2023 a year of headwinds for Malaysia's major commodities

KUALA LUMPUR: Malaysia's major commodities suffered a setback in 2023 despite a weaker ringgit as it was overshadowed by demand deficits due to global economic uncertainties arising from the ongoing geopolitical tensions.

It was further hampered by extreme weather conditions and the issue of labour shortages, which resulted in lower production in all the four major commodities such as palm oil, rubber, cocoa and pepper.

If there is anything to be thankful for, it is the government's assurance that it would sort out the issue of labour shortage for labour intensive sectors at large and plantations specifically.

An adequate labour supply would help boost production in the plantation area, especially for the oil palm planters, while the expectation for the ringgit to strengthen would increase the sector's export revenue.

For the January-September 2023 period, the agricommodity sector recorded an export value of RM117 billion versus RM160.6 billion secured during the January-September 2022 period.

Shortfall in labour remains a major challenge for palm oil

It is to be noted that 2023 marks the fourth consecutive year that the palm oil sector is enduring the issue of labour shortages. The industry is highly dependent on foreign labour, especially for its harvesting process.

The border closure during the health crisis in 2020 in an effort to stop the spread of the Covid-19 virus and subsequent enforcement measures between countries strained the situation further.

The plantation companies currently reported a shortage of nearly 42,000 people with harvesting and infield collection activities recording the highest shortage which represented about 55 per cent of the total shortage and causing the government to lose out billions of ringgit.

In 2022, the sector had a shortage of 63,000 foreign workers and it had severely affected yield and due to that, the government lost out on an estimated RM20 billion in revenue.

However, the Ministry of Plantation and Commodities assured that the labour shortage issue will be fully resolved in 2024, at the same time encouraging companies and smallholders to embrace mechanisation and automation to slowly reduce the industry's dependency on foreign labour.

Deputy Prime Minister cum Minister of Plantation and Commodities Datuk Seri Fadillah Yusof had in March said that about 80 per cent of the labour shortage problem in the oil palm plantations had been resolved.

DPM Fadillah kicks off palm oil mission

To protect the interest of the palm oil sector, Fadillah began working alongside industry regulators like the Malaysian Palm Oil Board (MPOB) and its other agencies to promote Malaysian palm oil and fight discriminatory trade practices against this crop.

He started his mission to Brussels in May and held various meetings and engagement sessions with the EU's top leaders to explain the Council of Palm Oil Producing Countries' (CPOPC) stand on the implementation of the European Union Deforestation-free Regulation (EUDR).

The mission was conducted by Malaysia together with Indonesia after both agreed on the same objectives.

Fadillah also headed to London and held meetings with several ministers responsible for the UK's agricommodity sector and other ministers.

His visit received positive reactions from leaders of the European Commission. Fadillah concluded his working visit on a high note with the EU set to recognise the Malaysian Sustainable Palm Oil (MSPO) certification.

The MSPO certification scheme is the national scheme in Malaysia for oil palm plantations, independent and organised smallholdings, and palm oil processing facilities.

As of September 2023, the MSPO-certified land area were about 95 per cent of the total oil palm planted area.

Meanwhile, the Ad Hoc Task Force was created following the CPOPC mission to the EU with its first meeting held in Jakarta in August, and Malaysia is expected to chair the second meeting of the task force in mid-January next year.

The meeting aims to find solutions to compel the EUDR to consider the views of producing countries and discuss the effects of the regulation on the producing countries, particularly smallholders, and the guidelines of the EUDR implementation.

Fadillah also led the Malaysian delegation to Nairobi, Kenya in July to explore the trends and growth potential of palm oil in the East African market while fostering bilateral cooperation between Malaysia and Kenya in the industry.

On his third and the last palm oil mission for 2023, Fadillah visited Shanghai and Beijing from Nov 12-19, to strengthen cooperation in the areas of research and development as well as capacity building in the field of commodities, especially in promoting the MSPO certification scheme at the global level.

He described his China visit as "the most successful" visit, with the republic committed to closer cooperation.

With a population of around 1.4 billion, China, which is the world's second largest palm oil consumer after India, has committed to increase its palm oil imports from Malaysia to 3.4 million tonnes next year compared with the estimated 3.14 million tonnes so far.

Fadillah's palm oil mission for this year basically covered Malaysia's traditional market - China and the EU and expanding and exploring new potential business opportunities in the palm oil sector between Malaysia and Kenya.

The ministry is aiming to expand Malaysia's palm oil market in India, Egypt, other Arab countries and other countries in Africa in 2024.

Lower CPO production, price

Based on data shared by the Malaysian Palm Oil Board (MPOB), it said the country's crude palm oil (CPO) production for the first nine months of 2023 showed a slight decrease compared with the same period in 2022.

"During the reviewed period, national CPO production was 13.28 million tonnes compared to 13.34 million tonnes attained in the corresponding period of 2022, which was lower marginally by 0.5 per cent.

"Based on the latest figures, the CPO price was traded lower by 27.1 per cent to RM3,835.50 per tonne during January-October 2023 compared to RM5,264.50 per tonne in January-October 2022 with the highest and lowest traded prices at RM4,217.50 per tonne in April and RM3,640.00 per tonne in October respectively," it said.

"However, the outlook for the Malaysian palm oil sector in 2024 is expected to be better than the previous year in terms of supply availability. In terms of demand, it is projected to remain uncertain in the global market due to concerns about the global economic crisis," it added.

In the recent MPOB's International Palm Oil Congress and Exhibition, industry experts shared their view that the Malaysian CPO is expected to trade between RM4,000 and RM4,200 per tonne next year impacted by weather developments, geopolitical risks, government policies and slower global economic growth.

Malaysia recorded RM40.51 billion in the export value of palm oil with an export quantity of 9.66 million tonnes from January to August this year.

Rubber

The rubber industry witnessed a decline in production, as a result of the El Nino phenomenon, wintering season and the Northeast monsoon.

Apart from natural factors, the decline in the price, lack of rubber tappers and the spread of Pestalotiopsis leaf fall disease are still the dominant factors for the industry in 2023.

"The farmgate price levels have been hovering below 250 sen per kg for three consecutive quarters causing the tapping activities to be unappealing to smallholders.

"The lower price of natural rubber had caused the monthly income of smallholders to reduce to below the national poverty line income and led to over 400,000 hectares of rubber holdings being abandoned," the Malaysian Rubber Board (MRB) told Bernama.

It said the downstream sector is the major contributor to the rubber industry in terms of export earnings and post-pandemic has become the most challenging period for glove manufacturers after enjoying an overwhelming demand and remarkable sales during the height of Covid-19.

"The oversupply issue has put pressure on the selling price and was witnessed by a significant drop in export earnings. Today, China is seen to ramp up glove production and is fast gaining market share and becoming another challenger to the Malaysian glove industry."

Besides the above, geopolitical tensions, including those involving Russia, the Middle East and China could trigger negative spillovers to global markets, including the Malaysian rubber industry.

Based on the announcement of Budget 2024, the government has agreed to raise the Activation Price Level (PHP) of the Rubber Production Incentive (IPG) to RM3.00 per kilogramme (kg) with an allocation of RM400 million.

Through the implementation of IPG, smallholders will receive farm level rubber prices (50 per cent dry rubber content) at the level of RM3.00 per kg of cuplump sold.

On Oct 23, 2023, Fadillah launched the New Model Pilot Project for Latex Production Incentives with more attractive offers and incentives for small rubber farmers to increase their income and the country's latex production.

Meanwhile, the natural rubber production estimates for this year are around 330,000 to 350,000 tonnes, which is half of that produced four years ago, while rubber production in the eight months of 2023 amounted to 221,143 tonnes, down by 30,045 tonnes or 12 per cent from the corresponding months of 2022.

The average price for Standard Malaysian Rubber (SMR) 20 from January-October 2023 was 612.50 sen per kg, lower by 74.88 sen per kg or 10.9 per cent compared to 687.38 sen per kg during the same period of 2022.

The average price of latex in bulk during the same period was 502.75 sen per kg, lower by 83.77 sen per kg or 14.2 per cent compared to 586.52 sen per kg for the same period in 2022.

The MRB said that among the factors influencing the downtrend were the uncertain performance in the US and China economic data. However, the weakening ringgit against the US dollar helped capped further losses in the rubber market.

On its outlook, the rubber's production in 2024 is predicted to reach 50,000 to 370,000 tonnes, higher than output levels in 2023, supported by several initiatives and flagship project to be implemented in 2024.

"Malaysia's rubber industry is likely to bounce back in 2024 to more than RM40 billion export earnings compared to an estimated RM37 billion in 2023."

Cocoa

While the upstream segment of the cocoa industry is in decline due to low yields and reduced hectarage, interest in cocoa farming is growing this year with the rise of artisan chocolatiers and the "bean-to-bar" movement, the Malaysian Cocoa Board (MCB) said.

Director general Dr Ramle Kasin said there is a focus on the cocoa's downstream sector this year as well as on the higher value-added products and expansion into new markets.

"The board said that from January to September 2023, Malaysia has extensive market coverage of up to 200 market destinations worldwide.

"The export earnings of cocoa and cocoa products from January to September 2023 registered a growth of 0.5 per cent to RM5.80 billion compared to the corresponding period in 2022," he said.

Based on this current performance, Malaysia's cocoa industry will continue to grow, and cocoa export earnings is expected to reach RM8.0 billion in 2024.

Pepper

As for pepper, the imbalance between supply and demand has been the challenge faced by this king of spices.

Fadillah was reported as saying that the disparity has exerted significant pressure on prices and the cultivation of pepper in diverse regions.

"According to the International Pepper Community (IPC), it was estimated that the world consumed approximately 213,000 tonnes of pepper last year, indicating a slight decline in demand compared to the preceding year, which saw consumption of 224,000 tonnes.

"This decline can largely be attributed to the post-pandemic recovery and necessary demand adjustments," he was reported as saying during an event in Kuching early November.

Meanwhile, up to August this year, Malaysia recorded a total of RM96 million worth of pepper exports.

The country is the world's fifth largest producer of pepper with 32,724 tonnes after Vietnam, Brazil, India and Indonesia.

Currently there are 38,587 pepper smallholders in Malaysia with a total pepper cultivation area of 8,091 hectares and Malaysia primarily exports pepper to Japan, Singapore, South Korea, Vietnam and Taiwan.

For next year, the Ministry of Plantation and Commodities aims to increase pepper exports by introducing new technologies to farmers and improving productivity.

It also calls on creative Malaysians, especially the youths, to create more downstream products using pepper to meet various market demand including the food, pharmaceutical and nutraceutical, and beauty sectors.

-- BERNAMA