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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

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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.

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
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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
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
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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.

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 BERHAD

2. TAIKO PLANTATION BERHAD
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3. BLD PLANTATION BHD

4. BOUSTEAD PLANTATION BHD
5. CEPAT WAWASAN BHD
6. MSC PLANTATION BHD
7. CHIN TECK PLANTATION BHD
8. FAR EAST HOLDINGS BHD
9. GENTING PLANTATIO BERHAD
10.GLENEALY PLANTATION BERHAD
11.HARN LEN BERHAD
12.HAP SENG BERHAD
13.IJM PLANTATION BERHAD
14.KIM LOONG RESOURCES BERHAD
15.KLUANG RUBBER COMPANY BERHAD
16.KRETAM BERHAD
17. KULIM ASIA BERHAD
18.KURNIA SETIA BERHAD
19.KWANTAS BERHAD
20.MALPAC BERHAD
21. MULTI VEST BERHAD
22. MHC PLANTATION BERHAD
23.NPC PLANTATION BERHAD
24.NEGRI SEMBILAN OIL PALMS BERHAD
25.PLS PLANTATION BERHAD
26.RIMBUNAN SAWIT BERHAD
27.RIVERVIEW BERHAD
28. TRADEWINDS BERHAD
29.SUNGEI BAGAN BERHAD
30.SARAWAK OIL PALM BHD
31.SARAWAK PLANTATION BERHAD
32.GOLDEN LAND BERHAD
33.UNICO DESA BERHAD
34. BENTA PLANTATION BERHAD
35. TA ANN BERHAD
36. 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.
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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
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.
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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

2. Short term financing and administrative cost
3. Warehouse & assembly facilities rental costs = RM15k per month
4. Ground staff cost = RM15k per month
5. Sales and administration cost = RM15k per month

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

Additional costing are:

1. Transportation cost
2. 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 month
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2. We target a modest 20-30% annual revenue turnover growth

3. Gross profit margin is fixed at 30%
4. Transport cost is fixed at RM50 per tonne
5. Marketing and advertising cost is fixed at RM50k per month or RM600k
per annum
6. 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
equipment
8. 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 profit
10.The initial investment is RM500k and the ROI or Return on Investment is
based on this figure

FINANCIAL PROJECTION @ 30% gross profit margin

Year Mid-2011 2012 2013 2014 Total

Revenue 12,000,00 37,500,000 50,000,000 60,000,000 159,500,0
0 00
@30% (8,400,00 (26,250,00 (35,000,00 (42,000,00 47,850,00
profit 0) = 0)= 0)= 0)= 0
margin 3,600,000 11,250,000 15,000,000 18,000,000
Less (420,000) (1,312,500) (1,750,000) (2,100,000) (5,582,500
Logistics )
@rm50/to
n
Less (600,000) (600,0000) (600,000) (600,000) (2,400,000
Marketing )
&
Advertisin
g Cost
Gross 2,580,000 9,337,500 12,650,000 15,300,000 39,867,50
Profit 0
Less (300,000) (660,000) (726,000) (798,600) (2,484,600
Operating )
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Expenditur
e
Set Up (200,000)
Cost
Finance (315,000) (1,968,750) (2,625,000) (3,150,000) (8,058,750
Costs @ )
7.5% pa of
product
cost
Profit 1,765,000 6,708,750 9,299,000 11,351,400 29,124,15
Before Tax 0
Less (441,250) (1,677,187) (2,324,750) (2,837,850) (7,281,037
Corporate )
Tax 25%
Profit After 1,323,750 5,031,563 6,974,250 8,513,550 21,843,11
Tax 3
ROI @ 264% 1006% 1394% 1702%
RM500k

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.

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
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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 leaf
P = Phosphate derived mainly from Rock Phosphate promotes strong plant
roots and stems
K = Kalium or Pottasium derived mainly from Muriate of Potash promotes
flowering and fruiting

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:

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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 Malaysia

ii. Heavy subsidies, incentives, tax exemptions and promotions by Government
iii. 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
Malaysia
viii. 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 1999
1381. 1878. 1778. 1606. 1684. 1443. 1220 1140. 1207. 1323.
9 4 4 4 1 4 6 4 8

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

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
1574. 1580. 1452. 1215. 1498. 1305. 1342. 1058. 1462. 1403.
9 9 3 1 6 5 7 4 8 6

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

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
516.5 496.8 464.3 393.8 386 454.1 492.3 486.8 442.3 326.3

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

2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
720.3 748.6 689.3 711.4 690 653.7 586 582 586.7 399.2

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

2009 2008 2007 2006 2005 2004 2003 2002 2001 2000
4691 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 2000
2342 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.
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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 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.
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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. 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
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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,

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
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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
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-technology

ii. Application of incentives and promotions on bio-technology
iii. Growing body of statistics indicating the efficacy and nutritional benefits of
green tech fertilizer over chemical fertilizers
iv. Farmers are willing to experiment and adopt green tech fertilizer due to high
prices of agricultural produce
v. Increasing education and improved knowledge and exposure of farmers
vi. Competitive pricing of green tech fertilizer
vii. Organic fertilizer comprise about 10% of fertilizer consumption in Malaysia
indicating room for growth
viii. Agriculture is a vital, staple, stable and substantial contributor to the
economy
ix. World trends are impelling farmers and agriculturists to adopt ecological and
bio-technological methods and the green wave is also pervading into
Malaysian agriculture
x. Healthy and sustainable profit margins will encourage further R & D in green
tech fertilizer
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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