Labour shortage, higher costs for Malaysia after Indonesia wage hike

A worker collects oil palm fruits at a plantation in Sepang outside Kuala Lumpur — Reuters pic

KUALA LUMPUR, Dec 30 — Indonesia’s minimum wage hike plans will place Malaysian oil palm plantation firms in a quandary next year as many skilled Indonesian harvesters working in estates here will likely return home for better salaries, the Wall Street Journal has reported. 

The international business paper added that this would come even as Malaysian estates in Indonesia find themselves struggling with the higher labour costs, which could go up by up to 49 per cent, depending on which province or municipality. 

The WSJ pointed out that Malaysia’s palm oil and rubber sectors are presently already short of some 60,000 workers, but once Indonesia offers higher salaries to its planters, an exodus of skilled Indonesian labour from estates here would be inevitable. 

The paper added that growers have already warned that the minimum wage plan, which has been the centre of a string of strident protests by workers demanding better benefits, would mark the end of affordable labour in Indonesia. 

“The number of Indonesian workers coming over to work the fields [in Malaysia] will fall drastically,” the WSJ quoted a company executive at a Malaysia-listed plantation company with estates in the state of Sabah on Borneo island as saying. 

“We could hire workers from countries such as Bangladesh but they aren’t as adept as the Indonesians at [oil palm fruit] harvesting.” 

Malaysian firms currently account for around a quarter of all oil palm estates in the main growing regions of Sumatra and Kalimantan in Indonesia, where most of Indonesia’s oil palm estates are located. 

According to the WSJ, palm oil shipments account for some nine per cent and 11 per cent of earnings for Indonesia and Malaysia respectively, the world’s top two exporters of the commodity. 

Speaking to the WSJ, Sime Darby Bhd’s plantation division executive vice-president Franki Anthony Dass agreed that the major wage hikes in Indonesia and improved job prospects will add to labour supply problems for harvesters needed in Malaysia. 

The paper said that as Malaysia is currently on a drive to boost output and ensure sufficient domestic supplies to add value to its downstream commodity processing, the country would need every harvester it could attract into the industry. 

“But rising wages and decreased labour availability may force producers to increase their reliance on machines,” said the WSJ report. 

Quoting Kuala Lumpur-based plantation analyst at Kenanga Investment Bank Alan Lim Seong Chun, the WSJ wrote that plantation firms here must move towards improving the mechanising of its harvesting process in order to make up for shortages in manpower. 

The paper noted that growers have already warned that a labour shortage could keep average annual yields of palm oil at four tons per hectare, which is significantly lower than the government’s targeted yield of six tons per hectare by 2020. 

Labour shortage aside, Malaysian firms in Indonesia will also see their production costs rise drastically when wages are hiked. 

Firms like Sime Darby, Kuala Lumpur Kepong Bhd, IOI Corp Bhd and FELDA had ironically parked themselves in Sumatra and Kalimantan years ago in search of plantation properties due to its low-wage workers. 

According to Dass, labour costs at plantations could soon account for up to 25 per cent of the production costs after the wage hike, a significant rise from the current 20 per cent. 

But senior plantation analyst at CIMB Investment Bank told the WSJ that the cost impact would vary at different locations as only those with operations in areas where the wage floor hike is more drastic, would be greatly affected.