Labour Challenges of Plantation Industry Worsening

  by Professor Dato Dr. Ahmad Ibrahim,

The government has just announced a cabinet reshuffle. The Ministry of Plantation and Commodities now has a new leader, as the industry continue to struggle with issues. Few envy YB Datuk Zuraida Kamaruddin in her new portfolio. The plantation industry is saddled with multiple challenges. Notwithstanding, many view this as the opportune time for her to bring positive change to the industry. Many see institutional reform to address the many structural challenges facing the plantation business as one area of priority for her. As many are aware, the last few years have witnessed some chronic problems of the industry, which unless properly addressed, may worsen in the coming years.

It is not all doom though. Many in the palm oil industry, for example, welcome the recent jump in the palm oil price, which has exceeded RM4000 per ton. For a long time, the price was at very depressive levels, dipping for a period below RM2000 per ton. Thanks to the price jump, big plantation companies now report record rise in profits. The small farmers are also celebrating after years wollowing at the low price. But is the good fortune sustainable? The price jump, experts say, is all related to the movement in supply and demand of not just palm oil but all the 17 competing oils, especially the two big ones, palm oil and soyabean oil. Market watchers would always focus on those two, to make their investment decisions. The supply side is constantly monitored. On the demand side, China, India and the EU are the three major markets always under the radar, since they form the largest net importers of oils and fats.

According to analysts, the high price we are seeing is driven more by a supply shortfall rather than a balooning demand. Demand is very much suppressed by the pandemic. This is where the palm oil industry worries a lot. There are opportunity costs on the supply shortfall. As a result of acute labour shortage, experienced for years now, billions of ringgit have been lost because of the unharvested crop. The pandemic has made the situation worse since the movement of labour is severely restricted. The industry has long been dependent on cheap immigrant labour.

There is also another side to the labour issue. Some importers now pay more attention to labour in their import decisions. They constantly monitor how workers are treated and compensated. This is becoming more common now. Any report of poor labour standard including the use of child labour is used as excuse to deny imports. There have been reports of cargoes stopped because of the negative labour report. The labour shortage issue is not new though. It was first alerted years ago. It is not that we have become addicted to such cheap foreign labour, there is just no viable alternative. Efforts to mechanise oil palm harvesting have not met with much success, especially on the prohibitive costs.

Labour is also an issue in the rubber sector. Nowadays, rubber smallholders increasingly employ immigrant labour to tap. Different from palm oil, our rubber shortfall does not affect the market very much, because many other countries produce more rubber than us. From a leading producer, we have dropped to number 8 in the world on rubber production. The labour issue is more a concern in the downstream glove manufacturing, where the operation is also labour intensive. Attempts to automate have been slow. That explains why many glove companies have ventured overseas into Thailand, Cambodia and Vietnam to continue their trade. Our supply of latex concentrate, the raw material for making gloves is also small. Most have to be imported.

Admittedly the palm oil business faces more issues than rubber. The sustainability conundrum continue to haunt the palm oil business. Meeting the many certification systems is not difficult. But clearing up import restrictions on account of sustainability remains problematic. The EU market is especially complicated. Now the sustainability issue is creeping into rubber growing as well. What is worrying is that both rubber and palm oil are significant contributors to the nation’s coffers. Palm oil consistently brings in about RM80 billion a year, while rubber generates about half of that. With all such threats to the two plantation businesses, the ministry will no doubt have a lot on its plate to resolve. The industry is looking to the new leadership for answers. There is need for more aggressive R&D in digitalisation and automation to resolve the labour issue.