The Malaysian Employers Federation (MEF), SMI Association Malaysia and a few other trade groups have submitted a memorandum to Prime Minister Datuk Seri Najib Razak requesting to defer the deferment of the minimum wage increase which is supposed to be implemented on 1st July 1,2016, rising from RM900 to RM1,000 per month in the peninsulaPeninsular and RM800 to RM920 in Sabah, Sarawak and Labuan. AFP photo.

TOUGH TIMES: Private sector employers are urging the government to postpone move to increase minimum wages in July, writes Ooi Tee Ching.

THE Malaysian Employers Federation (MEF), SMI Association Malaysia and a few other trade groups have submitted a memorandum to Prime Minister Datuk Seri Najib Razak requesting to defer the deferment of the minimum wage increase, following his recent decision to adjust the 2016 Budget 2016.

The minimum wage increase is supposed to be implemented on slated for 1st July 1,2016, rising from RM900 to RM1,000 per month in the peninsulaPeninsular and RM800 to RM920 in Sabah, Sarawak and Labuan.

MEF executive director Datuk Shamsuddin Bardan noted that said in view of the current economic uncertainty, the wage increase move would be too drastic for the private sector and could trigger retrenchment.

“As wages increase with no real improvement in productivity, employers in the private sector face rising cost of doing business. If the current bleak situation is not addressed, employers may have to retrench more people. It would be bad for the economy," he said.

“In There are some countries, where the government helps employers during challenging periods by giving them some form of incentives to preventavoid the possibility, the possibility of retrenchment. What can be done is the provision of subsidies for the payment of wages or reducing EmployeesEmployment Provident Fund contributions.”," Shamsuddin added.

In a separate interview with Business Times, Malayan Agricultural Producers Association (Mapa) executive director Mohamad Audong explained that employers in the oil palm and rubber sectors were insuffered the same predicament as those in the oil and gas industry because as commodity suppliers were price takers.

On the contrary, big players contractors in the construction sector and manufacturers are better able to pass on the wage increases through project tenders and prices of exported goods.

Mohamad said highlighted oil palm and rubber investors’ income were highly dependent on the global commodity market. When prices were low, they had to make do with it while cost increases could not be passed on that easily to customers, he added.

Planters are being hit have been hit from all sides since the minimum wage policy was introduced in 2013, in addition towith rising bank borrowing costs and falling palm oil and rubber prices.

He went on to explain that Mohamad said planters were facing higher production costs.

This is mainly due to costlier fertiliser as well as more expensive higher foreign worker recruitment fees and higher fuel and utility costsies like diesel, electricity and water.

There are also new fees and tax hikes imposed by the federal and state governments.

Among the slew of taxes and fees oil palm planters are paying to the government are the 26 per cent in corporate tax, six6 per cent Goods and Services Tax, windfall profit levy, crude palm oil export duty, foreign workers recruitment levy of RM590 and processing fee of RM125, work permit of RM50, Fomema fees of RM180 (male workers) and RM190 (female workers), security bond of RM250, visa payment of up to RM70 per worker, workmen compensation insurance of RM100, quit rent of up to RM100 and import duties on agricultural tools and machinery.

On top of that, oil palm planters also have to pay cess of RM13 per tonne to the Malaysian Palm Oil Board.

“It is pointless to raise the thresholds of minimum wages which will facilitate more outflow of money by foreign workers at the expense of our economy," he said.

“Considering that persistent low commodity prices are limiting planters’ income, such a move can trigger the very thing we want to avoid, which is higher unemployment among Malaysians," he added.

“We strongly support MEF’s move to appeal to the government to defer the increment of minimum wages,” said Mohamad.

Malaysian Estate Owners Association (MEOA) president Joseph Tek, in a telephone interviewcall from Sabah, concurred with Mapa.

“Oil palm planters are price takers and not price makers, our earnings are at the mercy of pricing in the world’s commodities markets.”," Tek said.

Last Friday, the third month benchmark palm oil futures contract on Bursa Malaysia Derivatives Market added RM38 to close at RM2,460 per tonne.

This RM2,400 per tonne pricing is set against the depreciated ringgit that has depreciated to the US dollar by more than 25 per cent against the US dollar compared to a year ago. When this is factored in, the current palm oil price would be around RM1,800 per tonne.

“Many of our planters borrow money from the banks and issue bonds, of which trust funds, bankers and insurance companies are subscribers.

“We are not opposing the minimum wage law. This policy works best if it is productivity-driven and commodity prices are sustainable. Being a commodity supplier, we are not able to pass on the added cost burden to consumers," he said.”

Tek said oil palm planters were still saddled with the windfall profit levy that would be triggered when the price of crude palm oil surpassed RM2,500 per tonne.

“This windfall profit levy is deemed unfair because it is imposed on assumed profits and not on actual profits," Tek said.”

He saidexplained the profits of plantation companies varied profits vary, according to the age of the palms.

Newly-developed plantations, or green fields, and areas under replanting do not make any profit in the initial years of harvest of fresh fruit bunches.

“For example, the present cost of replanting to maturity, which used to be around RM8,000 per hectare, is now in the region of RM12,000 or more per hectare,” he said.

Established in 1931, MEOA represents small and medium-sized estates of more than 40ha with membership totalling over one million hectares in Malaysia.

Tek reiterated that the rising cost of production was depriving the palm oil industry of funds to re-invest.

“We must remember there are a multitude of positive spin-offs the plantation industry is contributing to the country. The nation has a shared destiny with this industry.”

He saidexplained oil palm investors were finding it difficult to carry out the five Entry Point Projects (EPPs) of the National Key Economic Areas (NKEAs) for the country's Economic Transformation Programme (ETP).

The five EPPs are to accelerate replanting, improve fresh fruit bunches yield, improve workers’ productivity, oil extraction rate and development of waste-to-energy biogas plants at palm oil mills.

Oil palm planting is very capital-intensive. Every year, planters have to chop old and unproductive trees and replace them with higher yielding seedlings. Planters need to re-invest their profits to ensure business continuity and raise productivity at their fields.

“We appeal to the government to, once and for all, abolish the windfall profit levy. It is really tough when low palm oil prices, set against unabated cost increase, are slicing deep into our margins,” added Tek said.