Teh Jen Lee – The haze caused by fires set to clear land for plantations may be less severe over South-east Asia this year because of lower palm-oil prices. Indonesian Palm Oil Producers Association president Derom Bangun said the low prices would discourage companies from increasing the plantation areas.

Widespread burning in Indonesia's Sumatra and Kalimantan provinces – in part by plantation companies – were largely to blame for the haze which shrouded the region in 1997 and 1998.

Of the 176 companies accused by the Indonesian government of using fire to clear land, about 75 per cent were doing so to prepare oil-palm plantations.

This year, a metric tonne of crude palm oil has been selling for a monthly average of around US$250 (S$450) compared to the 1998 average of US$620. "Shareholders are very unsupportive of expansion of plantations now," Mr Derom said in a telephone interview from Jakarta.

However, prices have been increasing recently, reaching above US$300 last week. Mr Togu Manurung, a forest economist and director of Forest Watch Indonesia, did not think that this short-term increase would induce companies to expand plantations. "Prices are still fluctuating and are difficult to predict," he said.

But in the longer term, both men expect prices to increase. Mr Derom attributed this to efforts by Malaysia, one of the world's main palm-oil-producing countries, to cut down excess stock and production of palm oil. Indonesia, the other main producer, had also seen lower yields this year from plantations – which cut back on use of expensive fertilisers. Ethnic clashes in areas where plantations are located also disrupted harvesting.

The combined effect of all these was to reduce supply and increase prices, Mr Derom said. He added that if the crude palm oil prices increased to more than US$360 a tonne and remained around that level, the companies would make efforts to expand operations. The high prices would in turn make it an attractive proposition to acquire more land, he said.

The disastrous haze of 1997 and 1998 which affected about 70 million people coincided with an upward trend in prices.

According to Mr Togu, the rise in prices was part of the cyclical nature of the palm-oil industry.

So will there be a severe haze every time prices rise and companies clear more land? Mr Derom believed that this would not be the case because all the 91 companies in his association had been warned not to burn the area to clear the land.

But Mr Togu was not so optimistic that the industry would regulate itself. Instead, he suggested that the International Monetary Fund stipulate conditions for palm-oil industry development even as it pressured Indonesia to be more export-oriented.