A chronic shortage of plantation workers in Malaysia may cost palm oil producers about 20 billion ringgit ($4.6 billion) this year, according to the Malaysian Palm Oil Association, curbing supply and potentially boosting global prices.
Palm growers hired around 14,000 foreign workers this year through November, just a fifth of the industry’s needs and about half of the number approved by the authorities, according to a survey of top 10 planters by the association. The country is the biggest producer of the tropical oil after Indonesia.
Malaysia’s palm oil sector is reliant on overseas labor, and has struggled to bring in more workers as movement curbs due to the virus were relaxed. The government assured the industry it would accelerate worker approval, but planters say progress is too slow and that’s leading to crop losses. Without enough boots on the ground, many farmers had to leave ripened fruit rotting on trees.
The number of foreign workers coming in is “trifling” compared with the amount needed, said Joseph Tek, chief executive of the association that represents 40 percent of the country’s planted palm area. While there have been efforts by various agencies to facilitate worker arrivals, bottlenecks still persist, he said.
Malaysian output of palm oil, used in everything from food and cosmetics to biofuels, is forecast to drop for a third year, to 18 million tons in 2022, the association said in September.
Concerns over weaker production may support prices of the oil. Palm oil jumped earlier in the year due to Russia’s invasion of Ukraine but then declined as the supply situation improved and Indonesia ramped up exports. They’ve turned upward again, however, rising about 20 percent since late September. Benchmark futures closed 3 percent higher at 4,086 ringgit a ton on Tuesday.
The palm oil sector is seeking help from Malaysia’s new government to expedite the process of bringing in more plantation workers, Tek said. This includes taking steps like chartering planes and renewing agreements with governments in source countries to bring in more workers, he added.
Australia’s wheat harvest
Australia, one of the world’s largest wheat exporters, is poised to harvest another record crop this season even as heavy rains hurt yields in the eastern states, according to the government forecaster.
Farmers are set to gather 36.6 million tons in 2022-23, Abares said, which is a jump of almost 14 percent from its September forecast, driven by spring rains which helped areas in Western Australia and South Australia. It’s also an increase of 1 percent from the previous all-time high last season. Canola production is estimated at 7.3 million tons, the highest ever and 4 percent more than last season.
More wheat from Australia, ample supplies from Russia and the renewal of safe passage for Ukrainian exports through the Black Sea have helped drive benchmark futures in Chicago to the lowest intraday level since October last year. Prices have dropped about 45 percent from a record high in March, cooling fears over global food inflation and security. Still, world inventories remain tight.
Supply pressure may last for some time even when La Nina conditions subside, as it will take more than one season to replenish inventories, Abares said.
Predictions of bumper production in Australia won’t be experienced evenly, Abares said. Widespread flooding in the eastern states has resulted in a mixed picture for growers there who have been battling crop losses, waterlogged machinery and damaged roads which are hampering the harvest.
Crop abandonment in the eastern states due to flooding and extreme rainfall over spring is estimated to total around 16 percent of planted area in New South Wales, 7 percent in Victoria and 5 percent in Queensland, according to the forecaster.
“Considerable uncertainty remains over winter crop harvest progress and grain quality in New South Wales and Victoria given ongoing high rainfall, which could lead to downgrades in production value,” said Jared Greenville, Abares executive director. Harvests are likely to run well into the summer, he said.