11/03/2023 (The Borneo Post Online), Kota Kinabalu - The Malaysian Palm Oil Association (MPOA) discussed challenges and issues facing the palm oil industry in Malaysia, with a special focus on Sabah at its Sabah branch’s Annual General Meeting (AGM) in Sandakan on March 12.

Joseph Tek Choon Yee, MPOA’s Chief Executive, emphasised in his keynote address that Sabah’s oil palm sector is vital to the state’s socioeconomic landscape, providing employment and contributing substantial taxes to the government coffers.

He also touched on other critical issues in MPOA’s ongoing engagements with relevant stakeholders, such as labour shortage, mechanisation, productivity gap and unabated production costs, including taxation and emerging sustainability issues such as the EU Deforestation Regulation (EUDR).

Today, Tek said, Sabah remains a significant regional producer of palm oil in the world and continues to feed the global demands and ensuring livelihood and shared prosperity for all Sabahans.

In 2022, Sabah produced 23.3 per cent of Malaysian crude palm oil (CPO) generating 4.29 million tonnes of CPO from its landbank of 1.51 million hectares of planted oil palm area.

However, the crop yield declined by 2.4 per cent year-on-year to 15.4 tonnes per hectare per year, and the oil and kernel extraction rates (OER and KER) also declined by 1.5 per cent to 20.25 per cent and 0.9 per cent to 4.47 per cent, respectively.

Despite the challenges, MPOA expressed its gratitude to the Sabah State Government for its continued support and cooperation with the oil palm industry in Sabah, he added.

According to Tek, the labour shortage especially with the right skill to harvest remains the main challenge faced by the plantation industry.

He disclosed that only about 21,000 foreign workers returned to the plantation sector, according to MPOA’s survey on the recruitment of foreign workers for 2022.

The breakdown of the recruited foreign workers was 51 per cent from Indonesia, 42 per cent from India, five per cent from Nepal, and one per cent from Bangladesh.

Tek said that with limited approval on recruitment from source countries other than Indonesia, plantations in Sabah are avail with the presence of Filipino migrants who are willing to work in plantations.

MPOA Sabah Branch chairman Prakash Arumugam said MPOA in Sabah fully supports the Philippine Special Consular Mission initiated by the Philippines Embassy in Kuala Lumpur, to document Filipino migrants in Sabah.

He said that MPOA members in Sabah are willing to facilitate the mission’s ground team in providing amenities and assistance during the recruitment process into the plantations.

The industry, Tek said, looks forward to discussing measures with the State Government and its agencies to minimise opportunity losses in crop and revenue to the growers and the State due to the labour shortage estimated to be more than RM5 billion losses for Sabah in 2022.

The age profile of oil palm trees in Sabah revealed that the State has the highest area of trees above 25 years old in Malaysia. A total of 184,746 hectares or 12.3 per cent are above 25 years old, while 352,689 hectares of trees are between 19 to 25 years old. Collectively, more than half a million hectares or 36 per cent of the oil palm trees in Sabah are above 19 years old. They may not be economically productive set against its left-over density, or inaccessible for harvesting at tall heights.

“If not addressed, this will lead to changing supply equations in Sabah’s palm oil supply chain. Thus, pragmatic replanting programme with best practices is crucial for long-term sustainability of the oil palm sector in Sabah notwithstanding the prices of CPO,” Tek said.

On the issue of Property Assessment Tax (PAT), MPOA expresses its gratitude to the Sabah State Government for granting the industry representatives from EMPA (East Malaysia Planting Association), MEOA (Malaysian Estate Owners Association) and MPOA the opportunity to discuss the issue during a recent meeting held on February 28.

The meeting, which was chaired by Deputy Chief Minister and Minister of Local Government and Housing, Datuk Seri Dr Joachim Gunsalam, was fruitful in that it addressed the concerns raised by the industry.

“To recap, the State Government had introduced the PAT for palm oil mills and estate housing in 2019, but it was postponed after an appeal from the industry. However, the tax was re-introduced in 2021, and the industry reappealed for exemption, citing the lack of services, amenities, utilities, and infrastructure provided by the district councils to palm oil mills and estates especially in many rural areas.

“Additionally, the industry is already heavily taxed by both the Federal and State governments, including the 7.5 per cent Sabah Sales Tax,” he said.

Tek lamented that despite the appeals, some district councils in Sabah refused to renew trading licenses for palm oil mills and estates with outstanding PAT, which could put the palm oil’s mandatory MSPO and business-to-business (B2B)’s RSPO sustainability certification at risk.

However, the meeting concluded with an agreement to allow affected palm oil mills and estates in Sabah to renew their trading licenses while the government resolves the PAT matter soon. This decision would prevent non-compliance with the certification, he said.

MPOA wishes to reiterate the importance for follow-through and inclusive engagements with the State government to resolve the PAT issue in Sabah soon. The Malaysian oil palm industry has remained resilient despite challenges posed by the slow return of foreign workers and the aftermath of the Covid-19 pandemic.

During the pandemic, the plantation industry in Sabah should be recognised for their important role during the Covid-19 screening and subsequent vaccination in the plantation and surrounding communities via the plantation vaccination centres (PPVs) working in partnership with the authorities.

“However, there is still room for improvement in terms of productivity. MPOA suggests that productivity can be improved if controllable factors, such as adequate labour, good practices, enhanced management know-how, and effective policies, are in place.”

In summarising his keynote address, Tek reiterated that the palm oil sector is a commodity business, thus price takers and not price makers, adding that when there is any cost increase, the sector cannot pass down the cost to its consumers.

While facing many challenges such as shortages of skilled labour, higher unabated production costs and unpredictable weather patterns, the ante has been raised today as growers must comply with numerous regulations and certifications, he said.

Tek concluded that the Malaysian palm oil sector is operating in a non-level playing field in the global agriculture today, where trade barriers, protectionism, and social and environmental regulations are all intertwined.

“Therefore, MPOA calls on all relevant stakeholders to render support to the industry. The association’s earnest plea is not to kill the goose that lays the golden eggs. MPOA and its members will continue to manage plantations in a sustainable manner and strive to attain higher productivity while remaining competitive and sustainable.

“The global palm oil industry is expected to face tighter availability of CPO this year due to several factors, including only a potential marginal increase in CPO output from both producing countries Malaysia and Indonesia by less than three per cent respectively,” he said.

He disclosed that in Malaysia, forecast encircling 19.0 million tonnes for 2023 vs 18.5 million tonnes in 2022 and forecast 48.3 million tonnes for 2023 vs 46.8 million tonnes in 2022.

Tek said that in Malaysia, CPO production is expected to be impacted by the current heavy rainfall and floods in parts of Malaysia affecting oil palm estates, which will constrict palm oil production in the near future because of short-term disruptions to estate harvesting operation, logistics and poorer fruit-set.

“The last three years of La Nina have caused significant damage to oil palm root systems, which may take time to recover even as the application of rooting fertilisers are ongoing. As a result, atypical FFB bunches can be expected, which may be smaller in size, have lesser oil content and uneven fruit set arisen from parthenocarpy and leading to ‘porcupine’ looking bunches. The rising number of over-aged and very tall oil palm trees in Malaysia will also continue to constrain supply as replanting has been slow due to high costs.

“On a positive note, labour woes among many planters have eased following strides by authorities in facilitating the return of more foreign workers. Normalcy is expected among many planters by mid of this year.

“However, it typically takes a few months to train new workers to be skilful in plantation works especially harvesting. The inherent skill set and culture of new workers may also not lead to desired productivity. It will take time and hopefully the readiness will be there by the peak production this year so that losses can be curbed,” he said.

According to him, there are other significant events that will impact the industry, including the potential weather shift from La Nina to El Nino, China’s consumer spending with its reopening of borders, the ongoing Russia-Ukraine War, Indonesian policy on restrictions to export, and its producers ramping up its B35 biodiesel mandate, as well as the movement of the USD currency.

“Overall, CPO prices should be able to find sustained support at current level encircling RM4,000 per metric tonne in the near term. Players in the palm oil supply chain should closely monitor the above events and plan accordingly to mitigate potential risks and take advantage of any opportunities that may arise.

“However, strategising and pursuing pragmatic replanting plans for long-term business sustainability along with investment and training in right-fitting mechanisation especially for in-field collection is the industry’s ‘battle-call’ to mechanise or perish,” he said.

According to Tek, the labour shortage especially with the right skill to harvest remains the main challenge faced by the plantation industry.

He disclosed that only about 21,000 foreign workers returned to the plantation sector, according to MPOA’s survey on the recruitment of foreign workers for 2022.

The breakdown of the recruited foreign workers was 51 per cent from Indonesia, 42 per cent from India, five per cent from Nepal, and one per cent from Bangladesh.

Tek said that with limited approval on recruitment from source countries other than Indonesia, plantations in Sabah are avail with the presence of Filipino migrants who are willing to work in plantations.

MPOA Sabah Branch chairman Prakash Arumugam said MPOA in Sabah fully supports the Philippine Special Consular Mission initiated by the Philippines Embassy in Kuala Lumpur, to document Filipino migrants in Sabah.

He said that MPOA members in Sabah are willing to facilitate the mission’s ground team in providing amenities and assistance during the recruitment process into the plantations.

The industry, Tek said, looks forward to discussing measures with the State Government and its agencies to minimise opportunity losses in crop and revenue to the growers and the State due to the labour shortage estimated to be more than RM5 billion losses for Sabah in 2022.

The age profile of oil palm trees in Sabah revealed that the State has the highest area of trees above 25 years old in Malaysia. A total of 184,746 hectares or 12.3 per cent are above 25 years old, while 352,689 hectares of trees are between 19 to 25 years old. Collectively, more than half a million hectares or 36 per cent of the oil palm trees in Sabah are above 19 years old. They may not be economically productive set against its left-over density, or inaccessible for harvesting at tall heights.

“If not addressed, this will lead to changing supply equations in Sabah’s palm oil supply chain. Thus, pragmatic replanting programme with best practices is crucial for long-term sustainability of the oil palm sector in Sabah notwithstanding the prices of CPO,” Tek said.

On the issue of Property Assessment Tax (PAT), MPOA expresses its gratitude to the Sabah State Government for granting the industry representatives from EMPA (East Malaysia Planting Association), MEOA (Malaysian Estate Owners Association) and MPOA the opportunity to discuss the issue during a recent meeting held on February 28.

The meeting, which was chaired by Deputy Chief Minister and Minister of Local Government and Housing, Datuk Seri Dr Joachim Gunsalam, was fruitful in that it addressed the concerns raised by the industry.

“To recap, the State Government had introduced the PAT for palm oil mills and estate housing in 2019, but it was postponed after an appeal from the industry. However, the tax was re-introduced in 2021, and the industry reappealed for exemption, citing the lack of services, amenities, utilities, and infrastructure provided by the district councils to palm oil mills and estates especially in many rural areas.

“Additionally, the industry is already heavily taxed by both the Federal and State governments, including the 7.5 per cent Sabah Sales Tax,” he said.

Tek lamented that despite the appeals, some district councils in Sabah refused to renew trading licenses for palm oil mills and estates with outstanding PAT, which could put the palm oil’s mandatory MSPO and business-to-business (B2B)’s RSPO sustainability certification at risk.

However, the meeting concluded with an agreement to allow affected palm oil mills and estates in Sabah to renew their trading licenses while the government resolves the PAT matter soon. This decision would prevent non-compliance with the certification, he said.

MPOA wishes to reiterate the importance for follow-through and inclusive engagements with the State government to resolve the PAT issue in Sabah soon. The Malaysian oil palm industry has remained resilient despite challenges posed by the slow return of foreign workers and the aftermath of the Covid-19 pandemic.

During the pandemic, the plantation industry in Sabah should be recognised for their important role during the Covid-19 screening and subsequent vaccination in the plantation and surrounding communities via the plantation vaccination centres (PPVs) working in partnership with the authorities.

“However, there is still room for improvement in terms of productivity. MPOA suggests that productivity can be improved if controllable factors, such as adequate labour, good practices, enhanced management know-how, and effective policies, are in place.”

In summarising his keynote address, Tek reiterated that the palm oil sector is a commodity business, thus price takers and not price makers, adding that when there is any cost increase, the sector cannot pass down the cost to its consumers.

While facing many challenges such as shortages of skilled labour, higher unabated production costs and unpredictable weather patterns, the ante has been raised today as growers must comply with numerous regulations and certifications, he said.

Tek concluded that the Malaysian palm oil sector is operating in a non-level playing field in the global agriculture today, where trade barriers, protectionism, and social and environmental regulations are all intertwined.

“Therefore, MPOA calls on all relevant stakeholders to render support to the industry. The association’s earnest plea is not to kill the goose that lays the golden eggs. MPOA and its members will continue to manage plantations in a sustainable manner and strive to attain higher productivity while remaining competitive and sustainable.

“The global palm oil industry is expected to face tighter availability of CPO this year due to several factors, including only a potential marginal increase in CPO output from both producing countries Malaysia and Indonesia by less than three per cent respectively,” he said.

He disclosed that in Malaysia, forecast encircling 19.0 million tonnes for 2023 vs 18.5 million tonnes in 2022 and forecast 48.3 million tonnes for 2023 vs 46.8 million tonnes in 2022.

Tek said that in Malaysia, CPO production is expected to be impacted by the current heavy rainfall and floods in parts of Malaysia affecting oil palm estates, which will constrict palm oil production in the near future because of short-term disruptions to estate harvesting operation, logistics and poorer fruit-set.

“The last three years of La Nina have caused significant damage to oil palm root systems, which may take time to recover even as the application of rooting fertilisers are ongoing. As a result, atypical FFB bunches can be expected, which may be smaller in size, have lesser oil content and uneven fruit set arisen from parthenocarpy and leading to ‘porcupine’ looking bunches. The rising number of over-aged and very tall oil palm trees in Malaysia will also continue to constrain supply as replanting has been slow due to high costs.

“On a positive note, labour woes among many planters have eased following strides by authorities in facilitating the return of more foreign workers. Normalcy is expected among many planters by mid of this year.

“However, it typically takes a few months to train new workers to be skilful in plantation works especially harvesting. The inherent skill set and culture of new workers may also not lead to desired productivity. It will take time and hopefully the readiness will be there by the peak production this year so that losses can be curbed,” he said.

According to him, there are other significant events that will impact the industry, including the potential weather shift from La Nina to El Nino, China’s consumer spending with its reopening of borders, the ongoing Russia-Ukraine War, Indonesian policy on restrictions to export, and its producers ramping up its B35 biodiesel mandate, as well as the movement of the USD currency.

“Overall, CPO prices should be able to find sustained support at current level encircling RM4,000 per metric tonne in the near term. Players in the palm oil supply chain should closely monitor the above events and plan accordingly to mitigate potential risks and take advantage of any opportunities that may arise.

“However, strategising and pursuing pragmatic replanting plans for long-term business sustainability along with investment and training in right-fitting mechanisation especially for in-field collection is the industry’s ‘battle-call’ to mechanise or perish,” he said.

https://www.theborneopost.com/2023/03/11/challenges-issues-facing-palm-oil-industry-in-sabah/