KUALA LUMPUR (Oct 3): Malaysian oil palm planters should focus on improving production yields by accelerating replanting activities to help offset the cost hikes, according to CIMB Investment Bank Bhd plantation analyst Ivy Ng Lee Fang, who is also the head of research.

Speaking at the MPOA National Palm Oil Conference 2023, Ng said labour cost is likely to increase further in the next two years, if a multi-tier levy system on foreign workers is implemented and minimum wage is reviewed. 

In addition to higher crude palm oil (CPO) production costs last year, caused by hikes on wages and input costs, such as fertilisers, energy and chemicals, Ng pointed out that the plantation industry was also struggling with declining CPO yields.

“The lower CPO yields is primarily attributed to labour shortages, adverse weather conditions, and ageing oil palm estates. These issues have intensified the rise in per-tonne production costs for CPO,” she told the audience. 

“Our industry model indicates that every 0.5 tonnes per hectare increase in CPO yield can reduce production costs by RM462 per tonne of CPO,” said Ng. 

Currently, an estimated 664,000 hectares out of the 5.6 million hectares of Malaysian oil palm estates is 25 years and above, Ng said, citing data from the Malaysian Palm Oil Board. 

However, in 2022, only 97,130 hectares were replanted, representing a replanting rate of barely 1.7% of the total oil palm cultivation area. 

“If replanting is not carried out, the oil palm trees will be older and the yields will be lower. This could also mean that costs increase over time, which could affect the competitiveness of the crop and the profitability of the industry,” she stressed.