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Heavy rainfall, floods to affect Malaysia’s 2023 CPO production, says researcher
calendar08-03-2023 | linkThe Edge Market | Share This Post:

06/03/2023 (The Edge Market), Kuala Lumpur - Palm oil production in 2023 is expected to be impacted by the current heavy rainfall and flooding phenomenon in parts of Malaysia, said a researcher at the UOB KayHian Palm Oil Outlook Seminar on Monday (March 6).


Ling Ah Hong, director at palm oil research and consulting firm Ganling Sdn Bhd, said higher than usual rainfall, which often leads to flooding in oil palm estates, poses operating and logistic challenges that lead to disruption in fruit harvesting.


“We have three months of exceptionally higher rainfall which disrupts supply. In Malaysia, our original forecast was for palm oil production to recover from 18.4 million tonnes to 19.1 million tonnes. But looking at the last three months, there might be slight adjustment.


“But not all the areas are flooding and affected. There might be an adjustment of 0.2 million tonnes or so. If the rainfall continues into the second quarter, the impact will be greater,” said Ling.


Heavy rainfall causes damage to infrastructure to plantations, such as roads and bridges, causing greater difficulties in transporting harvested oil palm fruits from estates to mills.


Over the past week, heavy rains caused flooding in parts of Pahang and Johor. Both states are major palm oil producers in the peninsula.


Ling said the longer the fruits stay unharvested on the oil palm trees, the lower the oil extraction rate, affecting production per hectare.


Nevertheless, he added, the weather conditions are likely to improve, leading to a better quarter for plantations.


La Nina events usually bring high or above average rainfall to Southeast Asia, where Indonesia and Malaysia, two of the world’s biggest palm oil producers, are located. However, the phenomenon causes droughts and high temperatures in the Americas.


He further added that historically, La Nina following an El Nino usually assists in yield recovery.


“High rainfall and flooding during La Nina period may cause short-term disruptions to harvesting operation, logistics and poorer fruit-set,” said Ling.


He further noted crude palm oil (CPO) prices are expected to weaken in the second half of 2023 (2H2023) due to seasonally higher CPO production, high inventory level and subdued demand.


In January, according to data from the Malaysian Palm Oil Board, CPO inventories rose by 3% to 2.27 million tonnes, above market expectations of 2.18 million tonnes.


“With good weather conditions in Malaysia and Indonesia, we expect palm oil supply to recover in 2023. The prevailing La Nina rainfall will continue to disrupt supplies in 1Q2023 (first quarter of 2023). Production will trend higher in the 2H2023 into 1Q2024,” he added.


Labour shortage still an issue

Although the government has made some significant strides in ensuring adequate foreign labour in the plantation industry, the issue is far from resolved, said Ling.


“This year will be a year where there will be improvement in the number of workers available, but it will not be an optimum stage where they can bring the total production back to 20 million tonnes. This will probably take a year or two,” he told The Edge.


He further highlighted that oil palm plantations reaching peak production will require a lot of labour.


“It typically takes three to six months to train new workers to be skilful in the handling of plantation works. It takes time,” he added.


Last December, the Malaysian Palm Oil Association said in a statement that the country's oil palm sector is in dire need of close to an additional 200,000 foreign workers.


The Human Resources Ministry, earlier this year, relaxed the conditions for migrant worker recruitment covering the manufacturing, construction, plantation, agriculture and services (restaurants only) sectors and sub-sectors.


Era of very rapid area expansion has ended

Ling further highlighted that new plantings in Malaysia and Indonesia have slowed down considerably since 2015.


“The total planted hectares in Malaysia in 2022 had declined to 5.6 million hectares from 5.8 million hectares in 2019 based on data from Malaysian Palm Oil Board, while Indonesia is estimated at 15.3 million hectares,” he said.


The slowdown in planting activities was largely due to efforts to contain deforestation and sustainability issues raised by the West, the adoption of No Deforestation, No Peat and No Exploitation (NDPE) by producers, as well as a moratorium by both governments on further area expansion.


“The deforestation and sustainability factors were very successful in checking new oil palm planting and area expansion. This structural change is expected to impact global palm oil supply in the coming years,” he added.