11/08/2011 (The Star) - The cost of production (COP) and profit margins among oil palm plantation companies will be minimally affected by the Malayan Agricultural Producers Association's (MAPA) decision to increase the wages of some 157,270 general plantation workers nationwide.

On Tuesday, MAPA announced that it would raise the minimum wages of its members' plantation workers by 10% starting next month.

It also set a minimum wage of RM650 per month, with an additional remuneration of RM200 per month. This will bring the total guaranteed minimum earnings to RM850 per month for a plantation worker in Malaysia.

MAPA, which is the country's single largest employer trade union, has members like Felda Group, Kuala Lumpur Kepong Bhd, Sime Darby Bhd, Kulim Bhd, Boustead Holdings Bhd, United Plantations Bhd, Tradewinds Corp Bhd and Genting Plantations Bhd.

A Felda Global Group spokesperson told StarBiz yesterday that about 45,000 Felda estates workers stood to benefit from the pay rise.

“We will likely have to fork out an additional cost of about RM12mil including statutory payments for the exercise this year,” she added.

However, there will be minimal impact from the pay rise on the group's plantation profits this year, she said, adding that the group supported the 10% pay rise but “it must be linked to productivity.”

Malaysian Estate Owners Association president Boon Weng Siew said plantation companies would not feel the brunt of the wage hike so much as “the current crude palm oil (CPO) price at RM2,990 to RM3,000 per tonne is still profitable for many planters in the peninsula.”

Of the total COP for planters, average labour costs represent about 20% to 30% or lower, depending on the degree of mechanisation to harvest fresh fruit bunches at the estates.

The COP for well-managed plantation companies in Peninsular Malaysia is about RM1,300 to RM1,400 per tonne of CPO while for those in Sarawak, at RM1,800 to RM2,000 per tonne. (The COP covers the upkeep or cultivation expenses, fertiliser application, harvesting, transportation, other estate charges and labour costs)

United Plantations Bhd executive director Carl Bek-Nielsen, meanwhile, said the pay hike would have an impact on the company's cost structure. “We will have to boost productivity and explore all rational means of mechanisation to recoup some of the vast cost escalations.”

Maybank Investment Bank Bhd, in a report yesterday, also expected minimal earnings impact from the MAPA wage hike on the plantation companies under its coverage, which include IOI Corp Bhd, Genting Plantations Bhd, TSH Resources Bhd and Sarawak Oil Palms Bhd.

“We estimate that net profits may be trimmed by 0.8% to 3.7% for financial year 2012 if the new wage scheme fails to boost productivity,” said the research company.

It also expects the COP to increase by RM40 to RM60 per tonne of CPO. However, it said: “We believe the increase in production cost will be well-absorbed by the plantation companies which currently enjoy pre-tax (estate) margins in excess of 50%.”

Payment for the additional remuneration payment of RM200 per month was subject to the prices of commodities, yields target, attendance and performance of the workers, it said.