Labour shortage takes centre stage in plantation sector
KUCHING: Labour shortage has taken centre stage in the plantation sector, with analysts estimating an average of approximately 2,000 additional worker shortage with each passing month.
To recap, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) recently hosted an engagement session with Malaysian Palm Oil Association’s (MPOA) chief executive officer (CEO) Datuk Nageeb Wahab recently.
“Overall, it was an informative session to understand the palm oil sector’s plight, but resolution remains uncertain,” Kenanga Research said.
“Current labour shortage situation has deteriorated to approximately 75,000 harvesters, from approximately 40,000 harvesters and approximately 20 per cent loss of yield pre-movement control order (MCO).
“We estimate an average of approximately 2,000 additional worker shortage with each passing month.
“Efforts to recruit locals are ongoing, but attrition rate is high with approximately 60 per cent leaving within a year.”
To note, the research arm’s 2021 crude palm oil (CPO) production estimate of approximately 18 million metric tonnes (MT), a decrease seven per cent year on year (y-o-y), was in line with MPOA’s view.
“Meanwhile, MPOA is hopeful for the government to allow the intake of approximately 32,000 foreign workers (initially approved), to ease the labour
Overall, it was an informative session to understand the palm oil sector’s plight, but resolution remains uncertain.
Kenanga Research
shortage situation.
“The easing of the labour shortage situation will also translate into higher tax revenue for the government, by virtue of higher production.”
To address the industry’s long-standing reliance on manual and foreign workers, Kenanga Research gathered the Mechanisation and Automation Research Consortium of Oil Palm (MARCOP) has been allocated a fund of approximately RM60 million to explore oil palm mechanisation, especially in harvesting technology such as drones with laser or mechanical harvesters and exoskeleton systems (arm lifting assist mechanism) to reduce harvesters’ arm muscle fatigue during tool lifting and handling.
“However, the efforts will take time, spanning over the next five years.”
According to Kenanga Research, while no official CPO price forecast was provided, MPOA expected CPO price to remain elevated for the rest of 2021 and potentially spilling over into early-2022, given the tight edible oil situation.
As such, the research arm kept its current year 2021-2022 (CY2122) CPO price forecast unchanged at RM3,700 to RM3,200 per MT for now, but recognised that there could be some upside to its CPO price forecasts.
“On a separate note, with regards to sustainability, we were reassured that while sustainable certifications (RSPO, MSPO) are not failproof, they do give buyers some degree of confidence.
“MPOA has also requested government-to-government (G2G) engagement to resolve the US Customs and Border Protection (CBP) withhold release order (WRO) issue.”
On another note, Kenanga Research gathered that MPOA remained hopeful to a certain degree for the government to address the current tax structure, with potentially higher threshold for windfall tax (from current RM2,500 per MT in Peninsular and RM3,000 per MT in East Malaysia).
“Having said that, this is not our base case given the government’s plans to increase tax revenue.”
The research arm’s base case assumed no changes to the windfall tax structure and threshold.
“In our scenario analysis, we outlined the estimated impact to planters under our coverage for every one per cent increase in windfall tax at CY21-22E CPO price of RM3,700 to RM3,200 per MT.
“Notably, planters most affected are FGV Holdings Bhd, Hap Seng Plantations Holdings Bhd, Ta Ann Holdings Bhd, and United Malacca Bhd, coinciding with their higher production concentration in Malaysia.”