The Incorporated Society of Planters chairman Datuk Daud Amatzin.
PETALING JAYA: While Budget 2025 introduced several key measures aimed at fostering economic growth and social equity, its implications on the labour-intensive sectors like plantations, particularly the palm oil industry, are raising concerns about the rising cost implications they face.
Among industry representatives who spoke to StarBiz, there’s growing concern that planters may face shrinking profit margins unless they can significantly improve efficiency or accelerate mechanisation efforts and improve yields.
This is no thanks to Budget 2025 measures like the increase in the minimum wage to RM1,700 (from RM1,500), the revision on foreign worker levies and mandatory Employees Provident Fund (EPF) contributions for foreign workers.
Although larger corporations may have the capacity to “withstand” these cost increases, smaller players are likely to feel the pinch more severely.
Moreover, with rising production costs, the palm oil industry could risk losing its competitive advantage to Indonesia, where labour costs are lower, they said.
On the bright side, Budget 2025 did adjust the threshold for the windfall profit levy (WPL), though it fell short of industry expectations.
The threshold for crude palm oil (CPO) prices subject to the WPL has been raised by RM150 per tonne, setting the new levels at RM3,150 for Peninsular Malaysia and RM3,650 for Sabah and Sarawak.
The change will take effect on Jan 1, 2025, with the levy rate remaining at 3% on fresh fruit bunches.
As at press time, CPO was trading at the RM4,500-per-tonne level – a sharp increase from RM4,250 on Oct 18, also the Budget 2025 announcement day.
Incorporated Society of Planters (ISP) chairman Datuk Daud Amatzin, who described planters as “the unsung heroes deep in the jungle”, believes the Madani government has “forgotten” smaller planters in the budget.
“There is very little for us to be happy about in this budget. The only small blessing is the slight increase in the WPL threshold, but it’s nothing to shout about,” he said.
However, he added: “I don’t want to cry because we are professional and very resilient. In the face of volatile commodity prices, planters remain resilient by continuously increasing their productivity using available resources and tools,” he added.
When asked how much of a cost increase planters will see due to the earlier mentioned Budget 2025 measures, Daud said it is “huge”.
While the Malaysian Palm Oil Association (MPOA) acknowledges the government’s efforts to promote social equity and economic growth in Budget 2025, its chief executive Roslin Azmy Hassan said the proposed measures will inevitably raise operational costs across the palm oil industry, affecting both large corporations and smallholders alike. “These changes may challenge the industry’s competitiveness, particularly against other producer countries with lower labour costs,” he noted.
Malaysia is the second-largest producer of palm oil in the world, trailing behind Indonesia, and it provides about one-third of the global supply or some 18 million tonnes annually.
Roslin said that to maintain Malaysia’s position in the global market place, local plantation companies must prioritise mechanisation and automation as well as adopt sustainable practices to cut costs.
Similarly, Malaysian Palm Oil Council or MPOC chief executive officer Belvinder Kaur Sron said the Budget 2025 measures will inevitably raise production costs for palm oil in Malaysia, potentially affecting its competitiveness.
“To counter these rising costs, companies must prioritise improving their yields to offset the increased expenses,” she said.
In response to increasing mechanisation, ISP’s Daud said “it is not easy but we are working hard on mechanisation”.
“We are improving bit by bit but everybody needs motivation. I would have thought that Budget 2025 would have motivated us to mechanise further,” he said.
On the minimum wage hike, MPOA’s Roslin acknowledged it reflects the government’s intent to improve the living standard of workers amid the rising cost of living. But this is a challenge for the palm oil industry, which is labour-intensive and relies on manual labour for tasks such as harvesting and maintenance.
“The sudden increase in the labour cost could strain industry players, especially smaller companies and independent smallholders who may find it difficult to absorb these additional expenses,” he said.
In view of this, MPOA urged the government to introduce measures to mitigate the impact of the wage hike, such as tax incentives, subsidies or grants for companies that invest in worker welfare programmes or productivity-enhancing technologies like mechanisation and automation.
Belvinder pointed out that a significant portion of operational costs (up to 30%) in the sector comes from labour, so increased wages will directly drive up costs for upstream players.
She said smallholders (with 100 acres or less and account for 40% of total output), in particular, will struggle to manage these rising wages which will squeeze their profit margins unless they can boost efficiency through higher yields.
“While companies are transitioning towards automation and mechanisation to alleviate labour costs, the high upfront capital investment means smallholders will adopt technology at a much slower pace.
“The sector already faces added costs from certification requirements, and a higher minimum wage will only add to the financial burden for companies,” she replied.
While the hike in the minimum wage will increase production cost, Daud said “we are going to tighten our belts further”.
Regarding the mandatory EPF contributions for non-citizen workers, MPOA’s Roslin recognised this policy shift aims to extend social protection to foreign workers.
While MPOA supports fair treatment, he noted this will increase the cost of employing foreign labour, who are crucial in the palm oil sector due to a lack of interest from local workers.
“The additional financial burden may lead some companies to reassess their workforce composition or postpone hiring, potentially worsening existing labour shortages in the sector and impacting productivity. To address these challenges, MPOA recommends the government to reconsider its implementation. In addition, we encourage the government to offer incentives for companies that invest in the training and upskilling of foreign workers to help offset the increased costs,” Roslin said.
Meanwhile, ISP’s Daud believes the EPF contributions for a non-citizen is not necessary, due to the fact that “guest workers are here for a temporary period”.
On the upward adjustment to the WPL threshold, Roslin said it is “ insufficient to alleviate the increased operational costs stemming from other budget measures.”
This view is echoed by Belvinder, who noted that while it is a positive development, it falls significantly short of the industry’s expectations.
“A higher threshold would have been more appropriate as it would better align with the increased cost of production for crude palm oil,” she said.
Roslin meanwhile said MPOA advocates for a more flexible WPL framework that adjusts levy rates based on market conditions.
“A dynamic approach would provide relief during periods of low palm oil prices, ensuring companies are not overburdened in challenging market conditions,” he said.
This, he said, would help maintain the balance between generating revenue for the government and preserving the competitiveness of the Malaysian palm oil industry.
