Oil palm planters enduring severe financial burden

Malaysia's social safety laws of Windfall Profit Levy and Minimum Wages are meant to make cooking oil affordable to the poor and pave the way towards a high income nation. Unfortunately, oil palm planters are suffering from these policy backfirings, writes OOI TEE CHING.



THE Minimum Wages Order 2012, which took effect from January last year, requires employers with six employees and above to pay a minimum wage of RM900 a month in Peninsular Malaysia or RM800 a month in Sabah, Sarawak and the Federal Territory of Labuan. 

As the government seeks to propel Malaysia into a high-income nation by introducing minimum wages, the blanket implementation of this figure to “basic rate” instead of “take-home pay” across all sectors had given foreign workers more money to send back to their home countries.

In an interview with Business Times, Malayan Agricultural Producers Association (Mapa) executive director Mohamad Audong said the blanket implementation of the minimum wage policy, rising bank borrowing costs and falling palm oil and rubber prices have resulted in planters being hit from all sides.

“While there is a 20 per cent increment in the basic wages, this has resulted in almost 40 per cent more money outflow from Malaysia last year. In theory, this law is supposed to help the oil palm industry become more productive. In reality, however, planters are badly hurt,” he said.

Mohamad pointed out that in 2012, foreign workers in the agriculture sector remitted around RM8 billion to their home countries. After the Minimum Wages Order 2012 was implemented last year, foreign workers sent back around RM11 billion. This year, Mapa estimates this figure to surpass RM15 billion. 



He explained that planters are facing higher production costs. This is mainly due to more expensive foreign worker recruitment fees, higher fuel and utilities, such as diesel, electricity and water.

There are also various new fees and tax hikes to be imposed by the federal and state governments. On top of that, oil palm planters also have to pay cess of RM13 per tonne to government agency Malaysian Palm Oil Board.

The bleak outlook, Mohamad said, is compounded by Bank Negara Malaysia’s raising of interest rates. This means costlier bank loans to rubber and oil palm planters. 

Since oil palm planters are price takers, their earnings are at the mercy of pricing in the world’s commodities markets. On Monday, the third month benchmark palm oil futures contract on Bursa Malaysia derivatives market added RM15 to close at RM2,099 per tonne.


“Don’t forget many of our planters borrow money from the banks and issue bonds, of which bankers and insurance companies are subscribers.”

Depending on the year of planting, Mapa calculated that palm oil production cost of these heavily-geared planters ranges between RM1,300 and RM3,000 per tonne.

“The minimum wage policy works best if commodity prices are on the uptrend, not when prices are falling,” Mohamad said.

As the government seeks to review the minimum wage ruling at the end of this year, planters appeal for a more judicious implementation of the Minimum Wages Order 2012. 

“We’re not opposing the minimum wage law. It is the way the salary is being packaged. It would be more practical if the government amends the RM800 and RM900 per month minimum figure to that of take-home pay instead of basic rate. This would streamline the Minimum Wages Order 2012 to the main thrust of existing labour laws as that interpreted by the Industrial Court for many decades,” he said.

Mapa represents close to 200 plantation companies in Peninsular Malaysia, with estates spanning across a million hectares. These oil palm planters employ some 125,000 workers in the fields, of which 80 per cent are foreigners.

In their 2015 Budget wishlist, oil palm planters are appealing for the government to streamline the minimum wage rate with existing labour laws. They also want the government to abolish the windfall profit levy and rationalise cooking oil subsidy. 

Meanwhile, Malaysian Estate Owners Association (MEOA) president Datuk Boon Weng Siew concurred that oil palm planters endure severe financial burden with the spectre of taxes and new ones to be introduced. “For every RM1 we earn, we have to pay almost 45 sen to the federal and state governments in taxes,” he said.

“Planters are not required by law to provide accommodation, schools, clinics and places of worship, but many do so as part of their corporate social responsibilities.

“When you factor into these amenities and benefits to workers, such as housing, water, electricity, medical care, transportation... it amounts to about RM450 per month per worker,” Boon added.

“Now, there is a new tax called Property Assessment Tax imposed by local authorities at between RM5 and RM100 per hectare. “This burden is increasingly painful on our members,” he said.


Apart from the minimum wage ruling of unintended higher money outflow, oil palm planters’ subsidising of cooking oil is also seeing huge wastage in the form of rampant smuggling to neighbouring countries.

Under the Cooking Oil Subsidy Scheme, palm cooking oil is capped at RM2.50 per kg.

Boon put things into perspective when he highlighted cooking oil sold in Malaysia is priced at 65 per cent discount of global market pricing.

“In other words, the same 1kg of cooking oil sold in Malaysia for RM2.50, if shipped out of the country, would fetch US$2.50 (or RM8.03). Exporters could price it three times higher in neighbouring countries,” he said, adding that the billion-ringgit subsidy that goes into cooking oil sold, here, is being funded by a windfall profit levy imposed on oil palm planters.

It has been reported that this levy is unfair because it is imposed on assumed profit and not on actual profit.

The levy is activated when palm oil exceeds RM2,500 a tonne. Planters in Sabah and Sarawak pay windfall tax when the prices cross RM3,000 per tonne.

MEOA, which represents 153 small- and medium-sized estates of more than 40ha, is appealing to the government to review the cooking oil subsidy, which benefits restaurant operators, traders, smugglers and people across the border more than the hardcore poor.

The price of palm cooking oil should be allowed to float in the open market, he suggests, and vouchers can be issued to hardcore poor households to mitigate the impact on them.  

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