World's most consumed edible oil also facing supply crunch

KUALA LUMPUR (BLOOMBERG) – Palm oil production in Malaysia is on course for its weakest showing in five years as planters grapple with the worst-ever labour shortage in the second-biggest grower, and the low yields are likely to last through March.

The country’s output may slide below 18 million tons this year, according to Datuk Nageeb Wahab, chief executive at the Malaysian Palm Oil Association, a growers’ group that represents 40 per cent of palm plantations by area. That is a drop of at least 6 per cent 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 stunning rally in global vegetable oil markets. Lower supplies in Malaysia and a crop disaster in Canada, the top grower of canola, have coincided with pent-up demand as economies reopen. Palm oil has repeatedly notched fresh records, while canola climbed to an all-time high and soya oil hit a 13-year peak in May.

“Even before the pandemic we were already short of workers – mainly harvesters – but it was never this bad,” Mr Nageeb said by phone from Kuala Lumpur. “The shortage is becoming worse month by month. This is a historic crunch of workers and it’s causing a multi-year shortfall in production.”

Yields will taper down toward the year-end and will likely remain weak in the first quarter of 2022, he said. Production may improve in the second quarter, but on the condition that harvesters – including the 32,000 foreign workers the government had approved – are allowed to enter the country.

Moreover, the lack of skilled harvesters on estates has left bunches of fresh fruit rotting on trees, preventing farmers from capitalising on palm’s record rally. It also means they have “missed the boat” on the crop’s high production months, which usually run from August to October, Mr Nageeb said.

“We never had that peak production this year because of the high crop losses,” he said.

The industry is losing around 20 per cent-30 per cent of potential production this year and will miss out on about RM20 billion (S$6.5 billion) in revenue, or about double the amount last year.

Malaysia’s Prime Minister Ismail Sabri Yaakob has offered a glimmer of hope on the labour shortage, saying on Friday (Oct 22) 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 dates have not been decided.

The volatile mix of production issues, either because of the weather or coronavirus restrictions, and resurgent global demand mean the industry is in the midst of unprecedented times.

“We’re in uncharted waters because of historical high prices and price volatility,” said Mr Marcello Cultrera, an institutional sales manager and broker at Phillip Futures in Kuala Lumpur.

More on this topic

Join ST’s Telegram channel here and get the latest breaking news delivered to you.

Source: Read Full Article