KUALA LUMPUR: Malaysia’s plantation sector faces mounting cost pressures from higher minimum wages, with the likes of SD Guthrie Bhd estimating a potential nine per cent increase in its overall costs.
Under the 2027 Budget, the government proposed raising the minimum wage from RM1,700 to RM2,000.
Industry players said the increase is expected to raise labour costs for plantation companies, which have limited ability to pass on higher expenses as crude palm oil (CPO) prices are largely determined by global market conditions.
Malaysian Palm Oil Association (MPOA) chief executive Roslin Azmy Hassan said plantation companies will have to absorb most of the additional expenses, putting pressure on profit margins, particularly if CPO prices remain subdued.
He said the impact will vary depending on companies’ workforce structures, productivity, operational efficiency and prevailing CPO prices, with smaller operators likely to face greater challenges due to tighter margins.
“Larger plantation companies may be better placed to absorb these additional costs, while smaller operators with tighter margins will find it more challenging,” he told Business Times.
SD Guthrie estimated that the higher minimum wage could increase its overall costs by about nine per cent, based on a preliminary assessment assuming the impact takes effect in the second half of 2027.
The fully integrated palm oil producer said about 36,600 of its workers in Malaysia are expected to be affected by the increase.
The company said it supports fair and progressive wage growth as part of building a productive and sustainable workforce, consistent with its Living Wage Policy, which is being implemented in phases.
The policy will initially cover about 8,000 non-plantation employees in Malaysia, with implementation targeted for completion by December 2026.
SD Guthrie said higher labour costs would accelerate efforts to improve productivity through mechanisation, better tools, enhanced skills and more efficient estate operations.
“The long-term solution lies in increasing productivity, enabling workers to generate greater value while earning better incomes,” it said.
LIMITED ROOM TO PASS ON COSTS
Roslin said it was difficult to identify a specific CPO price that will fully offset higher labour expenses because production costs, yields and labour requirements differ significantly between companies.
Plantation companies are price takers, leaving them with little control over the prices they receive for their output, he added.
He said stronger and more stable CPO prices will help cushion the impact, but companies also need sufficient margins to finance replanting, mechanisation and productivity improvements while meeting their responsibilities towards workers.
Meanwhile, SD Guthrie considers a CPO price range of RM2,500 to RM4,500 per tonne sustainable.
It said prices below RM2,500 per tonne could place producers under significant pressure relative to their cost base.
Prices above RM5,000 per tonne might prove unsustainable as palm oil becomes less competitive against alternative vegetable oils, potentially weakening demand.
The company said it was too early to determine the CPO price needed to offset the higher wage bill, with its strategy instead focused on improving productivity, mechanisation and operational efficiency.
“Expanding our portfolio of differentiated and specialised products remains an important strategy to help protect margins across commodity cycles.
“Our approach is centred on building a more resilient and productive business that can perform well across varying commodity price environments,” it said.
MECHANISATION KEY TO PRODUCTIVITY
Roslin said plantation companies would need to prioritise productivity and operational efficiency rather than rely solely on cost-cutting measures to protect earnings in 2028.
These efforts include improving harvesting efficiency, reducing crop losses, making better use of available workers and raising fresh fruit bunch (FFB) yields through improved estate management and agronomic practices.
He said mechanisation remained part of the solution, although harvesting continued to depend largely on manual labour and reliable, commercially viable harvesting machines were still being developed.
“Through initiatives such as Mechanisation and Automation Research Consortium of Oil Palm, MPOA is working with industry players to develop practical mechanisation solutions that can help reduce our dependence on manual labour over time,” he said.
Roslin also warned that insufficient harvesters could lead to harvesting delays and crop losses, further undermining productivity and earnings.
SD Guthrie said its measures would include mechanising estate upkeep activities such as pesticide application, manuring, pruning and estate clearing, as well as improving the area each worker could manage effectively.
It will also focus on maintaining accessible and well-managed estates to improve harvesting efficiency, alongside disciplined replanting and the use of higher-yielding planting materials.
Both MPOA and SD Guthrie said it was too early to quantify the savings expected from these initiatives, given differences in estate conditions, productivity levels and the pace of technology adoption.
Roslin said the government’s intention to improve workers’ wages and welfare needed to be accompanied by productivity gains, particularly as the plantation sector faced labour shortages, rising compliance costs and increasingly stringent sustainability requirements.
“At the end of the day, we need to strike a balance between better wages for workers and keeping our plantation industry competitive and sustainable in the long run,” he said.
He added that future wage adjustments should take into account the industry’s operating realities, particularly plantation companies’ limited control over CPO prices.