A Study on Costs, Risks and Competitiveness of Palm Oil Fruit Dealers’ Business in Malaysia

Abstract

This exploratory study aims to describe the nature of palm oil intermediary business focusing on the costs structure,risks and competitive challenges. This study employs qualitative research design. Five fruit dealers (FD) are involvein the interview. The findings show that palm oil fruit dealer business requires enormous amount of cash andequipment investments during the start-up and growth stages. In addition, FDs must comply with specificrequirements to apply for the operating license. The risks are divided into non-controllable and controllable risks.The non-controllable risk refers to the external source of risks such as fresh fruit bunch (FFB) shrinkage due toweather factor, volatility of market price and inconsistent mills purchase decisions. Meanwhile, the controllable riskconsist of the probability of unripe FFB purchased from the smallholders. Furthermore, the finding indicates that thebusiness competitive structure is relatively intense due to strong bargaining power of buyers and sellers, high servicesubstitutability from nearby FDs, high rivalry among existing firms, and the need of special equipment. However, thethreat of new entrants is low due to the high entrance and exit barriers of the business. Finding of this studysuggested that agriculture intermediaries have important roles within the palm oil smallholders’ value chain.Therefore, this study disseminates preliminary insights on FDs’ business in terms of costs, risks and challenges.