- Oil palm planters enduring severe financial burden
- Good to buy plantation counters now
- Incentivise good corp governance
Posted: 16 Sep 2014 06:59 PM PDT
Malaysia's social safety laws of Windfall Profit Levy and Minimum Wages are meant to make cooking oil affordable to the poor and pave the way towards a high income nation. Unfortunately, oil palm planters are suffering from these policy backfirings, writes OOI TEE CHING.
THE Minimum Wages Order 2012, which took effect from January last year, requires employers with six employees and above to pay a minimum wage of RM900 a month in Peninsular Malaysia or RM800 a month in Sabah, Sarawak and the Federal Territory of Labuan.
As the government seeks to propel Malaysia into a high-income nation by introducing minimum wages, the blanket implementation of this figure to "basic rate" instead of "take-home pay" across all sectors had given foreign workers more money to send back to their home countries.
In an interview with Business Times, Malayan Agricultural Producers Association (Mapa) executive director Mohamad Audong said the blanket implementation of the minimum wage policy, rising bank borrowing costs and falling palm oil and rubber prices have resulted in planters being hit from all sides.
"While there is a 20 per cent increment in the basic wages, this has resulted in almost 40 per cent more money outflow from Malaysia last year. In theory, this law is supposed to help the oil palm industry become more productive. In reality, however, planters are badly hurt," he said.
Mohamad pointed out that in 2012, foreign workers in the agriculture sector remitted around RM8 billion to their home countries. After the Minimum Wages Order 2012 was implemented last year, foreign workers sent back around RM11 billion. This year, Mapa estimates this figure to surpass RM15 billion.
He explained that planters are facing higher production costs. This is mainly due to more expensive foreign worker recruitment fees, higher fuel and utilities, such as diesel, electricity and water.
There are also various new fees and tax hikes to be imposed by the federal and state governments. On top of that, oil palm planters also have to pay cess of RM13 per tonne to government agency Malaysian Palm Oil Board.
The bleak outlook, Mohamad said, is compounded by Bank Negara Malaysia's raising of interest rates. This means costlier bank loans to rubber and oil palm planters.
Since oil palm planters are price takers, their earnings are at the mercy of pricing in the world's commodities markets. On Monday, the third month benchmark palm oil futures contract on Bursa Malaysia derivatives market added RM15 to close at RM2,099 per tonne.
"Don't forget many of our planters borrow money from the banks and issue bonds, of which bankers and insurance companies are subscribers."
Depending on the year of planting, Mapa calculated that palm oil production cost of these heavily-geared planters ranges between RM1,300 and RM3,000 per tonne.
"The minimum wage policy works best if commodity prices are on the uptrend, not when prices are falling," Mohamad said.
As the government seeks to review the minimum wage ruling at the end of this year, planters appeal for a more judicious implementation of the Minimum Wages Order 2012.
"We're not opposing the minimum wage law. It is the way the salary is being packaged. It would be more practical if the government amends the RM800 and RM900 per month minimum figure to that of take-home pay instead of basic rate. This would streamline the Minimum Wages Order 2012 to the main thrust of existing labour laws as that interpreted by the Industrial Court for many decades," he said.
Mapa represents close to 200 plantation companies in Peninsular Malaysia, with estates spanning across a million hectares. These oil palm planters employ some 125,000 workers in the fields, of which 80 per cent are foreigners.
In their 2015 Budget wishlist, oil palm planters are appealing for the government to streamline the minimum wage rate with existing labour laws. They also want the government to abolish the windfall profit levy and rationalise cooking oil subsidy.
Meanwhile, Malaysian Estate Owners Association (MEOA) president Datuk Boon Weng Siew concurred that oil palm planters endure severe financial burden with the spectre of taxes and new ones to be introduced. "For every RM1 we earn, we have to pay almost 45 sen to the federal and state governments in taxes," he said.
"Planters are not required by law to provide accommodation, schools, clinics and places of worship, but many of MPOA (Malaysian Palm Oil Association) members do so as part of their corporate social responsibilities.
"When you factor into these amenities and benefits to workers, such as housing, water, electricity, medical care, transportation... it amounts to about RM450 per month per worker," Boon added.
"Now, there is a new tax called Property Assessment Tax imposed by local authorities at between RM5 and RM100 per hectare. "This burden is increasingly painful on our members," he said.
Apart from the minimum wage ruling of unintended higher money outflow, oil palm planters' subsidising of cooking oil is also seeing huge wastage in the form of rampant smuggling to neighbouring countries.
Under the Cooking Oil Subsidy Scheme, palm cooking oil is capped at RM2.50 per kg.
Boon put things into perspective when he highlighted cooking oil sold in Malaysia is priced at 65 per cent discount of global market pricing.
"In other words, the same 1kg of cooking oil sold in Malaysia for RM2.50, if shipped out of the country, would fetch US$2.50 (or RM8.03). Exporters could price it three times higher in neighbouring countries," he said, adding that the billion-ringgit subsidy that goes into cooking oil sold, here, is being funded by a windfall profit levy imposed on oil palm planters.
It has been reported that this levy is unfair because it is imposed on assumed profit and not on actual profit.
The levy is activated when palm oil exceeds RM2,500 a tonne. Planters in Sabah and Sarawak pay windfall tax when the prices cross RM3,000 per tonne.
MEOA, which represents 153 small- and medium-sized estates of more than 40ha, is appealing to the government to review the cooking oil subsidy, which benefits restaurant operators, traders, smugglers and people across the border more than the hardcore poor.
The price of palm cooking oil should be allowed to float in the open market, he suggests, and vouchers can be issued to hardcore poor households to mitigate the impact on them.
Posted: 16 Sep 2014 06:46 PM PDT
KUALA LUMPUR (Bloomberg): PALM oil's slump to a 5-year low offers investors an opportunity to buy plantation counters, according to Dorab Mistry, director at Godrej International Ltd, who says producers are still making money.
"I am often asked these days if oil palm plantation and palm oil processing company equities should be bought. My answer is a resounding yes," Mistry said two days ago, without identifying the stocks.
"You invest in plantations when palm oil prices are low. I prefer processing companies which manufacture speciality fats, oleochemicals, biodiesel and own consumer brands. Upstream companies will benefit when the price cycle turns."
Mistry, who has traded palm oil for more than three decades, joins Standard Chartered Plc in recommending investors buy plantation stocks to profit from a anticipated rebound in prices.
Palm oil fell to a 5-year low, two weeks ago, as output from Indonesia and Malaysia, the biggest producers, topped demand amid a glut in global cooking oil supplies, including soyabean oil.
Global palm consumption increased 81 per cent in the decade to last year as rising incomes lifted demand, the United States government data show.
"Long-term demand for palm oil is very supportive of the sector and that supports the case for recovery in crude palm oil (CPO) prices," said Alex Fergusson, a fund manager at Singapore-based Woodside Holdings Investment Management Pte, referring to a period of five to 10 years.
Growth in per capita gross domestic product and populations in emerging markets are the drivers for demand, said Fergusson.
Prices will drop in the next few weeks towards the cost at which growers in Asia produce the world's most-used cooking oil, said Mistry at an oils and fats conference organised by the Malaysian Palm Oil Board and Malaysian Palm Oil Council, in Shanghai, recently.
The world is awash with vegetable oils. Futures will drop to about RM1,900 a tonne, he said. That is 9.6 per cent below Monday's close of RM2,099 per tonne on the Bursa Malaysia Derivatives and would be the lowest price since March 2009.
"It is almost impossible to forecast a bottom at this stage of the production cycle," Mistry said. "However, producers are still very much in the money and I do not foresee prices going below cost of production."
Palm oil prices are expected to strengthen next month onwards on lower production, and there is a better outlook for 2015 as biodiesel demand may increase, RHB Investment Bank Bhd said in its September 10 report to investors.
The bank said it remains "overweight" on plantation stocks in Indonesia and Singapore. CPO prices dropped 21 per cent this year to RM2,101 a tonne on Monday. Prices fell to a five-year low of RM1,914 on September 2, then rebounded after Malaysia scrapped an export levy for this month and next month.
Full-year output in Malaysia, the world's second-largest grower, will probably be in the region between 19.7 million tonnes and 19.9 million tonnes, Mistry said.
In the first eight months of this year, supply was 12.76 million tonnes, 991,000 tonnes more than a year ago, while exports dropped 6.6 per cent to 10.99 million tonnes, he said.
Stockpiles will continue to rise and peak in December. Reserves in Malaysia jumped 22 per cent to 2.05 million tonnes last month from July, the biggest percentage gain since October 2009, Malaysian Palm Oil Board data show.
Posted: 16 Sep 2014 06:24 PM PDT
KUALA LUMPUR: Malaysia Institute of Chartered Secretaries and Administrators (Maicsa) is proposing that tax breaks be accorded to companies for expenses incurred for good corporate governance compliance.
Maicsa president Chua Siew Chuan told Business Times that the government can incentivise good governance among corporate Malaysia by according tax breaks in the form of tax deductible expenses under the 2015 Budget."
"Expenses incurred in ensuring transparent and ethical ways of doing business will result in sustained participation from investors and stakeholders," she said on the sidelines of the Maicsa 2014 conference last week.
Corporate governance is about how company directors make decisions and put them into action. Measures to enhance ethical business practices include the setting up of a whistle blowing department within the company, strengthening of internal audit and appointment of chief governance officer.
Since 2012, the Malaysian Code on Corporate Governance had placed greater emphasis of good governance on public-listed companies.
Good corporate governance is integral in balancing the interests of the many stakeholders in a company, namely shareholders, management, customers, suppliers, financiers, government and the community.
"We're no longer confined to the traditional passive job of preparing the minutes of meetings. We're a lot more proactive since Bank Negara began to recognise company secretaries as gatekeepers of good governance," Chua said.
"Nowadays, company secretaries are expected to guide their board of directors in 'walking the talk' on integrity and transparency in their daily business decision-makings," she said, adding that corporate directors have increasingly turned to company secretaries for advice on procedural and regulatory requirements. Company secretaries also help the chairman in determining the annual board plan.
In view of the expanded role being undertaken by company secretaries, she said it is timely for the government to consider introducing a dedicated set of laws for this profession.
"Many countries already have a Company Secretaries Act, including India, Bangladesh and Pakistan. It would be timely for Malaysia to have a dedicated set of laws to give due recognition and properly regulate this profession," said Chua.
Established in 1959, Maicsa is part of The Institute of Chartered Secretaries and Administrators (ICSA) headquartered in the United Kingdom, which has 36,000 members in more than 70 countries.
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