MALAYSIA’S plantation sector is facing a labour shortage, which is set to become more severe if the recent hike in the foreign worker levy is implemented, according to Felda Global Ventures Holdings Bhd chief executive officer Datuk Mohd Emir Mavani Abdullah.
“Given the ringgit’s depreciation and low commodity prices, it may not be the right time to introduce the extra levy. The plantation sector employs the most foreign workers and we are going to be the ones who are most affected by this,” he explains.
According to industry data, foreign workers account for 78% of the total labour workforce in the oil palm industry.
Unlike soybean or other cash crops, there is limited room for mechanisation in the oil palm industry during the harvesting process, thus necessitating the need for a large number of menial labour.
FGV employs 29,000 foreign workers across its 134 plantations in Malaysia and Indonesia, covering about 400,000ha.
“We are facing a shortage. In fact, we are short of nearly 15% of our labour workforce,” Emir says. This means that the company requires an additional 2,000 to 3,000 workers to work in its plantations, he adds.
In the revised Budget 2016 announcement in January, the levy for foreign workers in the plantation sector was increased from RM590 per worker to RM1,500, translating to a 154% increase.
To put things into perspective, the levy charges alone for hiring 29,000 foreign workers would cost FGV RM43.5mil per year after the hike, compared with RM17.11mil previously.
The impact to the group’s bottom-line is immediate. In a Feb 1 note, CIMB Research estimated that the additional levy charges would result in an 8% reduction in FGV’s net profit for the financial year ending Dec 31, 2016.
CIMB noted that plantation firms have historically absorbed the cost of the foreign worker levy. However, it is not known whether this time some of the cost will be passed on to the workers, the research house says.
Passing on the cost to the workers will be a challenge, given the Government’s move to raise the minimum wage.
In Budget 2016, the Government stipulated that the minimum wage this year be raised from RM900 to RM1,000 per month in Peninsular Malaysia and from RM800 to RM920 in Sabah, Sarawak and Labuan.
While clarifying that the group does not plan to shed its foreign labour workforce at present, the levy will definitely influence hiring policies going forward, Emir says.
“By June this year, the minimum wage will reach RM1,000 and we are complying. The wage issue is not a concern, but the levy is. Now it will become a double whammy with both the minimum wage increase as well as the levy hike if it comes into place.”
Emir explains that Malaysian plantation companies will now be incentivised to shift their plantation operation overseas due to lower labour costs.
“Companies would be discouraged from acquiring new landbank in Malaysia. Instead, they may go and secure new land in Indonesia, where the overall cost of production will be less. With the levy increase, everybody’s bottom-line will be impacted,” he says. On Feb 11, Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi was quoted as saying that the levy hike had been put on hold, with the Government agreeing to discuss the matter with companies and employers’ representatives.
A final decision on certain aspects of the levy hike, including the levy rate and validity period, will be decided after a meeting with stakeholders which will be convened before Feb 20, he says.
According to Ahmad Zahid, the levy increase is expected to contribute up to RM4bil to the country’s coffers following its implementation.