Ukraine war benefits Malaysian palm oil, but foreign worker shortage curbs production output
- Amid labour shortage and high demand, Malaysia will hire 180,000 workers to harvest palm oil as alternatives to cooking oils no longer available from Ukraine
- One analyst believes the Ukraine-Russia war – now in its second month – could last 15 years which could mean an extended boost for Malaysian palm oil exports
Data released this week by the Malaysian Palm Oil Board showed exports of the commodity from the Southeast Asian country to the European Union surged 48.3 per cent in March compared with February.
In India, the Solvent Extractors’ Association of India (SEA) said Indian palm oil exports jumped 18.7 per cent. Malaysian palm oil exports to India rose 20.8 per cent in March 2022. Experts said the shift towards palm oil by India, the world’s largest importer of edible oils, was very likely to help Malaysian exports too.
Brokerage firm UOB Kay Hian said in a note that alongside the EU, countries in Central Asia and the Middle East had also increased palm oil imports.
Some countries with high sunflower oil usage increased their palm oil imports by 100 per cent in March, due to supply shortages from the Black Sea tensions, the note added.
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Labour shortage
Despite the buoyancy in demand, expectations are that Malaysia will not be able to immediately increase its palm oil production owing to a severe shortage in manpower.
About 80 per cent of Malaysia’s plantation workers are migrants, with most coming from neighbouring Indonesia.
Plantations typically harvest palm oil fruit once every 10-14 days. But with the labour shortage, many small plantations are only harvesting the fruit once a month.
Chong, the commodities analyst, said the industry had a shortage of 75,000 harvesters.
In 2021, Malaysia produced 18.1 million metric tonnes of crude palm oil down from 19.1 million in 2020.
“The labour shortage impacts on 10-15 per cent of palm oil production. I am looking at 19.5 metric tonnes production for 2022,” said PIVB’s Chong.
Big plantation companies managed to harvest more than once a month by appointing contract workers during peak production periods, and redeploying high performance harvesters to high yield plantations, said Chong.
The owner of a small palm oil plantation told This Week In Asia his farms have a manpower shortage and only harvested the fruit “once a month most of the time” the past two years.
On Monday, crude palm oil traded at RM6,526 (US$1,543) per metric tonne.
Analysts expect the price to stabilise later in the year.
“I am looking at a price level of RM4,300 per tonne for 2022. Current price is toppish, in my view,” said Chong. UOB Kay Hian forecast 2022 crude palm oil price at RM4,200 per metric tonne.
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The prospects for Malaysian palm oil could also be determined by how much edible oil EU nations buy from Russia, whose global pariah status has been increasing since it invaded Ukraine.
EU representatives in Malaysia said there were currently no private sector restrictions on purchasing commodities from Russia.
“In general, EU countries are characterised by liberal economies with little state intervention in the markets and where prices are based on the free interplay of supply and demand,” said a spokesman of the Delegation of the EU to Malaysia.
As for the concerns of the environmentalist lobby in the EU about the negative effects of palm oil, this was also unlikely to be a short term issue for Malaysia, going by the comments of experts and the EU representative.
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James Fry, a commodities expert and chairman of the agribusiness consultancy LMC International, said for now the EU and British governments had given sellers of foodstuffs leeway in how they label oils in their products, without necessarily identifying palm oil as an ingredient.
The EU spokesman said the bloc’s legislation currently does not require nor regulate any description indicating that a certain ingredient is absent from certain products, such as, “no palm oil”.
Individual manufacturers can however, voluntarily indicate that a certain ingredient was not used, the spokesman said.
In the longer term, all eyes will be on how long the Ukraine war will last.
“Obviously this is an estimate but conflicts in Syria or civil wars have lasted 10 to 15 years. There is no reason why Ukraine would be any different, unfortunately,” Olivier Guitta, London-based managing director of GlobalStrat, an international security and geopolitical risk consultancy firm, told This Week In Asia.
“Even in the now unlikely case that Russia can take over the whole country, the resistance from the Ukrainians in the cities would turn the conflict into urban warfare à la Syria,” Guitta added.
Guitta believes a prolonged battle in Ukraine is inevitable, despite the growing sanctions affecting Russia’s economy, because President Vladimir Putin won’t be satisfied until he achieves his ultimate goal – to “restore the great Russia.”
Additional reporting by Reuters, Bloomberg
