POINTERS: Rising Production Cost and Labour Crunch Impact on Palm Oil Industry

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Questions & Answers (8) :

WONG YQ

2 years ago

Hi, Mechanization in plantation still long way for smallholders. The site yield potential for oil palm definitely can be improved for small holders. The major players KLK, UP, IOI, Sime are almost there which can manage the cost at minimum. Looking forward the plantation industry can have significant solution for harvesting and labour management.

Ng Ivy:
Dear Wong YQ, I agree that for smallholders they may not have the knowledge, resources and scale to adopt mechanisation vs. big planters. However, one way to encourage adoption may be to explore the possibility of having more organised smallholders plantation to obtain economies of scale to explore investing in mechanisation. This will be a win-win for smallholders and the industry.
2 years ago

LAW CHOON SHENG

2 years ago

Dear Ms Ng, The high prices of fertilizers is shocking. 1) How much more will this round of fertilizer price increase add on to production cost of palm oil? 2) Are the Malaysian smallholders cutting down their manuring on oil palm or are they continuing to apply fertilizers which is still affordable to them due to the very high FFB price? Thanks

Ng Ivy:
Dear Choon Seng, 1) My understanding is that it could raise production costs by as much as 10% or more depending on the base cost of production 2) At current high CPO price, affordability is not an issue. As such we expect smallholders to continue to apply fertilisers. The key obstacles may be supply chain issue - delay in receiving fertilisers on a timely basis due to geo-political risks or shortages
2 years ago

MEGAT SYAZWAN SHAH

2 years ago

Hi, The rise of palm oil has also affected domestic consumers. Do you think the government should do something to manage the global price or instead introduce better assistance to domestic users? Thanks

Ng Ivy:
Dear Megat, The domestic cooking oil price (palm oil only) in the country is currently subsidised by the government. As such, domestic consumers are not bearing the full impact of the rising palm oil prices. An alternative way is to provide more targeted instead of blanket cooking oil subsidy to all the consumers.
2 years ago

William Yap

2 years ago

Dear Ivy, In regards to the ESG matters, soon more foreign workers will be entering the plantation sectors, how will the plantation companies manage the foreign workers welfare effectively like accommodations which will incur higher cost to plantation companies and these labor costs are not reversible hence affecting bottom line. Could the planters face similar widespread labor issues inspections like the CBP actions on glovemakers , Sime and FGV..

Ng Ivy:
Dear William. Thanks for the queries. Most large plantation companies are aware of the ESG risks and have appointed various third party assessors to conduct assessments on their labour practices. My understanding is that companies affected by forced labour allegations will be taking additional measures to ensure the labour recruitment process is thorough. It will be harder to inspect labour at plantation estates due to wider geographical spreads compared to glove makers. To ensure best practices are applied, proper process, grievances channels, audit and constant engagement with regulators will be required for plantation companies.
2 years ago

WONG HOOI PENG

2 years ago

Hi Ivy, Given a CPO price, do you have a breakdown of how much each party receive in the whole value chain of oil palm plantation, ranging from various suppliers (fertilizer, herbicide, etc), workers, estate owner to the government (as tax)? Thank you.

Ng Ivy:
Dear Hooi Peng, For upstream players, the difference between costs and ASP depending on ASP assumptions will be the profit for the oil palm owner after deducting HQ costs, corporate tax to government. We have worked out the % of taxes due to the government for planters (excluding corporate income tax) in the slides. The amount of tax the company pay will depend on CPO price and profitability. The costs of production will be mostly workers salary, fertilisers and fuel.
2 years ago

Lee Loy Fatt

2 years ago

Dear Ivy, Has your computed cost of production of CPO taken into account the value of other products from FFB, viz. palm kernels? Thank you.

Ng Ivy:
Dear Loy Fatt, The computation of costs exclude PK credits and other by-products. To add PK credit, need to establish PK yield of the estates multiply by PK price and deduct from the costs accordingly. The figure will vary depending on the PK price assumption. The industry uses multiple ways to compute costs of production. For the purpose of this paper, we have assumed costs of production per mature ha of around RM7,032 per ha divided by the CPO yield of the estates in the particular region to arrive at the cost per tonne for CPO.
2 years ago

George Teh

2 years ago

Dear Ivy Sarawak appears to be the Archilles' heel or lever point for Malaysia to improve productivity and optimize COP, depending on one's perspective. Do you have more insights on the constraints underlying Sarawak's low productivity and high COP viz-a-viz Pen. Malaysia and Sabah? Thank you.

Ng Ivy:
Dear George, Apart from labour issues, other key factors impacting yields will be soil type, terrain, weather, age profile, management of estates. Also, Sarawak started plantings later than the other regions and incurred higher new planting costs.
2 years ago

Ceanry Ayub

2 years ago

Hi Ms Ng, between the current Ukraine-Russia conflict (that I foresee will nowhere to be ended within this year and the year next) versus the labour crunch, which factor do you think will effect to industry players especially in Malaysia?

Ng Ivy:
Dear Ceanry, The labour crunch issue will have direct impact on Malaysian palm oil players and can be partially resolved if foreign workers are allowed to be recruited. The Ukraine-Russia conflict will have an indirect impact on Malaysian palm oil players via the opportunity to expand their market for palm oil, if they have enough workers to maximise their production.
2 years ago