Solve labour shortages, production disruptions in palm oil sector before domestic output and exports can be increased

Solve labour shortages, production disruptions in palm oil sector before domestic output and exports can be increased
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Media statement by Dr Ong Kian Ming, the Member of Parliament for Bangi and DAP spokesperson for international trade and industry, on July 12, 2022.

One of the supposed benefits of Prime Minister Datuk Seri Ismail Sabri Yaakob’s recent visit to Turkey is an anticipated increase in palm oil exports from Malaysia. But this will prove to be a false promise if domestic issues in the production of palm oil products is not effectively managed. Even though crude palm oil (CPO) prices had increased from just over RM2,000/ton in 2019 to a high of more than RM7,000/ton in May this year — it has fallen since to slightly over RM4,000 — domestic producers of palm oil and related products have not been able to adequately capture the benefits of this price increase.

According to statistics compiled by the Malaysian Palm Oil Board (MPOB), production of most of the categories of palm oil products decreased in 2020 and 2021 and still have not yet reached back to 2019 production levels even as the economy has opened up in 2022.

For example, the production of CPO fell from 19.9 million tonnes in 2019 to 19.1 million tonnes in 2020 and fell further to 18.1 million tonnes in 2021. This represents a fall in production of 1.7 million tonnes of 8.8% from 2019 to 2022. The production of crude palm kernel oil, which is used for non-edible purposes such as the production of soap and for commercial cooking, also fell from 2.3 million tonnes in 2019 to 2.2 million tonnes in 2020 and fell further to 2.05 million tonnes in 2021. This represents a drop in production of 272,000 tonnes or 11.7% from 2019 to 2021. Cooking oil production was also reported to have fallen from 574,488 tonnes in 2019 to 406,777 tonnes in 2021, a fall of 29.2%! (See Table 1 below)

Table 1: Produce of palm oil and related products (2019 to 2021) (all figures in tonnes)

Item

2019

2020

2021

2019 to 2021

CPO

        19,858,367

        19,140,613

        18,116,354

-    1,742,013

% change

 

-3.61%

-5.35%

-8.8%

Palm kernel

4,891,951

4,703,981

4,417,719

-       474,232

% change

 

-3.84%

-6.09%

-9.7%

Crude palm kernel oil

2,322,184

2,203,313

2,049,435

-       272,749

% Change

 

-5.12%

-6.98%

-11.7%

Palm kernel cake

2,586,586

2,479,752

2,300,402

-       286,184

% change

 

-4.13%

-7.23%

-11.1%

Cooking oil

574,488

414,546

406,777

-       167,711

% change

 

-27.84%

-1.87%

-29.2%

Source: MPOB

Even though the domestic and global economy have started opening up in 2022, production in the palm oil sector has not managed to get back to pre-pandemic levels. According to MPOB figures, production of CPO from January to May 2022 was only at 6.8 million tonnes, 18.7% less than for the same time period in 2019, which stood at 8.3 million tonnes. In fact, CPO production from January to May 2022 was less than for the same time period in 2020! Crude palm kernel oil production from January to May 2022 was 23.6% lower than the same time period in 2019! (See Table 2 below)

The labour shortage in the palm oil sector, which the Malaysian Estate Owners' Association estimates at approximately 120,000, looks unlikely to be resolved this year, especially with continue uncertainties at the government-to-government level between Malaysia and Indonesia with regard to policies which are supposed to be in place to protect foreign labour in Malaysia, especially in the plantation sector.

Table 2: Produce of palm oil and related products (January to May 2019 to January to May 2022) (all figures in tonnes)

Item

2019

2020

2021

2022

2019 to 2022

CPO

8,274,872

7,165,637

6,757,822

6,725,274

-1,549,598

% change

 

-13.40%

-5.69%

-0.48%

-18.7%

Palm kernel

2,101,710

1,784,715

1,675,908

1,673,419

-428,291

% change

 

-15.08%

-6.10%

-0.15%

-20.4%

Crude palm kernel oil

1,003,361

818,405

762,347

767,011

-236,350

% change

 

-18.43%

-6.85%

0.61%

-23.6%

Palm kernel cake

1,128,555

920,109

857,807

868,642

-259,913

% change

 

-18.47%

-6.77%

1.26%

-23.0%

Cooking oil

223,309

186,875

150,731

192,944

-30,365

% change

 

-16.32%

-19.34%

28.01%

-13.6%

Source: MPOB

The labour shortage in the palm oil sector is just one example of the larger failure of this government to have a coordinated approach to tackle this problem across all of the relevant ministries — home affairs, human resources, international trade and industry, just to name a few. This policy failure is one of the factors which have led to domestic supply chain bottlenecks and disruptions that also partly explain the increase in the cost of production, the cost of the final products and recent shortages of some items, including cooking oil. The government should not take the same approach of banning the export of palm oil-related products in order to “solve” domestic shortages of cooking oil. We have seen the harm caused by the ban in the export of chickens where companies in other countries have been forced to look for alternative export sources to the detriment of Malaysian producers. The government should instead take a more proactive approach towards solving the labour shortage issue in the palm oil sector and other sectors as well.