pest problems in the early stage of planting. As for
acacia, although well adapted to a wide range of sites, proper and timely silvicultural treatments
(pruning and thinning) are required to produce timber of sawlog quality.

5.3.5. Latex yield

Latex yield is based on RRIM large-scale clonal trial. As commercial yields are expected to be
lower than the yields from the clonal trials these have been accordingly adjusted. Further yield
discounts per tree have been made under high density and hedge planting before arriving at the
final yield taking into account the final stand and response to stimulation.

Tapping under the high density option is proposed to commence in the 9th year to encourage
girthing for better wood yield. Stimulated latex yield under this option (700 trees/ha at initial
planting) is projected at 2,200 kg/ha/year while that under mixed planting is 1,370 kg/ha/year.

5.3.6. Latex price

This is based on RSS 1 price of 300 sen per kilogram. The weighted price for latex and lower
grades used for computation of revenue after allowing for appropriate discount is 270 sen/kg.

5.4. Planting density and final stand

This varies with the options used (Appendix 1).

• In the case of Hevea wood-latex options an initial density of 700 trees/ha is suggested.
This is expected to decline through natural thinning to 570 trees/ha at final harvest.
• For the Hevea wood only option a high planting density of 1,100 trees/ha is suggested
with deliberate thinnings in the 5th and 10th year to leave a final density of 460 trees/ha.
• For the sentang or teak monocrop option 833 trees/ha are planted initially with 300
standing trees/ha at final harvest after two deliberate thinnings at years 5 and 10.
• Three thinnings in the 3rd, 5rd and 8th year are proposed for acacia initially planted at
900 trees/ha leaving a final density of 180 trees/ha.
• Under mixed planting hedgerow Hevea is initially planted at 400 trees/ha and is expected
to leave 340 trees/ha at final harvest due to natural mortality. Sentang or teak planted in
the wide inter-row spacing with a density of 533 trees/ha is thinned twice in the 3rd and
5th year to a final density of 195 trees/ha.
5.4.1. Log harvesting cost

This is assumed to range from RM 18/m3 to RM 22/m3 depending on the year of harvest based
on current harvesting cost. Where non-commercial thinning is carried out, this is estimated to be
RM 250/ha.

5.4.2. Tapping cost

Where latex exploitation is only for a short period of 7 years this is assumed to be contracted at a
weighted latex and scrap price of 103 sen/kg. In the case of mixed plantation where tapping is
carried out by the smallholders over 15 years tapping cost is imputed based on rates as stipulated
under the MAPA-NUPW wage agreement.

5.5. Limitations of the study

As in all viability studies results of analyses depend on the key assumptions made. However,
should there by any significant changes in the assumptions made this may invariably affect the
outcome of analyses in the document. To date, while prices of Hevea wood are available there
are no reliable records on prices of plantation-grown teak, sentang and acacia in Malaysia. The
prices assumed in this study are based on current mixed hardwood prices in Malaysia as well as
those available from neighbouring countries currently extracting fully grown plantation timber. It
has to be pointed out that those involved with the planting of teak and sentang seem to suggest
that these prices are somewhat conservative.

The projected price of Hevea sawlog based on current price trend is low relative to other timber
species. Judging from the impressive value-added and price of Hevea sawntimber the price of the
domestic Hevea sawlog is perhaps artificially depressed. This is probably due to hevea sawlog
being traditionally treated as a residual resource during replanting. Nevertheless, the analyses are
based on available price records. The scenario may change should the domestic prices of Hevea
sawlog increase.

This study assumes other things to remain equal. In today’s dynamic economy the supply and
demand situation on wood could change and this would affect the viability of planting Hevea,
sentang, teak or acacia. If wood supply increases relative to demand when large scale plantings
are implemented this may lower the prices. On the other hand, shortage of supply with the
present rapid growth of the domestic wood-based manufacturing industries and the declining
supply of raw material from the natural forest could affect log prices favourably. External
demand and supply factors have also not been taken into account in this study due to the lack of
data.

5.6. Return on investment

The financial measures of the projects like Net Present Value (NPV), Internal Rate of Return
(IRR) and Benefit/Cost Ratio (B/C ratio are used in this study to examine the return on
investment and financial viability of the various options (see Appendix 2).
Option 1: Hevea wood-latex extraction (high density 15-year cycle; 7 years latex extraction;
2000-ha estate and 40-ha consolidated smallholding)

At the assumed price of RM 95/m3, a total net revenue of about RM 60 million (RM 30,000/ha)
can be expected under this option for a 2000-ha size estate. The computed IRR of 15% which is
above the 10% cost of capital indicated that the project is viable. An NPV at 10% discount of
RM 7.1 million (RM 3,500/ha) could be expected from this investment. A B/C ration of 1.3
indicated that for every ringgit invested a return of RM 1.30 could be expected.

At assumed prices of RM 200/m3 and RM 300/m3 (the latter price being comparable to that of
mixed medium hardwood but still lower than light red meranti - a species also used for furniture
making as Hevea) the computed IRRs are 18.3% and 20.5%, respectively.

This option is also viable under consolidated smallholding conditions although the IRR is lower
at 12.8% with a per hectare NPV of RM 2,100 and B/C ratio of 1.2 based on the assumed price
of RM 95/m3. At assumed prices of RM 200/m3and RM 300/m3 the IRRs are expected to
improve to 16.7 and 19.2% respectively.

Option 2: Hevea plantation for wood extraction only (15-year cycle; 2000-ha plantation and 40-
ha consolidated smallholding)

Under estate conditions this option is found to be only marginally viable at the projected log
price of RM 95/m3. The computed IRR was 11.1%. A net revenue of RM 42.6 million with an
NPV of RM 1.4 million (RM 700/ha) can be expected from this investment which assumes no
further downstream activity. At the assumed price of RM 300/m3 (comparable to that of mixed
medium hardwood) the computed IRR is 20.9%.

Under smallholding conditions based on the projected price of RM 95/m3 this option is not viable
as the NPV is negative and IRR at 7.3% falls below the cost of capital.

Option 3: Sentang plantation (15-year cycle; 2000-ha plantation and 40-ha consolidated
smallholding)

Based on the assumed log volumes and projected prices of RM 150/m3 during commercial
thinning (at 20th year) and RM 450/m3 at final harvest investment in sentang plantation is
expected to provide a net revenue of RM 144.2 million (RM 72,100/ha) for a 2000-hectare
plantation. The computed NPV is RM 17.9 million or RM 8,950/ha. This positive NPV and an
IRR of 16.4% indicate that the project is viable.

Under smallholding conditions (40-ha) the option is also viable with an IRR of 15% and NPV of
RM 0.32 million or RM 8,000/ha. While computations show that this option is viable based on
the assumed price of sentang smallholders may not find this option attractive given the long
gestation period of 15 years before revenue is realised.

Option 4: Teak Plantation (15-year cycle; 2000-ha plantation and 40-ha consolidated
smallholding)
The plantation of teak is also found to be viable based on the assumed log volumes and projected
prices of RM 250/m3 during commercial thinning (at 10th year) and RM 600/m3 at final harvest.
This option is expected to generate a net revenue of RM 177 million (RM 88,350/ha) with an
NPV of RM 23.8 million for a 2000-ha estate (RM 11,900/ha). The computed IRR was 17.3%.

This option is also found to be viable under consolidated smallholding condition with an IRR of
16.2%. Net revenue under a 40-ha holding is computed to be RM 3.3 million (RM 82,500/ha)
with an NPV of RM 0.46 million or RM 11,500/ha. Despite the positive returns (if projected
prices are realised) as in the case of sentang smallholders could ill afford the long gestation
period before realising revenue.

Option 5: Acacia plantation (15-year cycle; for 2000-ha plantation)

Return on investment measured by the IRR at 14.5% indicates that this option is also viable. This
option is expected to generate a net revenue of RM 17.4 million (RM 8700/ha) and the computed
NPV for a 2000-ha estate is positive at RM 5.1 million or RM 2,550/ha. The computed B/C ratio
of 1.38 indicated that for every ringgit invested a net return of 38 sen can be expected.

Option 6: Mixed plantation, hevea-sentang and hevea-teak (20-year cycle; 40 ha consolidated

smallholding)

Analyses of returns for mixed cropping of Hevea-sentang and hevea-teak combination under
consolidated smallholding conditions indicate favourable returns at the assumed latex and log
yields and their respective prices. The computed IRRs are 16.1% for the Hevea-sentang
combination and 15.8% for Hevea-teak.

Total net revenue for a 40-ha holding is RM 4.3 million (RM 106,750/ha) with an NPV of RM
0.45 million (RM 11,250/ha) for Hevea-sentang. Net revenue for hevea-teak is marginally lower
at RM 4.2 (RM 104,500/ha) million with an NPV of RM 0.44 million or RM 11,000/ha. The
computed B/C rations for both combinations are about 1.5 suggesting a 50 sen net return for
every ringgit of investment.

5.7. Discussion on viability

A review of the findings of all the options is carried out in this section. For this purpose the
options have been categorized under three sections: Mono-culture plantation for wood
extraction; Hevea plantation for wood and latex extractions; and Mixed plantation.

5.7.1. Mono-culture: wood extraction only

Under the mono-culture option for Hevea wood, sentang, teak and acacia teak plantation appears
to provide the highest return given its assumed relatively higher projected price of RM 600/m3
compared to RM 450/m3 for sentang and the much lower prices of RM 150/m3 for acacia and RM
95/m3 for Hevea wood.
Sensitivity analyses on large-scale planting of sentang and teak indicate that the options are still
viable under 20% adverse changes in expenditure and revenue. For acacia it is marginally viable
if the projected revenue drops by 20%. In the case of Hevea (under large scale planting) given
the low price of Hevea sawlog a 10% adverse change in revenue or expenditure projections
could make the project non-viable (i.e. assuming the establishment of plantations for the sale of
sawlogs without any further downstream activity). Conversely, the IRRs would improve to
15.2% and 20.9% if prices of Hevea sawlogs increased to RM 150 and RM 300/m3, respectively.
At the latter price, despite being lower than the assumed price of sentang and teak, the IRR could
to be more attractive. Sensitivity analyses based on 10% and 20% changes in revenue and
expenditure estimates on various options are as shown in Appendix 3.

It must be emphasized that this study assumes the sale of sawlogs (roundlogs). Obviously, given
the vast projected price difference between the assumed price of sentang (RM 450/m3) and teak
(RM 600/m3) compared to Hevea at RM 95/m3 (which at present is artificially depressed being
treated as a residual resource) investment in the later option may erroneously be considered as
unattractive. Profit in the Hevea wood trade is actually very lucrative compared to the other
species but the margin lies in processing and in further downstream wood-based manufacturing
industry.

Comparative economic assessment of sawn timber production between light red meranti and
rubber wood carried out in 1994 showed that despite the low recovery rate of Hevea wood (20%)
as against light red meranti (67%) profit per cubic meter of hevea sawn timber was RM 475
compared to only RM 69/m3 for light red meranti. This is primarily attributed to the low Hevea
sawlog price then at RM 41/m3 compared to light red meranti at RM 545/m3. The price of hevea
sawn timber was lower at RM 765/m3 compared to light red meranti at RM 911/m3. The
computed profit margin over cost for Hevea sawn timber was 164% compared to light red
meranti at only 5%.

The above analysis was based on tapped rubber trees from existing rubber plantations. For
untapped Hevea trees grown specifically for timber the wood volume and recovery is expected to
be much higher. This would further reduce cost and increase profit margin if the present price
difference between Hevea sawlog and sawn timber persist.

For the above reason the establishment of Hevea solely for log extraction must be integrated with
at least sawn timber or fibrewood processing activities to benefit from the lucrative value added.
This is appropriate for the big time investors like Guthries and Golden Hope that could afford
capital intensive processing plants.

For the smallholding sector the planting of any wood species solely for timber is not advisable as
the majority of smallholders could ill-afford the long gestation period before realizing income
from wood.

Even though the analysis indicates that acacia plantation is viable it is relatively less attractive as
compared to sentang and teak. However, with its known fast-growth rate and adaptability to poor
soil conditions the species is recommended for lower-end products such as general utility timber,
panel products and fibre material for pulp and paper at shorter rotation. The economic viability
can be further enhanced if the planting of this species is integrated with processing facilities such
as integrated timber complex or pulp and paper mill. However growing acacia solely for pulp
and paper and without integrating with pulp and paper mill and taking into account the cost of
land will yield only an IRR 3.3% which is not viable based on earlier study conducted by the
Forestry Department in 1992.

5.7.2. Mono-culture: Hevea wood - latex extraction (shorter planting cycle)

Analysis on high density planting over shorter planting cycles indicates that this option is viable
with an IRR of 15%. This is a promising alternative to investors desiring earlier Hevea wood
extraction. Despite the projected low price of Hevea logs this option provides good returns from
the combined contribution of latex extracted seven years prior to log harvesting. Revenue from
latex exploited under intensive stimulation is expected to provide good returns and being
extracted earlier than wood helps to increase the present value of returns. With existing
timber/latex clones that provide both good latex and log volumes this option shows promise.

Presently, being treated as residuals, Hevea log prices have been depressed despite the high
value-added when converted to sawn timber. Sensitivity analysis indicates that the investment is
viable except in the case where adverse changes of 10% and 20% occur simultaneously in
revenue and expenditure or vice versa (Appendix 4). Computation of returns at sawlog prices of
RM 200/m3 and RM 300/m3 (still much lower than that of light red meranti - a species also used
in furniture making as Hevea) provides IRRs of 18.3% and 20.5%, respectively.

Obviously this option if combined with downstream processing of Hevea wood would provide
better returns from value-added manufactured products. Towards this end Guthries and Golden
Hope have established Hevea plantations to extract wood to feed their MDF (Medium Density
Fibreboard) plants. Apart from benefiting considerable profits from value added the plantation
ensures adequate and uninterrupted supply of Hevea wood. Several logging and sawnmilling
companies in East Malaysia have also integrated upstream establishing Hevea plantation for
wood and latex extraction.

5.7.3. Mixed plantation: Hevea-teak and Hevea-sentang

This mixed plantation practice (the planting of Hevea trees interspersed with sentang or teak) is
considered appropriate for smallholding and is intended to maximize revenue from sentang or
teak logs while ensuring a continuous flow of annual income during the latex exploitation period.

In terms of future value the per hectare gross revenue contribution by sentang or teak accounts
for about 52 - 53% of total revenue, with latex contributing 34 - 35% and Hevea wood the
balance of 13%. In terms of present value contribution, however, since revenue from latex is
accrued earlier latex contribution at RM 17,000/ha accounted for 52% of the total contribution
with sentang or teak contributing about RM 12,000/ha (39%) and Hevea wood 9 %. Hevea is
therefore still the major revenue contributor under this mixed plantation practice.

The option appears attractive given the bonus income from sentang or teak integrated with the
hedgerow planting system of Hevea. The viability of this project depends on the attainability of
the projected log volumes and prices. Sensitivity analysis carried out indicates that the proposed
option remains viable even at 20% adverse changes in revenue and expenditure.

6. Conclusions

It must be reiterated that analyses for this study are made from the growers’ perspective to
examine viability of commercial planting of several timber species for the sale of sawlogs. Two
crucial assumptions affecting results of study are obviously the price of sawlogs of the various
species and their estimated log volumes.

It must be cautioned that given the low projected price of Hevea sawlog based on present
depressed Hevea log prices used in the study against prices of other timber species which are
assumed to be many times higher may lead to the mistaken conclusion that investments in hevea
is relatively not attractive. Returns and margin from Hevea wood investment are presently very
attractive although as indicated earlier, benefits accrue at the stage of processing and further
downstream activities.

This is primarily attributed to the low sawlog price (hence low raw material cost). Once
converted into sawn timber their substantially high price provides very attractive margin. The
present Hevea sawlog price (July 1997) as provided by MTIB (Malaysian Timber Industry
Board) was RM66/m3 while that of Hevea sawn timber varied between RM 473/m3 to RM
805/m3 depending on the size of sawn timber.