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The recent increase of foreign labor is anticipated to significantly enhance Malaysia's palm oil production this year and in the future.
This increase follows the implementation of the country's Labor Recalibration Programme (RTK) 2.0, which allowed employers to hire foreign workers until May 31, 2024.
Datuk Dr. Ahmad Parveez Ghulam Kadir, director-general of the Malaysian Palm Oil Board (MPOB), noted a positive correlation between labor and palm oil productivity.
Unquestionably, the recent rise in the number of foreign workers has increased production, he said.
"This can be seen in the first five months of 2024 with the rise in fresh fruit bunch (FFB) production," he told Business Times.
However, Ahmad Parveez believes that a sustainable and balanced approach is necessary, as the palm oil sector is heavily reliant on foreign labor.
He noted that while foreign workers have helped boost production, MPOB is also focused on exploring and encouraging initiatives that can reduce this dependency in the long term.
He said this includes improving mechanization and enhancing local workforce participation.
Sunway University economics professor Dr. Yeah Kim Leng said that as one of the main sectors that rely heavily on foreign workers, the recent influx of foreign labor is expected to result in higher oil palm production.
He noted that the palm oil sector has been experiencing labor shortages since the COVID-19 pandemic in 2020–2022, causing production to decline.
"Higher demand for unskilled labor is also evident in the pick-up in farming, construction, maiding, and other manual service activities," he said.
Sharing a similar sentiment, economic analyst Dr. Zulkufli Zakaria expects an increase in palm oil production correlating with the influx of foreign workers, not only from Indonesia but also from Bangladesh.
He said the reason for dependency on labor is due to some work scopes, such as harvesting and plant maintenance, being difficult to mechanize.
Hence, he noted that the influx of foreign labor could significantly increase the national palm oil industry.
"The numbers of foreign workers have always been high since before COVID-19. The plantation and construction industries have been dominant in attracting foreign labor, although recently farming has also shown an uptrend.
"In the palm oil industry, the number of foreign workers in Malaysia increased from approximately 2.1 million in 2022 to 3 million in 2023, making up almost nine percent of Malaysia's population.
"Since 2018, there has been a significant increase in the influx of workers for the palm oil industry in Malaysia, mainly from Indonesia.
"During COVID-19, there was a critical shortage of approximately 55,000 workers by December 2022.
"Government efforts in August 2023 showed some recovery, reducing the shortfall to 41,733. Despite these efforts, turnover in this industry remains very high," he noted.
Risks of foreign labor dependency
Ahmad Parveez said Malaysia's heavy reliance on foreign labor for its palm oil industry does come with certain risks.
He said, for instance, that production can be disrupted if policies restrict the entry of foreign workers, as we saw during the pandemic when international borders were closed, leading to severe labor shortages and significantly affecting FFB production.
In view of these risks, he said the government, with the support of industry players, is accelerating mechanization programmes in order to reduce the sector's vulnerability caused by its high reliance on foreign labor.
Nevertheless, Ahmad Parveez said the government is indeed working on strategies to address this issue.
"MPOB believes that any plans that are in the pipeline will surely be implemented gradually to ensure that production remains stable while we transition.
"Our goal is to move towards a more sustainable and balanced workforce by incorporating initiatives such as mechanization and enhancing local workforce participation," he said.
Meanwhile, Zulkufli mentioned that one of the biggest risks of foreign labor dependency is the outflow of funds from Malaysia, which could amount to billions of ringgits annually if each worker sends home only RM500 per month.
He said this could, to some extent, negatively impact the government's efforts to strengthen the ringgit.
"The second issue, following the first, is the social problems arising from the large numbers of foreign workers and polarization issues.
"Especially notable are those not from Southeast Asia; these differences in culture and ethical practices could exacerbate social tensions," he explained.
Nevertheless, Zulkufli said the government has made efforts to reduce dependency on foreign workers by adopting new technologies such as drones, self-driving vehicles, and automating labor-intensive harvesting processes.
He noted that the government has also introduced local programmes to train local workers using new technologies and automation on plantations.
"The government has allocated RM60 million for mechanization and automation research for the palm oil industry in 2021.
"In line with that, the Mechanization and Automation Research Consortium of Oil Palm (Marcop) was established with the aim of reducing foreign workers and, in return, increasing productivity and efficiency," he said.
Dr. Yeah opined that the palm oil industry is highly labor-intensive, especially in planting, tending, and harvesting activities.
He said that despite decades- of research and development, the industry is still unable to mechanize and automate its fieldwork operations, especially at the harvesting stage.
"There are machines, including robots, available to perform these tasks and reduce reliance on foreign workers, but the costs remain prohibitive and outweigh the productivity gains.
"The large plantation companies have been able to increase yields and productivity through mechanization and process improvements, but the smaller plantations and smallholders are still largely reliant on foreign workers," he added.
As such, Yeah stressed the need for more concerted investment in research and development (R&D) and ongoing innovations by large firms.
He said cost reduction is also crucial to achieving mass deployment of automation and labor-saving technology, which can reduce the country's dependence on foreign labor.
Improving foreign labor policies in the palm oil industry
In terms of optimizing foreign labor policies, Ahmad Parveez believes that the government has continuously been improving policies related to foreign labor for the betterment of all industries in Malaysia.
He said the check and balance on achieving an optimal balance between local and foreign labor is regularly reviewed and adjusted through relevant policies.
"As the guardian of the Malaysian palm oil industry, MPOB believes that training programmes are crucial for improving the skills of local workers so that the gap left by foreign workers can be effectively filled.
"Besides human development programmes, MPOB is also actively promoting the adoption of automation and mechanization in oil palm operations.
"The advancement in mechanization and advanced agricultural technologies not only reduces the reliance on foreign workers but also decreases the dependence on manual labor as a whole and additionally improves productivity," he said.
He added that these efforts, combined with continuous policy improvements, aim to create a more sustainable and resilient palm oil industry in Malaysia.
Zulkufli, on the other hand, believes that optimizing the benefits of foreign workers is a crucial effort that the government could undertake from time to time.
However, he said research must be conducted after each policy's pre- and post-implementation phases to understand the efforts made.
"These efforts include optimizing benefits such as enhancing workers' rights as mentioned in international law, ensuring fair wages, safe working conditions, and access to healthcare.
"They should also integrate training focused on agricultural skills and the use of modern technologies," he noted.
Additionally, Zulkufli believes that employment contracts should be reviewed periodically to ensure they are updated based on changes in life and tasks.
He said community integration programmes could potentially be introduced to reduce social problems, and highly skilled workers could have a pathway to permanent residency.
Meanwhile, Yeah noted that salaries, wages, and consequently labor costs are expected to rise faster as the country moves forward to achieve its high-income aspirations.
He said the anticipated increase in labor costs will act as a push factor for the industry to adopt technology and increase capital intensity.
Furthermore, he stated that the government is promoting industrial upgrading through greater deployment of digitalization and Industry 4.0 technologies, including robotics, drones, and smart devices.
"These initiatives will not only reduce reliance on low or unskilled labor but also enhance overall industry efficiency and productivity.
"In the short term, flexibility in the recruitment of foreign workers is necessary to enable the industry to quickly adjust to fluctuations in production and demand," he said.
Source: www.nst.com.my
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