Oil Palm Industry Concerned Over Unabated Increase of Production Costs

Apart from the labour woes, the profit margins of oil palm planters are also declining given the massive taxations, duties and levies, says MPOA chief executive officer Datuk Dr Makhzdir Mardan

Apart from the labour woes, the profit margins of oil palm planters are also declining given the massive taxations, duties and levies, says MPOA chief executive officer Datuk Dr Makhzdir Mardan

KUALA LUMPUR: The Malaysian Palm Oil Association (MPOA) is concerned about the disturbing trends in the industry, which has been saddled with labour issues, increasing cost-incurring regulations and a slew of taxes and CESS duties that is eroding its competitiveness in the global markets.

In addition, the industry is affected by the costly compliance to the certification on sustainability on palm oil, said the association’s chief executive officer Datuk Dr Makhzdir Mardan.

He told StarBiz: “Most oil palm industry players are getting apprehensive over the unabated and unchecked escalation of production costs in the industry, which have been incessantly sustained over the years.

“The Government must also recognise that creating aberrant policies and regulations that erode the advantages of the industry is akin to killing the goose that lays the golden egg.”

The palm oil industry is one of the major net foreign income exchange earners for Malaysia.

MPOA is the single loudest voice representing the local private plantation industry, including plantation giants such as Sime Darby Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd (KLK), Genting Plantations Bhd and Felda Global Ventures Holdings Bhd (FGV).

Of the total estimated five million hectares planted with oil palm in Malaysia, three million hectares belong to the estate group and 1.5 million hectares are owned by smallholders. MPOA members’ hectarage represents about 70% of the three million hectares under the estate group.

According to Makhdzir, labour problem is the Achilles’ heel of the Malaysian palm oil industry as it constitutes a big portion of production costs.

Currently, the labour to land ratio is around 1:10 and the NKEA-Pemandu’s target is to scale it up to 1:20 by 2020.

“Honestly, this goal is not achievable, if there are no changes to the way we address the labour issues.

“The plantation industry does not need inconsequential policies that benefit few beneficiaries at the expense of the industry’s competitiveness,” added Makhdzir.

For example, it costs the big plantations millions of ringgit to process MyEG online applications.

It is estimated that big planters such as FGV, which employs about 36,000 foreigner workers, incurs about RM1.36 million in labour cost per year. This is followed by Sime Darby Plantations’ RM1.03 million for 27,000 foreign workers, KLK’s RM304,000 for 8,000, IOI Plantations’ RM456,000 (12,000 foreign labour) and Felcra’s RM516,914 for its 13,603 foreign workers.

The labour issue has turned worse for oil palm growers who were recently double charged following the visa processing fee via the online MyEG registration, despite it being already included in the Foreign Worker Central Management System (FWCMS).

For example, the additional cost to recruit a foreign worker from Indonesia is RM383.

This is despite the immigration department having increased the processing cost for foreign workers to RM125 in April 2014, which includes the issuance of worker ID cards and the introduction of online recruitment process through FWCMS/MyImm on-line systems with no additional costs.

“What irks most oil palm growers is the unexpected, excessive charges in the form of visa processing fees from the government departments for the implementation of the FWCMS and MyEG.

“It all started when these critical tasks were hived off to third parties that come along with hefty and doubly charged processing fees. All this while, these have been done by the government departments,” Makhdzir said.

MPOA was hopeful the Government could quickly overcome this impasse, he said.

Furthermore, most planters are still reeling from the effect of the minimum wage requirement of RM900.

“With another round of minimum wage order pending, the potential increase in the recruitment cost would translate into (making) our plantation industry less competitive in the globalised market environment,” he added.

With some 317,410 foreign workers in the plantation industry – some 80% being Indonesians – the additional cost to recruit them is about RM100 million per year.

Apart from the labour woes, the profit margins of oil palm planters are also declining given the massive taxations, duties and levies, said Makhdzir.

These include the corporate tax, windfall profit levy, property assessment tax, export duty on CPO, goods and services Tax, CESS for R&D, regulatory & promotion, CESS for price stabilisation fund, CESS for cooking oil subsidy, foreign workers levy, Sabah sales tax, Sarawak sales tax and Sarawak land tax.

At the same time, it is costly for planters to undergo the compliance on sustainability standards as demanded by the global markets, particularly in the European Union and the United States.

“The necessary exercise to embrace sustainability principles is a costly affair. And other downstream stakeholders such as the food processor, manufacturers and dealers are reluctant to share the costs with oil palm growers.

“If we spread the cost, they might switch to other vegetable oils. In other words, submitting to the standards of compliance to sustainability is making palm oil production costlier to operate and less competitive,” said Makhdzir.

Having said that it is a laudable move by the industry to embrace sustainability principles. “The industry will need more than just the EU-activated Roundtable Sustainable Palm Oil and the ISCC (International Standards on Carbon Certifications).

Makhdzir also suggested that local oil palm planters must quickly move towards developing the MSPO (Malaysian Sustainable Palm Oil) and later incorporate both the MSPO and ISPO (Indonesian Sustainable Palm Oil) into the regional ASPO (Asean Sustainable Palm Oil).

 

Source : The Star

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