Cover Story: Fixing The Economy - Feedback/Commentary: Policies should not be arrived at in a vacuum

This article first appeared in The Edge Malaysia Weekly, on December 31, 2018 - January 06, 2019.
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By Jeffrey Ong
President, Malaysian Estate Owners’ Association

WE applaud and thank the Ministry of Primary Industries (MPI) for its efforts to engage with plantation industry representatives. We sincerely hope this consultative approach will be sustained.

There are many legacy issues that need to be dealt with. We call on the MPI to keep an open mind on the issues affecting the oil palm and rubber industries and to engage with stakeholders during the policy formulation and decision-making process. Policies and decisions should not be arrived at in a vacuum. Practical input from all stakeholders — including producers, consumers and non-governmental organisations — will ensure that the government makes informed decisions on matters concerning oil palm and rubber.

While we acknowledge the need for Malaysian palm oil to be credibly certified in response to market demand, we advocate flexibility in the implementation of Malaysian Sustainable Palm Oil (MSPO) standards. Not all producers can comply within a limited timeframe with the exacting standards and the concomitant capital outlay obtaining MSPO certification entails.

However, the implementation of the B10 biodiesel mandate for the automobile sector and the B7 biodiesel mandate for the industrial sector will help soak up the oversupply of palm oil and stabilise prices. This is a laudable effort by the MPI.

The ongoing and worsening labour shortage is a major concern to the plantation sector, which is highly labour-intensive. We have to accept the reality that most Malaysians do not want to work in plantations where the jobs are dirty, difficult and can be dangerous. We are, therefore, heavily reliant on foreign workers, whose willingness to work and contribute to our economy must be acknowledged. The barriers in place, in the form of heavy levies coupled with the complex foreign worker renewal system, require the special attention of the government. There is a need for a practical, transparent and common-sense policy on foreign workers.

The multi-tiered levy system that was proposed by the MPI in our discussions seeks to cap the number of foreign workers at 81.8% of total workers. We are of the view that the plantation industry’s reliance on foreign workers is actually higher, as this figure does not take into account illegal workers who go unrecorded. We are also of the view that imposing this ratio will worsen the labour shortage in an industry that requires adequate labour to ensure regular harvesting of fresh fruit bunches (FFB). Harvesting has to be done manually because a satisfactory harvesting machine has yet to be invented. Inadequate labour results in loss and wastage of FFB, driving down yields and pushing up production costs. Unlike most other industries, the oil palm industry cannot pass on increased costs directly to the end user — that is, the consumer. Being in commodities means that we are price takers rather than price makers. We appeal to the MPI to hear out the industry’s views on the proposed 81.8% cap on foreign workers.

Also, our proposal for a lower levy for foreign workers for the oil palm sector than that for other sectors is justified by the fact that in addition to income tax, we also pay cesses, sales tax, windfall tax and other levies. We are already contributing significantly to government coffers. Moreover, regulations require us to provide free housing and other amenities for estate workers, plus free electricity, water and cooking gas, all of which are estimated to be worth at least RM20 per worker per day. A fairly priced levy system would take into account these contributions.

We need a robust and forward-looking policy for the plantation sector that focuses on mechanisation, aims at increasing productivity and includes investing in research and development. To show its support for the palm oil industry’s mechanisation efforts, particularly in respect of FFB harvesting and field operations, we urge the government to allow tax waivers for all vehicles, machines and attachments used to reduce the need for labour in the plantation sector.

There have been efforts by the Malaysian Palm Oil Board to drive mechanisation but much of what MPOB has produced disregards ergonomics and is therefore not practical. We hope MPOB will obtain feedback from planters on what works and what does not work concerning mechanisation. If our embrace of mechanisation and the Fourth Industrial Revolution is to succeed, then all parties must be involved in the process.

 

Challenges in 2019

It will be a challenging year for the agricultural commodities sector, especially oil palm. Malaysia will likely produce almost 20 million tonnes of crude palm oil by year end and Indonesia almost 40 million tonnes. Regrettably, increasing supply has not been matched by an increasing demand in global markets, with lower-than-expected demand from China and India. Excess supply has driven prices down. We have entered into a low-price cycle that could last longer than previous low-price cycles, and the oil palm sector must be ready to face the challenges that lie ahead.

Low prices are exacerbated by the trade war between China and the US. However, this may present an opportunity for Malaysia. With China reducing its purchases of soybeans from the US for feeding livestock, there will also be a reduction in soy oil, a by-product of crushing soybeans for livestock feed. Malaysia can and must push for more crude palm oil sales to China, together with positioning palm kernel cake as an alternative to soymeal for feeding livestock.

In addition, the constant pressure faced by the oil palm oil sector because of the sustained anti-palm oil campaign in Europe has to be tackled head on. The Malaysian Estate Owners Association stands ready to assist the government to counter this malicious campaign.

The government should also look into relaxing certain duties and taxes for the oil palm sector as it enters this low-price cycle, in order to help cushion the impact of reduced revenue.

While the outlook is challenging, we are confident the government will do its best to support the agricultural commodities sector, which is the third largest contributor to gross domestic product.

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