PUTRAJAYA: Measures in the recently tabled Budget 2025 aimed at enhancing foreign worker welfare through a higher minimum wage and mandatory contributions to the Employees Provident Fund (EPF) are raising concern among companies in labour-intensive industries, including plantation-based IOI Corporation Bhd.
IOI group managing director and chief executive Datuk Lee Yeow Chor said it is not only putting cost pressure but the changes will have an impact on the company’s profit margins.
“The increase in minimum wage and EPF contributions translates to roughly a 1.5% rise in our operational costs this fiscal year. While we support the goal of improving worker welfare, it is a delicate balance to maintain profitability given the sector’s price volatility,” he said in a press conference after the company’s annual general meeting today.
The government has indicated that the budgetary adjustments are essential for creating a more inclusive economy.
However, Lee said, companies relying on a large foreign workforce are facing challenges.
He disclosed that IOI’s workforce has already started to decrease gradually as part of a five-year efficiency plan. “Previously, we had one worker for every 6.5 hectares. Now, we are aiming for one worker per 8.5 hectares, driven by mechanisation and automation.”
Adding to the complexities, Lee said, the industry’s long-standing dependence on a vast labour force, estimated at 16,000 to 18,000 foreign workers for larger plantations, makes it particularly vulnerable to cost fluctuations.
“To combat labour shortages and rising wages, companies are investing in automation and mechanisation. For instance, we have implemented mobile devices for monitoring crop delivery and have increased the number of skilled drivers for automated processes.
“Mechanisation means we need more drivers and automated tools to track crop collection efficiently,” he explained, emphasising the shift towards a leaner, more tech-driven workforce.
Lee said that while modernisation efforts in the agricultural sector are promising, they require significant investment, especially for businesses already managing thin margins. He predicted further cost increases in the coming years as the government targets further wage hikes to align with international labour standards.
Despite these challenges, the sector is hopeful on growth as replanting initiatives reach maturity, contributing to production gains, Lee said.
“We anticipate a 5% increase in yield due to recent replanting efforts over the last two years. Our replanting rate is at an all-time high, we are expecting an uptick in yields as these young palms reach maturity,” he added, highlighting the industry’s resilience.
Furthermore, Lee said, the recent spike in crude palm oil (CPO) prices reflects a tightening market, driven by a combination of seasonal production declines and shifting supply-demand dynamics. With the ongoing effects of weather expected to suppress yields in major producing regions, prices could see additional upward pressure.
“Our current projections for the coming months place CPO prices around RM4,300 per metric ton, though this figure remains highly sensitive to weather patterns and potential yield impacts from prolonged dry conditions. If adverse weather conditions persist, supply constraints could push prices even higher, affecting both domestic and global markets.”
