Palm oil producers adjust to labour shortages, higher recruitment costs

KUALA LUMPUR, 21 JULY 2026 —

The country, second only to Indonesia in palm oil production, has become more competitive in recent months due to higher export levies imposed by its southern neighbour. But mounting employment costs mean Malaysia risks losing that edge and potentially ceding market share to Indonesia. The increased costs, alongside record-high fertilizer prices affecting both countries, pushed the key commodity to an all-time high in October.

“The current issues are an extreme manifestation of the fact that as incomes grow and workers, with greater options of urban employment, become less able or willing to do manual labour, attracting them to the plantations will become more difficult,” said Julian McGill, head of Southeast Asia at LMC International.

“Soon there will be no ‘cheap’ labour.” Up until April last year, as many as 337,000 migrant workers, mostly from Indonesia, worked on Malaysian plantations, making up about 80% of the workforce. Thousands of them flew home throughout the pandemic while Malaysia closed borders and stopped issuing new work permits to control the spread of the virus. Hundreds of undocumented workers were also deported.

As a result, Malaysia’s palm oil yields dropped to nearly 40-year lows this year as plantations operated with about 75,000 fewer workers than needed. The steep drop in production pushed palm oil prices to record highs and sparked concerns about food inflation. To alleviate the situation, Malaysia in September approved the recruitment of 32,000 foreign workers for palm oil plantations, prioritising those from Indonesia.

Even if that many were hired, it would still leave plantations well below full capacity for the next peak harvest season of September to November 2022. Plantation owners are finding it harder and more expensive to hire workers as they try to repair Malaysia’s standing in global markets caused by accusations of using forced labour.

The US Customs and Border Protection (CBP) banned imports of palm oil in 2020 from Sime Darby and FGV on suspicion of using forced labour, including debt bondage, violence and unlawful retention of identity documents. The bans are still in effect. Both companies have hired independent auditors to evaluate their operations and said they would engage with the CBP to address its concerns.

Similar accusations of forced labour have also been made by the CBP and rights groups against other industries in Malaysia, including rubber and electronics. In July, the US Department of State downgraded Malaysia to its labour watch list that includes China and North Korea.

“The risks of a failed or corrupt recruitment process to Malaysia’s government and industry reputation at this time, already reeling from US forced labour sanctions and a blackened image globally, are real,” labour rights activist Andy Hall told Reuters. Hall, who has been at the forefront of campaigns to end labour abuse in Malaysia and elsewhere in Asia, was hired by Sime Darby in October 2020 as an ethical recruitment consultant.

To try to address the issues and repair its image overseas, plantations have invested millions of ringgit to improve recruitment processes, upgrade housing for workers, provide lockers for workers to keep their passports in and hire auditors and consultants to assess their labour practices. FGV and Sime Darby told Reuters they are strengthening due diligence processes to ensure they appoint only labour agencies that comply with their human rights policies.

They said they have improved communication efforts to ensure workers fully understand the realities of plantation work. “This is to further ensure that contracts are signed freely, without any coercion, intimidation, deception or threats as well as to ensure that no unethical practices were involved in the recruitment process,” Sime Darby told Reuters.

Educating and preventing labourers making large payments to recruiters or other middlemen, which up to now has been common, is one of the key issues that needs to be addressed, according to Hall. Some companies are considering repaying such recruitment fees to workers, a manager of a palm oil refinery told Reuters. Such a move helped Malaysian glove company Top Glove Corp get an import ban lifted by the US.

FGV said it has allocated an additional RM43 million this year to refurbish workers’ housing and upgrade equipment to ensure continuous access to electricity and water in remote locations. Sime Darby told Reuters it estimates that it will spend RM65 million annually for the next seven years on routine efforts to review and improve working conditions at its plantations. Employers must pay all coronavirus-related fees like testing and quarantine, with no help from the government.

That could double recruitment costs for each worker to about RM10,000, according to estimates by the Malaysian Palm Oil Association. “We have to go through the process of agents identifying workers, preparing the passports, Indonesian government clearance and Malaysian government’s standard operating procedures,” MPOA chief executive Nageeb Wahab told Reuters. There is no guarantee that Malaysian plantations will be able to recruit the thousands of workers it needs.

Indian labour agent Vimlesh Gautam told Reuters he is aiming to hire 3,000 workers to start by December, but has so far only identified about 200 candidates as Covid-19 protocols in India and Malaysia complicate the recruitment process. “We have to put the process on hold because we are awaiting medical guidance from Malaysia,” said Gautam.

“Once it is confirmed, we can get more workers.” With most Malaysian plantations having been severely understaffed for two seasons, urgent

Related: Sime Darby