The Star Online (22/06/2020) - IN THE fight against Covid-19, Malaysia had to close its borders and disallow the entry of foreign workers.

This could be a difficult situation, especially for plantations which have been trying for years to lure local workers.

One such company, United Plantations (UP), fears of an acute shortage of labour this year itself, that could “potentially cripple” its operations.

A sudden surge in the outflow of foreign workers when the borders are reopened would worsen the situation.

Shortage of labour is an urgent problem as plantations which produce a perishable crop are starting to see some uptake of palm oil from the two top buyers – India and China.

Against the caution on risks arising not just from a second wave of pandemic but also of other unknown consequences, palm oil prices are moving up.

Over the last 10 years, plantation companies have worked hard to reduce their reliance on foreign workers by about 30%, but there is still a long way to go.

“Industry players are not giving up and will work closely with the government to mechanise even further, so that over time we will become less dependent on manual labour and more cost competitive, ’’ said UP CEO Datuk Carl Bek-Nielsen.

From about one employee to seven hectares, the industry, through heavy investments and innovation, had managed to reduce its labour dependency by one employee to nine hectares, representing a reduction of 30%.

“We will have to push ourselves harder to achieve a 40% reduction in using one employee to 10 hectares.

“Innovations take time; we have pushed the barriers and it is now reaching a stage which is simply not sustainable, ’’ he said.

The worry is that the surge in the outflow of foreign workers returning to their home countries will outweigh the ability of plantation companies to recruit new workers from Indonesia, Bangladesh and India due to Covid-19 risks.

With an existing workforce of 220,000 locals and 265,397 foreigners in the plantation and commodity sectors, Malaysia still requires 500,000 workers in these areas, said the Plantation Industries and Commodity Ministry.

“Preventing the recruitment of foreign workers in the plantation sector will cripple our industry and incur damages that will be long lasting and in many ways, irreparable, ’’ said Bek-Nielsen.

Already, Malaysia is not the world’s largest producer of palm oil, neither is it as cost effective as Indonesia.

Over the last 20 years, there has been lukewarm response from locals to work in the agricultural sector despite being offered higher salaries compared with the minimum wage level and free amenities.

Globally, there are 272 million migrant workers, many of whom are working in advanced countries.

Against this brewing issue of labour shortage, India and China are starting to replenish stocks and will have to import 9 to 9.5 million tonnes and 6 to 6.5 million tonnes of palm oil, respectively, this year to keep stocks at a safe level.

Malaysian palm oil futures for September delivery gained 2.2% to RM2,420 per tonne last Friday on, among other factors, lower stocks in India and China.

During the first quarter of 2020, India imported one million tonnes less palm oil, and China, 700,000 tonnes less compared with the same period last year, according to Oil World.

Last year, India being the largest importer of palm oil, consumed a record 10.3 million tonnes while China, the world’s third largest importer of palm oil after Europe, consumed seven million tonnes.

No doubt there is much uncertainty over the Chinese economy but it needs to import about 25% of vegetable oils and fats every year, and palm oil takes up 55% to 58% of that.

While the overall consumption of food is expected to be lower in 2020, an important determinant of palm oil prices will be the demand for vegetable oils destined for the energy sector, as biodiesel.

Lower crude oil prices that renders the usage of biodiesel uneconomical will limit the uptrend of palm oil prices.

Recovery in crude oil prices, which is directly linked to global growth and trade, will help to improve demand for biodiesel, and hence, palm oil.

While failure to control Covid-19 will result in a bleak outlook for palm oil, prices have already dropped from RM3,100 per tonne in January to RM1,900 recently.

It is very likely that much of the bearish expectations has already been priced into the market, said Bek-Nielsen.

With 4,900 employees, UP sees its commitment to sustainable agricultural practices as a key pillar to the company’s future well-being.

As the first company in the world to be certified according to the Roundtable on Sustainable Palm Oil, it had also obtained the Malaysian Sustainable Palm Oil certification.

Being debt-free and conservatively run, UP does not see the need to draw on its reserves for 2020 and 2021, and is confident of sustaining its business through its own cash flows.

“This crisis has revealed the real dangers of debt-fuelled growth, ’’ said Bek-Nielsen. “Many companies have become addicted to gearing to grow their business without focusing sufficiently on creating positive cash flows.’’

While awaiting better prospects for palm oil, companies like UP are drawing on their internal strength and resources, and trusting the dedication of its employees, to help withstand this challenging period.

Columnist Yap Leng Kuen sees that it is revenue that will move companies forward, and that could be difficult to find.

Read more at https://www.thestar.com.my/business/business-news/2020/06/22/pandemic-worsens-labour-shortage-in-plantations