PLANTERS are bracing for further crop losses this year, should the current acute shortage of workers in the oil palm plantations is left unresolved.
Although crude palm oil (CPO) is trading at a 13-year high of RM4,000 per tonne, industry expert MR Chandran says the plantation industry stands to suffer crop losses as high as 12% to 18% of the total CPO production in 2021.
“This will translate to a revenue loss of about RM6bil to RM9bil, excluding other losses arising from by-products such as palm kernel oil and palm kernel cake, ” he adds.
Chandran points out that the worker shortage amid the Covid-19 pandemic has dragged down local CPO production to 19.14 million tonnes in 2020 from 19.86 million tonnes in 2019.
Currently, the oil palm industry in Malaysia is still short of around 50,000 workers, of which nearly 32,000 are needed as palm fruit harvesters in the estates nationwide.
The remaining 18,000 are mostly for general work in the estates and mills.
Chandran tells StarBizWeek that increasing demand for field workers in the oil palm estates in recent years was due to the accelerated replanting programmes undertaken by big plantation companies.
This is amid planters’ efforts to comply with the strict Malaysian Sustainable Palm Oil (MSPO) and Roundtable on Sustainable Palm Oil (RSPO) certification standards.
Another point raised by Chandran is how the plantation industry will cope with such a severe shortage of palm fruit harvesters when the crop reaches its high production cycle by next month.
“What is more disturbing to observe is that our national average yields seem to have hit a plateau in the last few years and are also on a downward trend.
“For 2020, it was a miserable 3.66 tonnes per ha compared with four tonnes per ha in the previous year, ” says Chandran.
Apart from the adverse climatic conditions, he says reduced fertiliser application in 2018-2019 due to the low commodity prices and shortage of skilled harvesters have severely impacted the industry’s productivity.
Meanwhile, a recent pre-movement control order survey carried out by the Malaysian Palm Oil Board (MPOB) indicated a shortage of 31,021 harvesters among respondents, which covered 76% of the plantation industry.Extrapolating from these survey figures, it is estimated that the industry was short of 40,817 harvesters at the time of the survey.
Based on a conservative productivity estimate per harvester of 1.5 tonnes fresh fruit bunches (FFB) a day and 280 working days a year, the crop loss amounts to 17.143 million tonnes a year, which is close to a 20% loss in yield.
This in turn translates to a loss of production of 3.429 million tonnes of CPO and 857,000 tonnes of palm kernel (PK) a year.
Assuming CPO and PK prices of RM3,000 and RM1,800 per tonne respectively, planters opine that the opportunity loss amounts to an estimated RM11.83bil of revenue a year, and a profit of RM4.37bil a year.
This represents an income tax revenue loss to the government of an estimated RM896mil a year.
On the positive side, UOB Kay Hian (UOBKH) Research in its latest report says the government may allow planters to hire foreign workers once the Covid-19 pandemic in the sector is brought under control.
“From our channel checks and understanding from the companies, the government is still discussing with the plantation companies to accept experienced foreign workers in the plantation sector after the Covid-19 tests, ” it adds.
On listed local planters’ share performance, the research house says the stock prices did not move in tandem with the higher CPO prices as “investors are concerned about the ESG and labour shortage issue in Malaysia”.The research unit prefers pure upstream players with only Malaysia-skewed operations, such as Hap Seng Plantations Bhd, Sarawak Oil Palms Bhd and Kim Loong Resources Bhd.
“These planters will benefit more from higher selling prices as opposed to peers with exposure to Indonesia, ” adds UOBKH.
Among the big-cap planters in Malaysia, the research unit has a buy on Kuala Lumpur Kepong Bhd.
Earlier this week, 12 plantation associations in a joint statement made an urgent appeal to the government to effectively address the acute shortage of workers, cess and tax issues as well as the market access, which are fast eroding the industry’s competitiveness.
The associations seek for the formulation and implementation of a top-level strategy to address the labour shortage issue in the oil palm sector in Malaysia.
This appeal includes the call for the government to consider allowing guest workers who are currently in their respective countries of origin to return to Malaysia to work, as well as to put an end to the current pause in foreign worker recruitment in the plantation sector.
One fine example is the Sarawak government’s recent move to allow foreign workers back into the state since March 1 under stringent SOPs, which should be emulated nationwide.