Estate workforce issue revisited

By Star Online: Business
19th Feb 2013

OVER the past five years, oil palm planters' cost of production (COP) has been on a steady rise.

Of the total COP, labour costs can take up as much as 30%, depending on the degree of mechanisation in place to harvest the palm fresh fruit bunches (FFB) at the estates.

The COP normally covers the upkeep or cultivation expenses, fertiliser application, harvesting, transportation, other estate charges and labour costs.

This year, the issue of workforce in the estates will crop up again, as the governments of the world's top two largest crude palm oil (CPO) producers have introduced the minimum wage policy. This would definitely bring about changes in terms of wages, especially among FFB harvesters and collectors here in Malaysia, who are mostly hired foreign workers from Indonesia.

Among the most well-managed plantation companies in Peninsular Malaysia, the COP is estimated to be around RM1,200 to RM1,300 per CPO tonne, while in Sabah and Sarawak, it could escalate to between RM1,800 and RM2,000 per tonne.

Where Indonesia is concerned, the implementation of its Upah Minimum Provinsi (UMP), or the regional minimum wage, early last month will see an increase in the COP among Indonesian planters and major Malaysian companies with a presence there, such as Sime Darby Bhd, Kuala Lumpur Kepong Bhd, United Plantations Bhd and IOI Corporation Bhd, to name a few.

The UMP is expected to increase the wage rate by 10% to 50%, depending on the respective provinces and sectors of the economy in the republic.

The implementation of regional minimum wage in Indonesia early last month will see an increase in the cost of production among Indonesian planters and major Malaysian companies with a presence there.

In fact, Malaysian planters in the republic are expected to fork out an additional 30%, at least, in wages as a result of the UMP. Industry observers believe that local planters would be needed to strictly adhere to the UMP, as many Malaysian plantation companies there are among the biggest planters with sizeable landbanks sprawling across Kalimantan, Sumatra and Sulawesi.

Some industry observers believe that the imposition of the UMP was something of an incentive to retain the labour force in Indonesia-owned oil palm estates, given the country's position as the world's number one CPO producer.

Indonesia has realised that the pull factor from plantations in Malaysia on their agro workers would adversely affect efforts to develop its own palm oil industry, and therefore, the policy measure is to prevent the labour force from leaving the sprawling archipelago.

Furthermore, the rapid oil palm planting occurring mainly in the isolated regions will require many more migrant workers coming from other parts of Indonesia.

What is more interesting is that in Kalimantan, the minimum wage is said to be almost equal to that in Sabah and Sarawak, where the FFB harvesters and collectors mostly hail from Indonesia. It is estimated that wages in plantations located in the rural areas of Indonesia have risen to 1.7 million rupiah (RM546.70).

On the local front, meanwhile, the domestic minimum wage order set a figure of RM900 per month for the peninsula and RM800 a month for Sabah and Sarawak, while the National Wage Council would also be revising it accordingly.

It is also understood that the UMP would be revised on an annual basis according to the increase in the cost of living of the different provinces in Indonesia.

One positive note, however, is that the UMP policy would also increase the COP among Indonesian planters, thus rendering it more comparable to Malaysia. This literally means that Indonesian planters would lose out on their previous cost-competitive advantage enjoyed for almost two decades over their Malaysian peers.

On the other hand, the limited supply and higher cost of labour from Indonesia would, no doubt, see the local palm oil sector continuing to face severe shortages in labour, with some even envisaging the situation to worsen with Indonesia's UMP.

In the past, the local palm oil industry had called upon the human resources and plantation industries and commodities ministries that Indonesia would no longer be a reliable supplier of foreign workers in the future.

Therefore, it would augur well for the government policy on the recruitment of foreign workers to be more flexible and accommodative towards the plantation industry, which rakes in about RM80bil in revenue a year.

[Source]