Khazanah Research: Fix labour problem in palm oil sector before things get worse

THE issue of labour shortage for the local palm oil industry is more detrimental compared to a global price drop of palm oil.

In fact, it is estimated that a reduction of labour even just by 30% from the current level would risk causing production to reduce by half, and a further reduction of 80% would lead to a system collapse as production could only reach about 20% from the business-as-usual (BAU) level.

This was shown by a study finding in Khazanah Research Institute’s (KRI) publication titled Implications of the Dominant Shift to Industrial Crops in Malaysia: System Dynamic Model of Industrial Crops.

That in mind, KRI lead author of the study Prof. Dr Datin Fatimah Mohamed Arshad warned that a COVID-19 outbreak among the migrant workers in the palm oil estates could severely damage the industry.

The study also reveals that the nation is nearing its ceiling limit of 6.5 million hectares of oil palm land. In 2019, a total of 5.9 million hectares belongs to large estates, while 986,000 hectares (17%) belongs to smallholders.

Meanwhile, the replanting rate normally practiced by the oil palm sector is at 12%. Meaning, 12 new trees are typically planted per year for every 100 overmatured trees.

However, simulations conducted by KRI showed that the optimal replanting fraction to give the best yield per hectare for an estate is 15%, and a smallholder at 17% instead of the usual 12%.

To reduce the dependence on land there is a dire need for the oil palm industry to improve yield, expedite replanting, reduce non-labour input cost to increase production and revenue.

Meanwhile, developmental supports on the smallholders would yield higher return. Investments on the smallholders will create an inclusive growth, equitable distribution and sustainability of the oil palm sector.

“The study also showed that the dominant shift to oil palm was driven by higher oil palm profits over rubber and cocoa,” explains Prof. Dr Fatimah.

Historically, Malaysia was once a world leader in cocoa and rubber production. However over time, there has been a dominant shift to oil palm.

Currently, out of a total of eight million hectares of agricultural land, six million hectares (74%) is oil palm, with declining shares in the rubber and cocoa sector (14% and 2%, respectively) with the food industry playing a smaller role (10% of agricultural land). – Feb 8, 2021

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