Demand for Migrant Agricultural Workers to Heat Up - Part #2

Australia & Taiwan demand for Indonesia workers, implications for Malaysia palm oil

We case study Australia that is looking for many more agricultural workers, reportedly now focusing on Indonesia as well as Oceania, and Taiwan that has opened up for agricultural labour workers from Southeast Asia in 2020 (see table below, agricultural sector workforce sizes with migrant worker numbers policies to be clarified). Indonesia has been restrictive of migrant workers for agriculture, but we should expect a review and change of this policy, especially balanced against its urban-industrial workforce needs and plantation worker needs in more remote areas.

These countries will be offering significantly higher wages (see table below, indicative monthly earnings comparisons) with their higher value-add farm/agricultural sectors and better conditions than the likes of Malaysia.

Moreover, Malaysia’s recruitment permit system dominated by agencies and concessionaires and this will be an ongoing red flag for labour specialists. And worse, Malaysia’s overall high cost system approach may be an economic disadvantage if and when other countries rollout straightforward pro-labour G2G MOUs with the likes of Indonesia.

Our view: While oil palm plantations have enjoyed relatively high margins and been profitable year-in year-out (for most but the most marginal producers or those who ran into balance sheet and other internal problems), it is an extensive crop and its labour needs are big at about one person per eight hectares, across several million hectares. Wages are set by the Malaysia palm sector-designed piece rate/productivity system where workers are often incentivized to harvest and deliver one tonne of palm fruits per day with limited mechanisation.

The less-than-formal seasonal agricultural in several key exporters are becoming more formalized and may offer more international demand competition for Southeast Asian workers, just as workers are attracted into domestic industrial and service sectors and are unwilling to take on poorly remunerated dirty, difficult & dangerous (DDD) work. In this regard, it is worth noting:

1. the willingness of Malaysians to take on well paid DDD jobs overseas;

2. the 50% higher pay in the palm sector of Latin America; and

3. Taiwan’s 32% higher pay for local versus migrant workers in its livestock sector (note: the details of benefits in kind also need to be reviewed). 

Indonesia labour excels in agriculture and in semi-skilled roles and we expect it is being approached by big agri-food exporters to discuss labour sourcing in order to regularise labour and for them to expand production amidst booming demand and prices. Malaysia palm oil employs and needs about 500,000–700,000 workers and on skill-matching about ⅔ are from Indonesia, thus 300,000–460,000 Indonesians, in reality and theory. If the likes of Australia and Taiwan lobby for Indonesian agricultural workers and Malaysia is not concerted in reforming to be an attractive employer, palm oil will need to significantly change its strategic plan for workers—perhaps sooner rather than later.

Note: (1) 1 United States Dollar equals  4.46 Malaysian Ringgit (MYR); (2) ILO Global Estimates on International Migrant Workers: The ILO estimates that 169 million people are international migrant workers. International migrant workers constitute 4.9 per cent of the global labour force. Source: PalmTrack - Khor Reports, 4 Aug 2022, Khor Yu Leng (yuleng@segi-enam.com)

Links: [1] No problem for RM1,500 minimum wage in plantation sector; [2] Indeed.com: Farm Worker salary in Malaysia; [3] Jobted: Farm Worker Salary in Australia

Australia and Taiwan seeking more Indonesia agricultural workers? Here are a couple of news links:

• Nov 2021, Australia: Over 22,000 more workers are still needed to fill labour shortages across the agriculture industry. “Statistics from the latest Australian Bureau of Statistics (ABS) Labour Force Survey (LFS) indicate that the Australian agriculture, fisheries and forestry sector employed 325,000 people on average over 4 quarters to August 2021, with the horticulture and broadacre (livestock and cropping) industries accounting for the vast majority of workers. However, the ABS LFS only accounts for the Australian resident civilian population and is therefore an underestimate of total agricultural employment due to the significant number (>35,000) of overseas workers employed on farms.”

• Taiwan has been formalising its migrant agricultural workers system in recent years. Mar 2022, Taiwan: “The Council of Agriculture (COA) said on Monday (March 14) that it had approved the entry applications of about 2,400 migrant agricultural workers…

  “The Ministry of Labor (MOL) on Feb. 15 reopened the country’s borders to migrant workers from the Philippines, Vietnam, Thailand, and Indonesia, Tsai noted. However, she said Indonesia does not allow its people to work as agricultural laborers overseas, and therefore there will be no Indonesians among this group of 2,400 migrant agricultural workers.”

For Part 1, click the following link: Demand for Migrant Agricultural Workers to Heat Up - Part #1.

Demand for Migrant Agricultural Workers to Heat Up - Part #1

Migrants workers have been a dominant feature of the economies of Malaysia, Singapore, and Thailand, with especially strong reliance on massive flows of workers in sectors like construction and agriculture; and their role permeates other sectors too. Asia has seen big flows of workers and we expect some changes as the post-Covid recovery drives policy shifts. We focus on Malaysia’s palm oil sector as a major destination for migrant workers and a scenario for competition from Taiwan and Australia agriculture with a strongly pro-labour compliant Indonesia considering requests for migrant workers.

Malaysia palm oil issues, challenging Indonesia rules, others will reform

Indonesian migrant workers have been greatly depended on by Malaysia plantations and they are they are also the core of the country’s construction sector skilled labour force. Indonesia has been moving to protect the interest of its migrant workers, especially domestic workers where abuse cases have caused much concern. An expert notes especially the struggle to get judgment against errant employers, even in some extreme cases. Labour specialists tell us that this is due to very strict interpretations by Malaysian judges and this is seen as a rather awkward technical legal problem.

There has been less concern from Indonesia about agricultural and other economic sector workers; we think for rather practical and obvious reasons—they work together in larger groups, in formal and informal settings. With the shortage of labour in Malaysia, employers are bidding and paying up and according to work hours and overtime, and Malaysia implementation of regulations on working conditions are improving, and employers have been talking about the higher costs. 

However, the recent 2022 US Trafficking in Persons or TIP report still ranks Malaysia low. It is looking for stronger statistical evidence of implementation including investigations and prosecutions. The treatment of migrant workers by local law enforcement has been notorious and widely discussed in Malaysia but with so-far limited political will for change.

And there is a huge number of undocumented workers. After years covering this topic, we realise that a big “tell” is the discussion about daily wages rather than monthly wages or earnings for migrant workers. Other issues are worker safety, excessive overtime, living conditions and another forced labour issue, the cost of recruitment. These are official and customary costs; some companies deem the latter as illegal or corruption and this reduces the amount that they are willing to pay for restitution or reparation on recruitment cost. This seems to drive the sub RM5,000/migrant worker offered by some palm oil companies versus average toward RM15,000 offered by some rubber glove companies. But it is widely thought that migrant worker do NOT face significant total cost differences based on which economic sector they end up in. 

Workers are still moving internationally in the millions, hoping for higher wage and a big pot of savings, and many achieve this and this demonstration effect drives others to do so. But for those who fail in their quest the outcome is sad and it can even be tragic. A few years ago, I was told by a plantation labour specialist that suicides happen before a worker’s term is up and due to go home, and he realises he has not saved enough. These figures are said to be unreported and in the last 15 years, I’ve not observed this being discussed at an industry level. 

Importantly, there has been a drive for legislation and regulation to protect migrant workers, including in labour supply countries like Indonesia and Bangladesh. And more will do so, especially in light of increased international competition for migrant workers. At the implementation stage, it is a great time for supply countries to leverage demands on behalf of their workers.  

On the demand side, we see the regional competition for agricultural workers rising and expanding. We expect the Covid recovery to drive change toward a more formal and compliant agricultural labour supply.

While Western markets have been worried about labour standards in supply markets such as Malaysia palm oil; their own farm sectors have been notoriously reliant on informal seasonal labour with substandard conditions, e.g. third world-like agricultural worker slums in Spain reported in The Guardian and other news media. This should be gradually cleaned up at labour destinations and we look to Taiwan and Australia as agricultural product export case studies, but we think continental EU and US might still lag as much of their produce is consumed domestically. 

The restart of mass cross-border people movement has been used by key labour origins to bargain for better labour standards implementation, notably for Indonesia. The political-economic landscape is changed with the agro-commodity price boom—albeit with major price swings—and those who have had a relatively easy time sourcing massive amounts of migrant workers should wake up to better compliance and new competition.

Read Part 2 about the outlook for demand for Southeast Asian migrant workers from Australia and Taiwan.

Much Ado about Something: The India-Malaysia Palm Kerfuffle

There has been significant noise between India and Malaysia about palm oil. This was apparently triggered by comments about Kashmir’s status at the United Nations General Assembly in September 2019 by Prime Minister Mahathir Mohamad (selected as the key teaspoon-a-day Malaysia palm oil advocate).

In the era of trade wars, specialists point to the ‘weaponisation’ of several commodity trades as a result of geopolitical issues emanating from the US-China trade war. In this case, sensitivities in India grew and reached a level that the Solvent Extractor’s Association, the key vegetable oil refiners association, issued a statement on 21 October 2019, urging its members to avoid Malaysia palm oil in solidarity with national issues.

New Delhi officials have denied any negative trade policy. Observers tell of Malaysia officialdom being more concerned about the trade balance and the fact that Malaysia is exploring buying more India buffalo meat and sugar to improve the negative trade balance with India.

But words keep flying. Bilateral issues include the extradition of wanted preacher Zakir Naik, a cause célèbre resident in Malaysia, as well as criticism of India’s new nationality rules.

To be sure, India needs palm oil, or other imported vegetable oils but none is so well priced, on average. So it may all seem a storm in a teacup while palm prices ramp up. Reuters reported an ongoing trade but at a discount to Indonesia palm oil prices. Usually, Malaysia palm oil trades at USD 15-20/tonne premium to Indonesia (largely on logistics), but a USD 5/tonne discount helped things along. This indicates a negative (relative) swing of USD 20/tonne or more at one point.

Malaysia palm producers could take this in their stride. They must be pleased that, despite such talk from its biggest buyer—on top of negative headlines about the palm trade outlook with the EU—the price of crude palm oil has been on a tear, rising from a low of about USD 450 (at mid-2019) to USD 750/tonne, a three year high. But watch out for how long its competitive position against other oils and its use in biodiesel are eroded.

Khor Reports stands by for this (already, India is cutting import taxes) and for possibly more geopolitical word parrying. In the meantime, we highlight eight major points and issues about the palm oil trade, the trade context, and our online-social media reading of the Malaysia palm oil flap in India!

Quick facts about palm oil exports to India

(Note: Trade figures rely on an export-basis reporting unless stated otherwise.)

#1 Indonesia dominates as India’s largest source of palm oils.

It supplies 60% of India’s total palm oil (crude and refined) needs in the last five years; Malaysia has a 38% market share. In 2018 alone, India imported 6.0 million tonnes of palm oil worth USD 5.5 billion, with Indonesia selling USD 3.8 billion and Malaysia selling USD 1.3 billion worth. For palm kernel oil (crude and refined), Indonesia is (again!) the majority supplier to India. With a 66% share in 2018, Indonesia sold USD 487 million worth, while Malaysia sold USD 243 million.

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#2 India is (by far) Malaysia’s largest buyer of palm oil.

In the last five years, just over 20% of Malaysian palm oil went to India (tan-coloured wedge, below). The next biggest importers of Malaysian palm oil were China, Netherlands, Pakistan, Vietnam, USA, Japan, and the Philippines.

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#3 Recent monthly data shows a boom in Malaysia refined palm exports to India.

Looking at monthly data for the Malaysia-India palm trade from June 2018 to June 2019, the value of the trade in crude palm oil (blue line, below) was relatively stable, with slight dips in February 2019 and June 2019.

The value of refined palm oil imports (red line) was about USD 25 million or much lower each month, and started to spike up after January 2019, reaching USD 200 million in February and May 2019. Palm kernel oil product imports (yellow and green lines) were relatively small throughout. 

#4 But Malaysia has lost a million tonnes of volume in India, 2014 to 2018.

However, the more recent rise of Malaysia exports is in the context of declining volume to India. Malaysia palm oil exports have fallen from over 3 million tonnes in 2014 and even higher in 2015 to around 2 million tonnes in 2017 and 2018. This is a major drop of 1 million tonnes by 2018. But look at the pick up in 2019 that so worried India refiners (look out for our future articles or ask us about this!).

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It appears Malaysia was trying to claw back market tonnage with the Malaysia-India Comprehensive Economic Cooperative Agreement (CECA; reduced import duties on Malaysian palm products came into effect in January 2019), but it was flummoxed by the 5% safeguard duty (imposed in September 2019); the more recent trader tensions raise many further questions.  

Overall INdia-Malaysia Trade relationship

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#5 India has a large (but narrowing) trade deficit with Malaysia.

Looking at overall trade relations, India has a trade deficit with Malaysia. This deficit was USD 6.3 billion in 2014, and it has been slowly declining (improving), with a deficit of USD 3.9 billion in 2018.

#6 India’s top trade items include fuel and palm oils, buffalo meat and more.

In 2018, India’s top imports from Malaysia included mineral fuels and oils (USD 2.8 billion), animal and vegetable oils (USD 1.4 billion), electrical machinery (USD 1.1 billion), machinery (USD 753 million), copper products (USD 599 million).

Meanwhile, India’s top exports to Malaysia in the same year are mineral fuels and oils (USD 2.4 billion), aluminium (USD 836 million), organic chemicals (USD 561 million), meat (USD 395 million) and machinery (USD 276 million).

India Public interest & SOCIAL MEDIA

#7 Late Sep and Oct 2019, India social media was a flutter.

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#BoycottMalaysia garnered about 20,000 mentions in a month and palm oil—usually such a staid topic limited to the professional sphere—boomed with about 25,000 mentions; since the Kashmir controversy, it has attracted 80% higher interest in India social media than before in 2019 (note that these statistics are for a key segment in social media, but is not a full count, so there is likely even more mentions elsewhere). Top topics linked to palm oil include boycott, Kashmir and Mahathir.

For some reason, #BoycottMalaysia and ‘palm oil health’ (brown and pink lines) peaked at the end for September 2019 before another (slightly bigger) peak of social media mentions of palm oil and Kashmir and Mahathir (orange and purple lines) in mid-late October 2019. Social media indicators precede an awakening of public interest online (see #8). Fortunately, while there are India media articles that use negative words - like ‘disgusting’ and ‘toxic’ - they do not turn up in social listening indicators.

#8 Palm oil has broken out of a 2015-2018 lull in India online interest.

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While Indonesia palm oil dominates the trade, it has done so pretty quietly (light green line). Malaysia palm oil (mid green line) attracts much more India public interest, while its volume has been struggling there. However, the highest is ‘palm oil India’ (dark green line), a topic we intend to explore later (note: there are incentives to plant oil palm in India). A low simmering topic is palm oil and health (pink line). The boycott topic (lighter orange line) is less prominent (in non-social media) online and should definitely be tracked via social media listening (see #7).

KHOR Yu Leng, 2 Jan 2020