KUALA LUMPUR (March 8): The following is a joint statement by 12 associations representing the interests of the Malaysian palm oil supply chain, reproduced in full.
The following 12 associations representing the interests of the Malaysian palm oil supply chain are jointly issuing this press release.
- The Malaysian Palm Oil Association (MPOA)
- The Malaysian Estate Owners’ Association (MEOA)
- The National Association of Smallholders (NASH)
- The Sarawak Oil Palm Plantation Owners Association (SOPPOA)
- The Palm Oil Millers Association (POMA)
- The Palm Oil Refiners Association of Malaysia (PORAM)
- The Malaysian Oleochemical Manufacturers (MOMG)
- The Malayan Edible Oil Manufacturers’ Association (MEOMA)
- The Incorporated Society of Planters (ISP)
- The Malayan Agricultural Producers Association (MAPA)
- Sabah Employers Consultative Association (SECA)
- Tawau Agricultural Association (TAA)
The associations have read and would like to respond to the recent media reports pertaining to MPOB cess and foreign workers.
The associations laud the initiative by the government to utilise the additional cess of RM2 per tonne imposed on crude palm oil (CPO) and crude palm kernel oil (CPKO), derived from the new MPOB Cess Order (Amendment) 2021, to support mechanisation and automation for the oil palm industry. The associations pray that the growers will not be further burdened with any additional new cesses. The associations are also appealing for the Government to engage with the industry to review the present taxation structure on the growers, particularly concerning the Windfall Profit Levy (WPL) and the MPOB Cess imposed nation-wide, and State sales taxes (SST) imposed in Sabah and Sarawak.
In addition, the associations also note that foreign workers will be allowed back into Sarawak from 1 March 2021 under stringent standard operating procedures (SOP). The associations would like to appeal for the formulation and implementation of a top-level strategy to address and resolve the acute shortage of workers in the oil palm sector in Malaysia.
The details of our appeal focusing on 3 issues - namely workers, taxation and market access, are as follow.
ISSUE NO 1: SHORTAGE OF WORKERS
1.1 The government’s decision to freeze the recruitment of new foreign workers and the poor success rate of the recalibration programme is resulting in substantial opportunity costs for the sector. The acute shortage of labour in the plantation sector is now felt across the board in the oil palm sector. Planters are also not able to fully exploit the current high CPO price as they cannot fully optimise production in the estates, given the severe lack of palm fruit harvesters who are mostly foreign workers.
1.2 A pre-MCO survey by MPOB indicated a shortage of 31,021 harvesters among respondents which covered 76% of the industry. Based on a conservative productivity estimate per harvester of 1.5 tonnes fresh fruit bunch (FFB) a day and 280 working days a year, crop loss amounts to almost 20% loss in yield. This in turn translates to a loss in production of 3.429 million tonnes of crude palm oil (CPO) and 857,000 tonnes of palm kernel (PK) a year. Assuming CPO and PK prices of RM3,000 and RM1,800 per tonne respectively, the opportunity loss amounts to an estimated RM11.83 billion of revenue a year. Income tax revenue loss to the government is estimated at RM896 million a year.
1.3 Advertisements by plantation companies to attract locals to join the plantation workforce have not been successful as locals continue to shun employment in what they perceive as a ‘4D’ sector – dirty, dangerous, difficult and demeaning. This perception continues to prevail despite the fact that considerable strides have been made over recent decades to mechanise the heavy lifting of harvested bunches, spraying of herbicides and pesticides, and application of fertilisers to the palms. However, while many mechanisation technologies have been implemented on the ground especially in field operations, the fact remains that the industry has yet to develop a cost-effective harvesting tool, especially for tall palm trees. The industry continues to be dependent on human harvesters.
1.4 The associations also note that foreign workers will be allowed back into Sarawak from 1 March 2021 under stringent SOPs to prevent the spread of Covid-19. We applaud the move by the State government in working with industry to come up with a win-win solution. The State’s decision can be a good model for adoption elsewhere in Malaysia.
1.5 The Plantation sector has the distinctiveness of operating in a rural set-up amidst an expansive landscape, and is thus fortunate that the nature of its operations assures in-built social distancing in the workplace. The adoption of a regulated and stringently imposed set of SOPs governing estate lockdowns will be the best solution as new workers are added to the workforce. Since December last year, foreign workers in the Plantation sector have also undergone mandatory Covid-19 swab testing. We believe the data collected by the Ministry of Health will validate the assertion that the plantation sector provides a safe working environment, in so far as Covid-19 risks are concerned. The plantation sector provides a safe working and living environment, in so far as Covid-19 risks are concerned.
1.6 APPEAL FROM THE INDUSTRY
The associations are appealing for the formulation and implementation of a top-level strategy that considers allowing guest workers who are currently in their respective countries of origin to return to Malaysia, as well as to put an end to the current pause in foreign worker recruitment in the plantation sector. The Sarawak state government’s recent move on allowing foreign workers back into the State is an example that could be emulated throughout the nation. The industry would be willing to work closely with the authorities to assure that all SOPs and stringent guidelines will be strictly adhered to and complied with.
ISSUE NO 2: TAXATION ON GROWERS
2.1 The oil palm sector in Malaysia is heavily taxed with the oil palm growers bearing the bulk of the massive taxes. There is a fallacy that higher profit margin is equivalent to windfall or excessive profit. It is estimated that the Malaysian oil palm growers contributed a total estimated RM5.284 BILLION in taxes, levies and cess to government coffers in Year 2020, excluding CPO export duties.
|Estimate of Taxes Imposed on Oil Palm Growers in Year 2020||(Source: MEOA, 2021)|
|1. Windfall Profit Levy||RM271 million|
|2. MPOB Cess||RM299 million|
|3. Sabah Sales Tax||RM931 million|
|4. Sarawak Sales Tax||RM638 million|
|5. Effective Income Tax (average 20.5%)||RM3.145 billion|
|6. CPO and CPKO Export Tax||Estimate not available|
|Total Taxes||At least RM5.284 billion|
2.2 With higher CPO prices in Year 2021, we expect very substantial increases in taxation. Based on production and cost figures of Year 2020, the total estimated taxation for Year 2021 from income tax, levy, cess and SST, excluding CPO export tax duties, can range from RM7 BILLION to over RM12 BILLION.
2.3 APPEAL FROM THE INDUSTRY
The associations are appealing for the Government to engage with the industry and review the present taxation structure imposed on growers covering the Windfall Profit Levy (WPL), MPOB Cess and State sales taxes (SST) in Sabah and Sarawak. Our appeals are summarised as follow.
- On the WPL, we seek the abolishment of the Windfall Profit Levy because it is eminently unfair. We believe the true test of windfall profit is return on investment, rather than profit margin. However, if it is not to be abolished, we seek the consideration of the government to review the threshold levels currently at RM2,500 per tonne CPO in Peninsular Malaysia and RM3,000 in Sabah and Sarawak. For a start, the revision of threshold levels to RM3,500 and RM4,000 respectively would have closer semblance to the notion of windfall profit. In addition, portions of the WPL from the growers should also be channelled back to the palm oil industry as reinvestment to ensure the sustainability and competitiveness of the industry.
- On the MPOB cess, we appeal that growers will NOT be further burdened with additional cess. The industry would also like to appeal to the government to re-initiate the restructuring exercise of MPOB's operations towards becoming more efficient in keeping with MPOB's original objectives and purpose.
- On the SST, we appeal for both Sarawak and Sabah state governments to welcome engagements with the industry to review their respective SST. In the case of Sarawak, we appreciate the State’s ongoing engagement with SOPPOA on the matter. With the substantial new source of revenue from hydrocarbon and petroleum products, the palm oil industry implores that both Sarawak and Sabah state governments would consider the possibility of reducing or abolishing the sales tax on palm products. If these sales taxes on palm products cannot be abolished, we appeal for threshold levels of these taxes to be revised upwards, taking into account current cost of production. Furthermore, we also propose that the sales tax be applied to the excess over the new threshold price to be considered. In addition, implementation of a practical mechanism such as exempting smallholders from the SST would go some way towards mitigating the plight of smallholders.
ISSUE NO 3: MARKET ACCESS
3.1 It is becoming ever more difficult for Malaysian palm oil to maintain its competitiveness due
to agriculture being one of the most protected and heavily subsidised industries in many parts of the world. Trade distorting measures in the form of agriculture production subsidies, export assistance programmes, import quotas etc and anti-palm oil campaigns continue to challenge the competitiveness and sustainability of palm oil.
3.2 APPEAL FROM THE INDUSTRY
The associations are appealing that the government will invest more resources on G2G engagements to address market access related issues which include sustained and increasing anti-palm oil campaigns by western ENGOs. This should also cover the no-palm-oil labelling campaigns. Added to this list are the discriminatory trade barriers introduced by foreign governments, including the US Customs and Border Protection (US CBP) ban on import of palm oil produced by two Malaysian companies, and lastly the unrealistic expectations and compliance requirements, and ever-changing sustainability goals and practices. This includes food safety requirements in relation to 3-MCPD and GE. The details on the above issues pertaining to market access will be deliberated in future press releases.
Today, the oil palm plantation sector is one of the very few sectors that continues to deliver strong economic performance in a year subdued by the pandemic. The industry has remained steadfast, providing and sustaining employment opportunities, creating many multiplying and spin-off benefits, and generating significant foreign exchange for the country while contributing substantial income taxes to the government’s coffers.
Some key figures about the palm oil industry for the reader to take away: Involvement of over 650,000 smallholders; over 4 million people involved in the supply-chain and its spin-offs; 90% of palm oil is exported; palm oil is imported by over 150 countries thereby helping to sustain the nutritional requirements of over 3 billion people; and palm oil generated over RM74 billion in foreign exchange revenue for Malaysia last year. After a couple of years in the doldrums, the current palm product prices are most welcome to oil palm growers. Profit margins are improving but they are not windfalls. Yet, crop losses are significant amidst the shortage of workers. Addressing the shortage of workers with stringent SOPS in place will help towards mitigating opportunity loss and generating more revenue, while also contributing to the nation’s coffers.
The associations look forward to engaging with the federal and state governments in addressing our plight on workers, taxation and market access.