By IZZAT RATNA / Pic By ISMAIL CHE RUS
Plantation companies plan to state their opposition to the government’s plan to increase the minimum wage to RM1,500 from the current RM1,000 in order to mitigate adverse financial and business consequences.
Sime Darby Plantation Bhd (SD Plantation) executive deputy chairman Tan Sri Mohd Bakke Salleh (picture) said industry players, who are members of the Malaysian Palm Oil Association, are currently working on a submission to the government for a reconsideration or review to the proposed new minimum wage level.
“Hopefully, this will not be made mandatory for plantation companies, otherwise we would certainly face adverse financial consequences,” he told reporters at a briefing in Ara Damansara yesterday.
“This is a work-in-progress and no definite time frame has been set yet. At the right time, I think the industry will make the submission to the government,” he said, adding that certain firms have expressed this view to selected spokespersons within the administration.
From SD Plantation’s point of view, Mohd Bakke said the company’s labour cost is expected to increase to 35% of total production cost, from the current 26%, should the minimum wage level be raised.
He said the higher wage bill will financially impact companies operating in the palm oil and rubber sectors.
“There would also be significant across-the-board impact. If we were to just work on a per tonne basis, it would easily add to another RM185 per tonne cost of crude palm oil (CPO).”
He said the industry is presently pushing for greater mechanisation efforts to reduce dependency on workers, particularly foreign labour, and as a hedge against a potential increase in total production cost.
“Since this is a very important sector to the economy, the move to lower dependency on foreign workers must be done in stages and cannot be drastically reduced to avoid radical impact on the overall sector.”
Mohd Bakke said SD Plantation is not eyeing any greenfield developments at the moment due to the overwhelming obstacles in the early development process, mainly in the compliance and sustain- ability assessment criteria.
He said it would be challenging for the company to develop a greenfield project, and hence the focus now is more on brownfield projects.
“We would definitely consider purchasing brownfield developments should we receive offers at attractive prices as most of these estates are already located in close proximity to our existing ope- rations,” he said.
SD Plantation’s net profit fell 39.3% year-on-year (YoY) to RM249 million for the third quarter ended March 31, 2018, Nine-month net profit rose 93% YoY to RM1.69 billion.
Its performance was affected by lower production of fresh fruit bunches (FFB) in Indonesia, Papua New Guinea and Solomon Islands, and lower average CPO and palm kernel prices realised.
Its recurring pretax profit declined by 50% YoY to RM362 million due to lower profit from the upstream operations amid weaker FFB production and product prices, coupled with a 15.8% YoY drop in revenue to RM3.66 billion.
Average CPO prices realised declined by 20% YoY to RM2,452 per metric tonne largely on account of weaker sentiment in the market.