KUALA LUMPUR: PublicInvest Research said a purported plan to raise minimum wage to RM1,700 could lead up to a three per cent increase in operating costs for plantation companies.

According to Chinese portal Nanyang Siang Pau, the Ministry of Human Resources plans to table a proposal of raising the minimum wage from RM1,500 to RM1,700 or an increment of 13.3 per cent based on the National Wages Consultative Council Act 2011.

PublicInvest said the labour-intensive palm oil plantation in Malaysia - the world's No.2 palm oil producer - employs almost half a million workers, and could see a small financial hit in response to the minimum wage hike.

"Following our channel checks, we gather that local plantation companies could see their operating costs increase by up to 3 per cent as general workers (security personnel, admin clerks, carpenters, drivers, mechanics) who fall under the current RM1,500 wage bracket, generally made up about 15 per cent-20 per cent of the total workforce.

It said it will also have knock effect on higher wage brackets. PublicInvest said however that the impact could be muted if it could translate into higher productivity.

Malaysia's fresh fruit bunch (FFB) yield has been on the uptrend this year with a 12 per cent increase to 10.82 million metric tonne (mt) for the first eight months and PublicInvest believes it will likely reach close to 17 million mt for the full-year compared to 2023's 15.79 million mt.

PublicInvest believes the progressive minimum wage hike would push industry players to allocate more capital expenditure for automation on more work processes to reduce the number of headcount going forward.

For example, robotic arms, drones and specialised machinery can carry out manual work more efficiently.

It can also help reduce the high dependency on foreign workers, in which the new hiring quota remained frozen.

It noted however, that  harvesting work is the most difficult skill to be replaced by machines.

"Alternatively, we gather that some industry players are gradually converting the hourly-pay general workers to a piece rate-pay basis, which would see the worker pay rated on a performance basis. This will also help drive the entire group'sproductivity commensurate with higher pay," it said.

PublicInvest maintains its neutral call on the sector outlook with a full-year crude palm oil forecast of RM3,800/mt.

https://www.nst.com.my/business/economy/2024/09/1105159/plantation-companies-cost-could-go-3pct-rm1700-minimum-wage-analyst