Malaysia and Indonesia produce up to 80% of the global palm oil supply. This industry is highly labour intensive due to hilly terrains and vast land masses that makes logistics and automation challenging. The labour intensive nature of work also means that these jobs are undesirable and hazardous, despite being more financially lucrative than blue collar jobs in other industries like the service or construction sector.
Unlike Indonesia, Malaysia's palm oil plantations depend heavily on foreign labour to operate. The two main source countries for workers are Indonesia and Bangladesh. Malaysian operators incur high recruitment costs to bring in foreign labour. The recruitment fees include payment for levies, medical, travel, insurance, and agency fees. Hiring a migrant worker costs plantation companies between RM4,500 to RM6,000 per headcount, and even more for highly skilled positions like harvesters. The cost of non-compliance is also expensive. Companies are constantly subject to enforcement compounds and other forms of payments for non-compliance with immigration regulations.
Despite Malaysian companies' willingness to pay for the supply of labour, the number of applicants are dwindling. In 2023, Malaysia's Deputy Prime Minister announced that the palm oil sector was facing an industry shortage of 63,000 workers, costing an opportunity loss of RM20 billion in revenue. Despite the high demand for labour, in a study conducted by Migratesafe between April and November in 2022, only 17.3% of 191 respondents prefer to work in the plantation sector, while 42.4% chose the manufacturing sector as their first preference.
A study of Indonesian job seeker interest in Malaysian jobs conducted by Migratesafe Employment Agency between April 2022 and November 2022.
Beyond sourcing new workers, retention has also been a big challenge for plantations. Plantation jobs are not desirable, but the financial benefits (or savings) from taking these jobs are comparable or more competitive than the construction, manufacturing or service sector. And yet, workers rarely complete contracts. One common issue faced by plantations is extortion from "mandors", who play the role of leaders or supervisors for Indonesian workers. Because the Mandors are incentivised by fulfilling placement orders, this can breed job hopping tendencies to maximise profit.
Another school of thought could be that companies just have to invest more time, money and energy to make working at plantations more sustainable, despite the harsh conditions. A case study carried out by the Earthworm foundation between 2016 and 2018, showed that when certain sustainable and fair employment practices were implemented, there was a significant drop in abscondment rates from 32% to 3.7%. Retention rates also increased from 41.18% in 2016 to 70.37% in 2018.
A study conducted by the Earthworm Foundation to assess the impact of strategic interventions to reduce abscondment rates and increase retention rates at a Malaysian plantation.
Amongst the initiatives implemented were no passport retention, no collection of security deposits when workers go on leave, transparent contracts, and no salary deductions. Beyond contract compliance, grievance mechanisms were also put in place, such as the Employee Consultative Committees (ECCs) to make sure workers feel heard. Joint celebration of festivities between management and workers, and playing sports together were also introduced. Perhaps steps taken to improve trust and confidence between management and workers can pay off.
Despite the positive improvements in retention rates, 70% retention is still a far cry from the 90% to 95% retention rates enjoyed by the top manufacturing companies in Malaysia. And more importantly, are these results scalable for plantations?
More recently, the palm oil sector continues to face increasing pressure from the global community to achieve labour sustainability goals. In Malaysia, the palm oil sector is held accountable by the Malaysian Sustainable Palm Oil (MSPO) standards, while some have also adhered to the higher standard of Roundtable of Sustainable Palm Oil (RSPO) to trade more widely. Additionally, the United States and a few other countries through their anti-modern slavery laws have also adopted more robust strategies to counter forced labour practices in supply chains by banning the imports of goods to their markets if tainted by allegations of forced labour.
How will Malaysian companies continue to evolve to produce sustainable palm oil in the 21st century with the demand for increasing accountability, the unresolved issues of labour shortage and the lack of automation?
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