Complementing new forces of growth with effective supply chain

2020 came as a year like no other, new challenges arose and businesses must adapt to the new norms such as reduced physical connection, restricted movements and shifted in demand behaviour.  The changes required companies to react fast and innovative and to some, it is a wakeup call to do business differently.  As for palm oil industry, issues such as labour shortages, sustainability, and product development are among the areas requiring special attention and long-term solution in order for the industry to continue to prosper.

When COVID-19 came about, Malaysian government decided to impose a total nationwide lockdown.   The order rocked most of the industries including palm oil.  Suddenly, the recruitment of plantation workers, particularly foreign workers has to be put on hold as the incoming workers are not allowed.  The Malaysian palm oil industry is heavily dependent on foreign workers and it accounted for70% of the plantation workers in Malaysia.  The industry has to rely on foreign workers as Malaysians are not attracted to 3D (dangerous, dirty, and difficult) jobs in the plantation sectors.

While labour shortage issues has been going on for sometimes, COVID-19 pandemic has made it worst.  Therefore, it is timely that Malaysian palm oil industry to seriously consider mechanization to reduce labour dependency in the palm oil plantation besides encouraging more Malaysians to join the plantation workforce. The oil palm estate operation relies mostly on foreign works for harvesting jobs.  Perhaps, it will be an area where mechanization  could be implemented as an immediate focus to reduce foreign labor dependency. 

The Malaysian palm oil industry is a highly regulated industry, but it has always been the target of NGO and environmental activists.  The establishment of Malaysian Sustainable Palm Oil (MSPO) certification is to provide the assurance that Malaysian palm oil is of a sustainable source. Besides that, the Malaysian palm oil industry is also committed to improving accountability and traceability through block chain technology that will improve MPO marketability. The uniqueness of block chain is that it is fully traceable and transparent and will be linked to MSPO-Trace or other future government initiatives in ensuring the traceability of all palm products sold from Malaysia. The system will provide better transparency for the palm oil buyers in addressing sustainable issues as every product can be traced as the source of palm oil is classified accordingly. It will also help the industry strengthen its case against any negative allegations, especially on the sustainability front.

COVID-19 is also an eye opener for the industry to be more flexible and ready to adapt to demand shift among consumers. Continuous effort toward new product development and improved product application is one of the ways to ensure palm oil continues to serve the need for oils and fats market.  While palm oil is serving the basic oils and fats need for human health, it has also served as superfood through its tocotrienols composition which has superior health attributes.

Digitalization is also key to move the industry forward. Leveraging on the growing trends of e-stores will catalyse how consumers can acquire palm products. This is then supplemented with social media presence to promote the goodness of the products, including palm oil, to address any negative perception by the consumers. Getting into a more comprehensive digital experience, e-payment should be enhanced and adopt a more recent NFC and QR code on top of the normal digital point of sale for consumer purchases.

The palm oil industry should also look for opportunities beyond selling.  It is timely that Malaysian palm oil to establish its presence in the destination markets.  While the effort could strengthened Malaysian palm oil presence, it will also provide direct employment to the population and contribute to the country’s economy. 

For an effective supply chain, opening up physical investments in strategic countries should be considered as physical presence will contribute to the importing country by balancing trade deficit, provide direct employment, while promoting adequate information to the local consumers. This will deter any negative policies or perception against palm oil, where issues can be quickly addressed through proper communications. The type of investments can vary from establishing a trading office, packaging plant or even a full-scale refining plant. Strategic partnership or joint ventures with local companies will strengthen palm oil distribution through local knowledge advantages. The bulk import will also save on logistics and ensure a steady price for palm oil buyers.

For Malaysian palm oil to be more competitive in the market, not only with other crops but also to other palm oil-producing countries, the Malaysian palm oil products must be readily available to current the buyers in their domestic market. Price is not the only purchasing factors for the buyers. The availability of palm oil in their local market is crucial to reduce the price fluctuation risk, building confidence in the supplies, and efficient cash flow requirements. Effective logistics and distribution would support the competitiveness of Malaysia palm oil and increase the demand abroad.

While the Malaysian industry players may be unwilling to commit due to the huge financial risks, the Malaysian Ministries through their agencies can initiate this local investment. All Malaysian companies will have access to the facility, and once it is running smoothly, it will be open for members of the Malaysian palm oil industry to own the facility. This will improve palm oil imports dramatically into the targeted country or region.

Prepared by: Fatimah Zaharah, Mohd. Suhaili Hambali and Mohammed Hafezh

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