Labour shortage, not price drop, can cripple oil palm industry, says study

 

A study by Khazanah Research Institute says an 80% drop in labour would lead to a system collapse.

KUALA LUMPUR: Labour shortage is more detrimental to both estates and smallholders in Malaysia’s oil palm industry than a global price drop, according to a Khazanah Research Institute (KRI) study.

The institute said a 30% reduction in labour from the current level would see production fall by half, and an 80% drop would lead to a system collapse with production at only 20% of the business as usual (BAU) level.

“A Covid-19 outbreak among the migrant workers in the oil palm estates could prove detrimental.

“As such, industry players must be vigilant in ensuring adherence to standard operating procedures, improve workers’ accommodation and adopt digitalisation to minimise menial processes,” said Fatimah Mohamed Arshad, lead author of the study and visiting senior fellow of KRI.

The study, titled “The Implications of the Dominant Shift to Industrial Crops in Malaysia: System Dynamic Model of Industrial Crops”, aims at identifying the key policy interventions towards revitalisation of the agricultural sector using a system dynamics modelling tool.

The specific objectives are to identify the structural and institutional factors and policies that drive the agricultural shift, identify factors that cause low productivity, develop a system dynamics model to capture these relationships and simulate alternative policy interventions.

The study also showed that Malaysia’s oil palm planted area was nearing its ceiling limit of 6.5 million ha, with 5.9 million ha belonging to large estates and 986,000 ha owned by smallholders in 2019.

To reduce the dependence on land, it said, there was a need for the industry to improve yield, expedite replanting and reduce non-labour input cost to increase production and revenue.

“The replanting rate normally practised by the oil palm sector is at 12%, meaning that 12 new trees are typically planted per year for every 100 over-mature trees.

“However, our simulations showed that the optimal replanting fraction to give the best yield per ha for an estate is 15%, and a smallholder at 17%, instead of the usual 12%,” it said.

The study also found that development support for smallholders would yield higher impact to them, particularly on their return per ha compared with the estates.

“Investments on the smallholders will create an inclusive growth, equitable distribution and, hence, sustainability of the oil palm sector,” it said.

The study showed that the dominant shift to oil palm from rubber and cocoa previously was driven by higher profits.

Currently, out of eight million ha of agricultural land, six million ha (74%) were cultivated with oil palm, with rubber and cocoa taking only 14% and 2%, respectively.

The remaining 10% of agricultural land is taken up by the food industry. - FMT