Joint Press Release: Industry Not Consulted on The Malaysian Palm Oil Board (Cess) (Amendment) Order 2021: Appeal to Channel for Mechanisation

Monday, 22 February 2021

1. STAKEHOLDERS JOINT STATEMENT
   
   The following relevant stakeholders representing the interest of the Malaysian palm oil supply chain have jointly issued this press release.
   
   
   1. The Malaysian Palm Oil Association (MPOA)
   2. The Malaysian Estate Owners’ Association (MEOA)
   3. The National Association of Smallholders (NASH)
   4. The Palm Oil Millers Association (POMA)
   5. The Sarawak Oil Palm Plantation Owners Association (SOPPOA)
   6. The Palm Oil Refiners Association of Malaysia (PORAM)
   7. The Malaysian Oleochemical Manufacturers (MOMG)
   8. The Malayan Agricultural Producers Association (MAPA)
   9. The Incorporated Society of Planters (ISP)
   
   
   The above associations are in solidarity with all Malaysian oil palm growers in appreciating that any significant policy changes and relevant issues affecting one portion in the supply stream will affect the entire supply chain. The solidarity and unity of the stakeholders are manifested in this joint press release in relation to the recently gazetted Malaysian Palm Oil Board (Cess) (Amendment) Order 2021.



2. APPRECIATION FROM SUPPLY CHAIN AMID COVID-19
   
   Over the duration to-date of the Covid-19 pandemic, the Malaysian oil palm growers and all the other stakeholders in the supply chain are appreciative and grateful to Federal and State governments, and YB Minister of Plantation Industries and Commodities (MPIC) Dato’ Dr. Mohd. Khairuddin bin Aman Razali and his Ministry for allowing the Plantation sector to operate throughout the Movement Control Order (MCO) by recognising it as an essential sector. This has meant a great deal to the oil palm industry, particularly to the hundreds of thousands of smallholders in Malaysia. The plantation industry has been able to remain steadfast in providing and sustaining employment opportunities, creating many multiplying and spin-off benefits, and generating significant foreign exchange while sustaining its substantial contribution to the national economy amid the pandemic.
   
   All stakeholders have always reiterated that there should be a balance between combating the Covid-19 infection on the one hand and economic sustainability on the other.



3. TAXATION AND LOSSES OF THE PALM OIL SECTOR
   
   The Malaysian palm oil sector has been saddled over the years by corporate tax, windfall profit levy, cesses and State sales tax imposed by the respective state governments of Sabah and Sarawak. Some taxation is based on revenue rather than profits. The reality today is that the plantation sector as a whole is just recovering from the prolonged low CPO prices of previous years, and has earlier suffered in terms of prolonged low profitability or even losses over a period of time against unabated cost increases. CPO prices set against costs, including taxes will translate to realised margins.
   
   Rubbing salt into the wound, the plantation sector continues to incur crop losses on the trees and in the fields due to an increasingly acute shortage of workers. It is a lose-lose situation for the growers and the country as a whole, including loss of substantial revenue to the government’s coffers, comprising income taxes, levies and cesses. The oil palm industry is a long-haul business and the growers are today just recouping their investments while needing to reinvest in order to remain competitive and sustainable.



4. MPOB CESS ORDER 2021
   ( http://www.federalgazette.agc.gov.my/outputp/pua_20210215_pua59.pdf )
   
   Hence, the oil palm growers were taken by surprise by the move on the part of the Malaysian government to increase yet again the tax burden on the palm oil sector, this time with an additional cess of RM2 per tonne of palm products – both crude palm oil (CPO) and crude palm kernel oil (CPKO).
   
   The associations representing the Malaysian plantation sector refer here to the Federal Government Gazette dated 15 February 2021, published by the Attorney General’s Chambers and authorised by the Minister of Plantation Industries and Commodities (MPIC), which spelt out that the government would be collecting RM16 in cess payments on each tonne of palm product (CPO and CPKO) produced, compared to the previous RM14 which came into effect January 2020.
   
   According to the document, the Malaysian Palm Oil Board (Cess) Order 2019 was amended after consulting the Minister of Finance. Unfortunately, there were no consultative engagements nor any initiative by the government to pursue inclusive discussions with the growers who are the ultimate cess contributors on the additional cess. It was also reported in the media that both the Malaysian Palm Oil Board (MPOB) and MPIC could not provide detailed information on the intent and purpose of the cess collection.



5. TOTAL CESS COLLECTION
   
   The associations estimate that the amended cess order 2021 will add about RM44 million per year to the MPOB cess coffer. (Note: Based on production, every RM1 cess can equate to about RM22 million per year contribution from the oil palm growers).
   
   With the amendment, all the oil palm growers in Malaysia comprised of smallholders to public listed plantations companies, will end up collectively contributing an estimated total cess of about RM344 million per year to MPOB.



6. MECHANISATION @ MARCOP
   
   Notwithstanding the above, the associations note that there were earlier engagements at the end of 2020 concerning another additional cess which was proposed to be implemented on 1 January 2021. It was widely understood at the time that the funds collected under that cess were intended to be used for mechanisation and automation in the palm oil industry under a proposed consortium as its platform, to be named the Mechanisation and Automation Research Consortium of Oil Palm (MARCOP). MARCOP would function as a neutral body to manage collaborations that are to be intensified through strategic partnerships with the purpose of addressing oil palm mechanisation, especially in harvesting technology. The stakeholders acknowledge that strategic partnerships in mechanisation should be the key R&D focus and top priority going forward in order to address the plantation sector’s high labour dependency.
   
   It was also encouraging to note that the Malaysian government had also approved in Budget 2021 a matching grant of RM30 million to this mechanisation initiative in line with the spirit to promote partnership between the government and private sector.
   
   However, following the various appeals from the industry, the above proposal was deferred to allow for further dialogue with oil palm growers. The growers welcome the inclusive discussion towards enhancing clarity of how the cess will be used for mechanisation.
   
   In light of the gazetted additional cess of RM2 to be collected as per MPOB Cess (Order) (Amendment) 2021, there must not be another additional and new cess for the purpose of MARCOP.



7. APPEAL FROM ASSOCIATIONS
   
   Instead, the associations would be grateful if the YB Minister of Plantation Industries and Commodities could welcome the associations’ appeal and approve our proposal for the an equivalent RM30 million from the gazetted MPOB (Cess) (Amendment) Order 2021 to be channelled as seed-funding to kick-start MARCOP – to be combined with the already approved RM30 million matching grant from the Malaysian government as announced in Budget 2021. The latter matching grant from government must not be derived from the same pool of MPOB cess funding.



8. OIL PALM AND INDUSTRY 4.0
   
   The gesture proposed above will be line with the Malaysian government’s thrust and priority on Industry 4.0 and mechanisation-cum-automation which the Ministry of Plantation Industries and Commodities has also been promoting and advocating.
   
   At the recently concluded virtual Global Agriculture Technology Summit 2021 held on 17 February 2021, YB Minister of Plantation Industries and Commodities reiterated that the application of disruptive technologies would be the driver of innovations, and that more effort and resources had to be devoted to automate and mechanise the oil palm industry as a solution to address the labour supply issue.



9. WINDFALL PROFIT LEVY & MECHANISATION
   
   Following on, the associations also appeal to the government to channel a slice from its consolidated pool of the windfall profit levy (WPL) collected from oil palm growers, for the purpose of sustaining MARCOP. The MPOB’s former chairperson, Datuk Ahmad Jazlan Yaakub, was reported to have highlighted that the total WPL to be collected in 2021 from the oil palm growers could total over RM500 million. With current favourable CPO prices still being sustained, this amount is expected to be higher.



10. HARVESTING AND WORKERS
    
    The associations opine that it would be a good policy and practice for portions of the WPL proceeds be channelled back to the oil palm growers their levy contribution to address the myriad of challenges facing oil palm growers today, including the rapid new developments and issues relating to acute shortage of workers in the palm oil industry.
    
    For example: The fact remains that the century-old oil palm plantation industry has yet to develop and have available a cost-effective and durable automated mechanised harvesting tool for oil palm fruit bunches, especially for harvesting taller palm trees.
    
    With the advent of Industry 4.0 and AI related technologies, including development of drones, lasers and exoskeleton technologies, the drive towards attaining such cost-effective harvesting systems can potentially be achieved sooner – and this is extremely vital amid the continued shortage of workers, especially harvesters.
    
    The acute labour shortage has been made worse by the Covid-19 pandemic situation, resulting in huge crop losses, and consequently losses in revenue for growers and in taxes for the Federal and State governments. It is a significant opportunity loss amid favourable CPO prices of today.



11. CONCLUSION
    
    The associations’ proposals set out above are:
    
    
    1. Appeal that there must not be another extra and new cess for the purpose of MARCOP in light of the recent gazetted additional cess of RM2 as per the MPOB Cess (Order) (Amendment) 2021.
    2. To channel an equivalent RM30 million from the gazetted MPOB Cess (Amendment) Order 2021, as seed-funding to kick-start MARCOP – that will be combined with the matching grant of RM30 million approved by the Malaysian government as announced in Budget 2021. This must not be derived from the same pool of MPOB cess; and
    3. To utilise part of the levy revenue collected under the Windfall Profit Levy on palm oil to sustain MARCOP towards assisting the palm oil industry find solutions in addressing the myriad challenges, with the immediate emphasis on mechanisation.
    
    
    Serious consideration and adoption of our proposals by the government would be welcomed by the oil palm growers, including the hundreds of thousands of smallholders. It is also timely at this juncture for the government to demonstrate in a transparent manner its commitment to reinvest in partnership and together nurture the oil palm industry that it is been taxed ever more heavily, by addressing priority challenges including mechanisation.
    
    The oil palm sector has proven to be one of the very few sectors that have consistently performed positively during the times when the nation’s economy was in need of revival – such as the recession in the1980s, Asian Financial Crisis in 1997, recession in 2009 and despite of the labour shortage amid the present Covid-19 pandemic.
    
    Sawit Anugerah Tuhan is our shared destiny as a nation to remain sustainable and competitive as a palm oil producer – in good times and in bad times. Realising cost-effective mechanisation systems along with prudent governance, ‘tax and use for the rainy days’, and good reinvestment strategies will help to ensure the palm oil sector’s sustainability and competitiveness for the benefit of all relevant stakeholders.
    
    Thus, the support and rechannelling of cess and levy contributed by oil palm growers by the Government investing in the oil palm mechanisation with the advent of Industry 4.0 will help to defend and revive the nation from further unforeseen economic troughs amid the pandemic.
    
    Together, let us nurture and sustain the Malaysian palm oil industry, and not kill the goose that lays the golden egg.