HAVING adequate workforce in the plantation sector is vital to sustain the viability of the Malaysian palm oil industry.

In fact, a recent study by Khazanah Research Institute (KRI) has shown that the labour shortage issue inherent in the plantation sector is posing more threat to the industry’s economic health compared to the price volatility of the crude palm oil (CPO).

In the study entitled “Implications of the Dominant Shift to Industrial Crops in Malaysia: System Dynamic Model of Industrial Crops”, KRI found that a labour reduction of 30% from the current level will see the vegetable oil’s production reduced by half.

A further reduction of palm oil output of up to 80% will lead to a collapse in the supply chain, according to KRI visiting senior fellow Prof Dr Datin Paduka Fatimah Mohamed Arshad who is also the lead author of the study.

To curb the labour shortage issue, the Government may allow both the plantations and the commodities industry to hire foreign workers once the COVID-19 outbreak among the migrant workers in the sector is brought under control.

“Based on our channel checks and updates from the companies, the Government is still in discussions with plantation companies to accept experienced foreign workers in the plantation sector after COVID-19 swab tests are carried,” revealed UOB Kay Hian Research analysts Leow Huey Chuen and Jacquelyn Yow.

“Additionally, the plantation-related associations have also urged the Government to address and resolve the shortage of workers in the plantation sector.”

To re-cap, foreign workers are allowed to work in Sarawak from March 1 under stringent standard operating procedures (SOPs). On top of that, Sime Darby Plantation Bhd has also brought back over 100 migrant workers from Bangladesh as part of its pilot scheme to overcome labour crunch.

On a related development, the research house also expects palm oil exports to come in stronger in the coming months on the back of economic recovery and with strong demand from India.

This is given as of March, India’s palm oil inventory level was still low at 270,000 tonnes (2020 monthly average: 711,000 tonnes).

“On top of that, we might expect better demand from China as some provinces are experiencing African Swine Flu outbreaks,” noted the research house. “This could lead to lower soybean crushing, and hence benefit palm oil.”

All-in, UOB Kay Hian Research maintained its crude palm oil (CPO) price assumptions of RM3,000/tonne and RM2,600/tonne for 2021 and 2022 respectively.

“We expect CPO prices to continue trading at a high range in 1H 2021 as a result of current stock levels and the tight supply in 1H 2021,” added the research house. – April 13, 2021