The worst labor shortage ever triggers a supply crisis for the world’s most consumed cooking oil

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Harvested oil palm fruits loaded in a trailer at a plantation in Kapar, Selangor, Malaysia |  Photo: Joshua Paul |  Bloomberg's photo
Harvested oil palm fruits loaded in a trailer at a plantation in Kapar, Selangor, Malaysia | Photo: Joshua Paul | Bloomberg’s photo

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PElm oil production in Malaysia is on track for its weakest show in five years as plants struggle with the worst labor shortages ever in the second largest grower, and low yields are likely to last until March.

The country’s production could fall below 18 million tonnes this year, according to Nageeb Wahab, executive director of the Malaysian Palm Oil Association, a group of growers representing 40% of palm plantations by area. This is a decrease of at least 6% from last year and the lowest annual volume since 2016.

Palm, the most consumed edible oil, has been a leading driver of this year’s fantastic rally in global vegetable oil markets. Lower supplies in Malaysia and a crop disaster in Canada, the best rapeseed grower, have coincided with subdued demand as economies reopen. Palm oil has repeatedly set fresh records, while rapeseed climbed to an all-time high and soyoil reached a 13-year high in May.

“Even before the pandemic, we already lacked workers – mainly harvesters – but it was never that bad,” Nageeb said by telephone from Kuala Lumpur. “The shortage is getting worse month by month. This is a historic crash of workers and it causes many years of production shortages. ”

The return will decrease towards the end of the year and will probably remain weak during the first quarter of 2022, says Nageeb. Production may improve during the second quarter, but provided that harvesters – including the 32,000 foreign workers approved by the government – are allowed to enter the country.

In addition, the lack of skilled harvesters on estates has left fresh clusters of fruit to rot on trees, preventing farmers from taking advantage of the palm’s record rally. It also means that they have “missed the boat” during the crop’s high production months, which usually extend from August to October, Nageeb said.

“We never had the highest production this year due to the large harvest losses,” said Nageeb. The industry is losing about 20% -30% of potential production this year and will lose about 20 billion ringgit ($ 4.8 billion) in revenue, or about twice as much as last year.

Malaysian Prime Minister Ismail Sabri Yaakob has offered a glimmer of hope for labor shortages and said on Friday that the country will allow the entry of fully vaccinated migrant workers into the plantation industry on a case-by-case basis, although the quota and arrival date have not been decided.

The volatile mix of production issues, either due to the weather or corona constraints, and global demand mean that industry is in the middle of an unprecedented time. “We are in unknown waters due to historically high prices and price volatility,” said Marcello Cultrera, institutional sales manager and broker at Phillip Futures in Kuala Lumpur.—Bloomberg

Also read: Government’s plan to address edible oil price hike: Push for domestic rice oil production

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