Foreign markets and imported technology fuelled the copra and coconut oil industry in Penang, making it the third biggest money earner for decades. What this tells us at a time when we need to diversify Penang’s economy is that agribusiness has a future.

By Wong Yee Tuan 

WHEN PENANG WAS occupied by the British, it was intended not only to serve as a trading port but also as land for the cultivation of commercial crops such as peppers, nutmegs, cloves, sugarcanes and coconuts. Of these, coconuts turned out to be the only crop successfully cultivated on a large scale on the island, contributing considerably to the economy for almost one century. Why and how did coconuts become such as an important commercial crop in Penang?

Penang planters were the driving force for the growth of the coconut industry. The mid-19th century witnessed an unprecedented expansion of coconut estates in Penang. These increased from a few thousand acres in the 1830s to 17,000 acres in the 1870s. In the process, Penang became the largest grower of coconut palm in Malaya, with Chinese businessmen on the island being the major owners. Table 1 shows some of the estate proprietors in Penang. The largest estate proprietor was the Koh family, who owned close to 2,000 acres.

The venture into coconut planting was not a coincidence. It was a timely calculated investment to tap the local and overseas markets where the demand for coconut fruits, copra and coconut oil was increasing. Coconut was one of the principal products which millions of locals in South-East Asia relied upon for food, drink, cooking oil and other numerous household purposes. The unprecedented rapid and sustained population growth in the 19th century greatly stimulated the need for this staple. For example, in Malaya, a population of 250,000 in 1800 had risen to 1.4 million by 1891. Burma’s population was four million in 1830, which by 1901 had reached 10.5 million.

In the 1880s, Penang was already a centre that supplied copra and coconut oil to Singapore, Malacca, Kedah, Perak, southern Burma and southern Siam.

Copra and coconut oil were not only popular in the region, they were much demanded in Europe as well. The rapid development of the coconut industry in Europe after the First World War was stimulated by its margarine industry turning to the use of coconut oil on an extensive scale as the basic ingredient. This development indubitably drove the prices of copra and coconut oil up. Both  commodities priced at £25 and £41 9s per tonne in 1914 shot up to £45 10s and £74 in 1918 and to £56 8s and £92 15s in the 1920s. Hence, coconut became one of the most lucrative crops in the early 20th century. By producing copra and coconut oil, the Edinburgh Estate owned by Koh Seang Tat, for instance, could earn more than US$20,000 a year.

To capitalise as fully as possible on this “coconut boom”, estate owners set up home-based mills to produce coconut oil for export. By 1892, there were 183 oil mills worked by foot power in Penang. The oil milling technology of the time was modeled on that used to extract oil from seeds and beans in Guangdong and Fujian, two provinces in southern China renowned for their oil milling industry during the Ming and Qing dynasties. It was this transplanted Chinese technology that established coconut as a considerable export industry of Penang supplying the essential oil for regional consumption and the manufacture of margarine in Europe.

These oil mills soon proved too small to meet the vigorous demand in regional and international markets. In the late 19th century, a few businessmen introduced new technology and established Khie Heng Bee Mill, a modern rice and oil mill equipped with steam and hydraulic machinery. The mill was driven by a 60hp horizontal engine and the hydraulic oil presses were worked by a 24ho engine. It was capable of producing 100 piculs (6,000 kilos) of oil per day. It became one of the largest and most important industrial concerns in northern Malaya. The founders of this modern enterprise were Phuah Hin Leong, Chuah Yu Kay, Lim Leng Cheak, Cheah Joo Jin and Cheah Ewe Ghee.

This initiative prompted four more modern oil mills to be established in Penang. They were: Sun Wo Loong owned by Ng Sui Kam, Ban Teik Bee Co. Ltd owned by the Lim brothers, Ban Hin Lee Oil Mills Ltd owned by Yeap Chor Ee, and Hock Hin Brothers owned by Choong Lye Hock and Choong Lye Hin. These controlled over 85% of the total output of oil in Penang. Sun Wo Loong was the largest and produced 80 tonnes of oil per day while the others had an average production capacity of 40 to 50 tonness. In order to meet the spiralling demand for coconut oil, the Penang oil millers imported copra from Sumatra, the Malayan mainland and the Philippines to compensate for the local deficit supply of copra.

After World War II, Penang continued to produce more oil than any other states in the Federation or the colony of Singapore and its output accounted for 40% of the Malayan production. By 1953, in terms of export earnings, coconut products formed the third largest domestic produce after rubber and tin. In the world export of coconut oil, Malaya was third in importance after Ceylon (Sri Lanka) and the Philippines in 1951–1952 and second after Ceylon in 1953 and 1955. Thanks to Penang’s capital, enterprise and skill, its coconut industry made a very important mark on national and international economies.

However, coconut began to decline as an important commercial crop from 1960 onwards. Coconut estates were progressively cleared and planted with oil palm, which could produce a larger quantity (three to four times) of oil per acre compared to coconut. This created a big difference in profitability between coconut and oil palm. One acre of oil palm could yield annual cash net returns that were three times more than from coconut cultivation. It was this major factor that eliminated coconut as an important commercial crop of Malaysia.

In retrospect, we see that an agro-based industry was able to provide strong financial underpinning for Penang’s economy. This holds significance for the future. Agribusiness should still be promoted and developed to diversify the economy and balance Penang’s present concentration on the electric and electronic industry, which is susceptible to fluctuations in the volatile global chip market.

** Republished with permission. This article first appeared in the February 2011 issue of the Penang Economic Monthly. Wong Yee Tuan is a research fellow with the Centre for Malaysian Chinese Studies, and obtained his PhD in history from the Australian National University in 2007.

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