Bloomberg
(Bloomberg) -- Palm oil production in Malaysia is being dealt a double blow from a persistent shortage of workers to harvest the crop and torrential rains that have triggered floods in key growing areas of the world’s No. 2 supplier.Relentless heavy rain and thunderstorms have led to flash floods in parts of Sabah, Sarawak, Johor, Pahang and Perak -- the biggest palm oil-producing states in the country. While palm trees are typically water-loving and resistant to wet weather, prolonged floods could prevent harvesting -- leading to overripe fruit and poor oil quality -- and disrupt transport of fruit to mills.Deepening output woes is Malaysia’s re-imposition of lockdowns from Jan. 13, and a state of emergency that may last until August, which complicates the recruitment of foreign labor that the palm industry is so desperate for. The production constraints may help shore up palm oil futures, which have retreated from a 10-year peak.“Certain states including large oil palm-growing areas have been affected in Johor, Pahang and Perak. Here crop losses have been unavoidable as many sections of the fields have been under 2-3 feet of water for two to three weeks,” said Carl Bek-Nielsen, chief executive director of United Plantations Bhd. “This adversely affects the ability to enter the fields and harvest the crop, let alone bring out the crop as fields are under water.”Heavy rains in Sabah have led to floods and landslides, hurting the plantation sector in the top-producing state, said IJM Plantations Bhd. Chief Executive Officer Joseph Tek. La Nina-linked rains will likely continue into February. “It is a question of how deep and how long before the floods subside, before more rains pour,” he said.In Sarawak, Malaysia’s second-biggest palm growing state, the drop in yields may be more severe than the 15% to 20% initially estimated over the next two months, according to Andrew Cheng, CEO of the Sarawak Oil Palm Plantation Owners Association. That’s as the acute worker shortage compounds production problems caused by floodwaters which have inundated plantations and interrupted harvesting, he said.“I believe many oil palm plantations in Sarawak’s lower-lying areas will be affected, especially with the King Tide coming in,” Cheng said, referring to an especially high tide, which may lead to prolonged flooding. “Due to the Covid-19 pandemic and Movement Control Order, we are unable to assess the overall situation.”Sime Darby Plantation Bhd., the world’s biggest palm oil planter by acreage, said about 3% of its Malaysian upstream operations have been affected by floods and road closures. States impacted are Sabah and Sarawak, which together make up 45% of the country’s total output, as well as Johor, Pahang, Perak, Kedah and Negeri Sembilan.Breaking PointMalaysia’s shortage of palm oil workers has become “much, much worse” compared with six months ago, and was likely responsible for up to 90% of the 3.6 million tons of fresh fruit bunches lost last year, Bek-Nielsen said.“We are at a breaking point that will result in considerable crop losses in 2021,” Bek-Nielsen said. While first quarter production won’t be much lower than last quarter, the impact from the acute labor shortage “will really start to bite and impact production from April to October,” leading to a drop in output this year to 18.6 million tons, he said. Output was 19.14 million tons in 2020.To relieve the shortage of foreign workers, planters are seeking government approval for a safe way to bring guest workers into Malaysia, where all Covid-19 testing and quarantine costs are borne by employers, he said.Sime Darby said it’s had little success in hiring new workers and is grappling with a worker shortage of around 4,000 people for its Malaysian operations.“The number of hires from our recruitment drive are insufficient to help shore up the current labor shortage,” Sime said in an emailed response to questions. Local hiring efforts are further hampered by movement controls and the Emergency decree, as walk-in interviews are not allowed.Meanwhile, FGV Holdings Bhd., one of the country’s biggest producers, said about 3,600 hectares in Pahang, Johor, Perak, Negeri Sembilan and Sabah were affected by flash floods, although there’s no serious impact to field operations and mills are running as usual despite a drop in daily volumes.Still, there will be a “slight impact on yield production due to weather affecting labor productivity in January and in the first quarter,” the planter said in emailed responses. “We estimate the potential reduction in yields to be about 20% for January as compared to the earlier month, and by almost 20% in 1Q from the earlier period.”(Updates with details on Sabah flooding in fifth paragraph, Sime Darby’s comments from eighth)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
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