This article first appeared in The Edge Financial Daily, on April 1, 2016.

KUALA LUMPUR: The recent increase in levies for foreign workers is expected to result in Boustead Plantations Bhd's staff costs rising an additional 5%, its vice-chairman Tan Sri Lodin Work Kamaruddin said. Staff costs currently account for nearly two-fifths of the plantation player’s operating costs.

Lodin expects the group to incur the extra costs from the second half of 2016.

On March 18, the home ministry announced that employers in the manufacturing, construction and services sectors (category one) have to pay a levy of RM1,850 for each foreign worker hired, while those in the plantation and agriculture sectors have to pay RM640 per worker. The new rates entailed an increase of RM600 for category one, and RM230 and RM50 for the plantation and agriculture sectors respectively.

“Not only the [plantation] industry, but others like the Malaysian Employers Federation will be impacted [by the increase]. Hopefully, the government will accept our suggestion [to reverse its decision], seeing that costs are rising,” he told reporters after the group’s annual general meeting yesterday.

For its financial year ended Dec 31, 2015 (FY15), Boustead Plantations incurred RM200.84 million in staff-related expenditure. It is the second-largest expense of the group’s total operating costs of RM554.98 million, after paying RM289.29 million for raw materials.

To ease the impact of the levy increase, Lodin said the group is working on improving its efficiency by increasing the mechanisation of its palm oil extraction.

He added that Boustead Plantations is looking to increase the productivity per worker to 10ha as per the government’s target for the plantation industry. Currently, the industry’s standard is 8ha per worker.

Nonetheless, Lodin expects this year will be better than 2015 for the group, projecting crude palm oil (CPO) prices to reach around RM3,000 per tonne by the third quarter of 2016.

CPO prices continue to rise, supported by the impact of the El Nino weather phenomenon. The CPO price has gained 9.94% year to date and closed at RM2,734 per tonne yesterday, while the local currency has rebounded 9.19% against the US dollar to 3.8995 in the same period.

Lodin said the group’s palm oil inventory has fallen by some 700,000 tonnes in four months to 2.2 million tonnes.

“Even though the crops generally will be lower because of the weather effect, we hope to get better margins and costs from our palm oil production,” he added.

Lodin also said Boustead Plantations is not ruling out disposing of more non-core land. The group is expected to recognise some RM120 million in gains in FY16 from the disposals of several pieces of quarry land last year.