Labor shortage to cost Malaysia palm oil sector RM20b

A chronic shortage of plantation workers in Malaysia may cost palm oil producers about RM20 billion (US$4.6 billion) this year, according to the Malaysian Palm Oil Association, curbing supply and potentially boosting global prices.

Palm growers hired around 14,000 foreign workers this year through November, just a fifth of the industry’s needs and about half of the number approved by the authorities, according to a survey of top 10 planters by the association. The country is the biggest producer of the tropical oil after Indonesia.

Malaysia’s palm oil sector is reliant on overseas labor, and has struggled to bring in more workers as movement curbs due to the virus were relaxed. The government assured the industry it would accelerate worker approval, but planters say progress is too slow and that’s leading to crop losses. Without enough boots on the ground, many farmers had to leave ripened fruit rotting on trees.

The number of foreign workers coming in is “trifling” compared with the amount needed, said Joseph Tek, chief executive of the association that represents 40% of the country’s planted palm area. While there have been efforts by various agencies to facilitate worker arrivals, bottlenecks still persist, he said.

Malaysian output of palm oil, used in everything from food and cosmetics to biofuels, is forecast to drop for a third year, to 18 million tons in 2022, the association said in September.

Concerns over weaker production may support prices of the oil. Palm oil jumped earlier in the year due to Russia’s invasion of Ukraine but then declined as the supply situation improved and Indonesia ramped up exports. They’ve turned upward again, however, rising about 20% since late September. Benchmark futures closed 3% higher at 4,086 ringgit a ton on Tuesday. 

The palm oil sector is seeking help from Malaysia’s new government to expedite the process of bringing in more plantation workers, Tek said. This includes taking steps like chartering planes and renewing agreements with governments in source countries to bring in more workers, he added. – BLOOMBERG