Travel restrictions in Malaysia have resulted in a steady decline in the number of workers available in the palm oil sector. REUTERS
The recent surge in Covid-19 cases in Southeast Asia has strangled ports and locked down plantations and processors, causing prolonged disruption of raw materials such as palm oil, coffee and tin.
Restrictions on Malaysia, the world’s second largest producer of palm oil, have prevented migrant workers from entering plantations, raising the prices of the ubiquitous edible oil used to make candy, shampoo and biofuel.
Lockdowns in Vietnam, the world’s second largest exporter of coffee by volume, have delayed the processing and export of coffee beans, adding to production problems caused by poor weather conditions in Brazil.
The global tin supply has been hit by Covid-19-related outages at a foundry in Malaysia, which has contributed to the rise in prices of industrial metal, which is used to connect computer chips to circuit boards in the industry. electronic.
Prices for each of these products have hit multi-year highs in recent months, adding costs that are passed on to consumers.
“These supply shocks reverberate globally because Vietnam and Malaysia have a significant market share in key commodities,” said Trinh Nguyen, senior economist at Natixis.
Companies like Unilever PLC, the consumer goods company, and JM Smucker Co., which includes Folgers coffee, said rising raw material prices are contributing to cost pressure.
“The price of palm oil, a key ingredient in our skin cleansing products, is now 70% higher than its long-term average, with increased demand and lower crop yields driving up the market. price, ”said Graeme Pitkethly, chief financial officer of Unilever. in July.
He added that the company had already raised the prices of some products.
One of the reasons for the high price of palm oil is an increase in Covid-19 cases in Malaysia.
The Southeast Asian country recently recorded around 19,000 new cases and 400 deaths per day in its worst outbreak since the start of the pandemic.
Travel restrictions in place since March last year have made it difficult for workers to access the plantations, leading to a steady decline in the number of workers.
The palm oil sector depends on migrants from Indonesia, which is the world’s largest producer of this raw material, as well as from Bangladesh and India.
Rigid restrictions on internal movement put in place in recent months in response to the increase in cases have compounded the challenges facing palm oil companies, as have epidemics on plantations, causing closures.
Sime Darby Plantation Bhd. said its manpower shortage in Malaysia has worsened to around a fifth of its total needs, which means around 6,000 unwanted vacancies compared to 2,000 in March 2020.
The company said it produced around 6% of Malaysia’s crude palm oil last year.
Vietnam is the world’s largest exporter of bitter-tasting Robusta beans used in instant coffee and espresso blends. Bloomberg
Labor shortages and declining rainfall contributed to a 5% drop in its palm oil production in Malaysia in the first half of the year, Sime Darby said.
The company said it has invested in new mechanization and automation to reduce its reliance on manual labor.
FGV Holdings Bhd., Which said it produced around 15% of the country’s crude palm oil, said it had encountered difficulties producing the expected volumes due to the recent increase in Covid cases. 19 in Malaysia.
The company said infections on business areas and grinding operations led to mandatory lockdowns.
The overall effect was a 13.6% drop in Malaysia’s palm oil exports in the first eight months of 2021 compared to the same period last year, according to data from the Malaysian Palm Oil Council. , an industrial group.
“You don’t have enough workers to reap the rewards,” said Ivy Ng, regional head of agro-food research at CGS-CIMB Securities in Malaysia.
While the government plans to reopen the economy at the end of this year, Ms Ng predicts that regulations on foreign workers will be relaxed by the start of next year, which would help oil palm plantations to grow. strengthen their workforce.
Asia’s Covid-19 travel restrictions are also hitting coffee. From July, an outbreak in Vietnam prompted the government to introduce movement restrictions that hampered shipments.
Vietnam is the world’s largest exporter of bitter-tasting Robusta beans used in instant coffee and espresso blends.
“Vietnamese exporters are having difficulty transporting goods, including robusta green coffee and King Coffee products, to ports for shipment around the world,” said Le Hoang Diep Thao, general manager of TNI King Coffee and vice -President of the Vietnamese Coffee and Cocoa Association. .
Vietnam’s coffee exports from January to August 15 fell 8.2% from the same period last year.
“Local and foreign traders are extremely worried,” said Ms. Le, adding that the coffee association was lobbying the Vietnamese government to relax restrictions to avoid delivery delays.
Large coffee companies often use both Robusta and its aromatic cousin, Arabica, in their blends and infusions. Prices for both types have risen sharply this year, mainly due to drought and frost in Brazil, the world’s largest coffee exporter. Vietnam’s production problems in recent months are contributing to the rise in prices.
Western coffee companies have said the higher prices will trickle down to consumers.
“Coffee costs have gone up,” Smucker CFO Tucker Marshall said on an August earnings conference call, adding, “We will take additional steps and pricing action to ensure we recover the inflationary impact “.
Michael Orr, spokesperson for JDE Peet’s NV, said the Dutch coffee company has experienced “a sharp increase in the costs of ingredients, freight and the like over the past year, which will force us to take action. appropriate.
Historically, large fluctuations in green coffee prices have been reflected in the market and we expect this precedent to continue. “
Tin prices have risen in recent months after Malaysia Smelting Corp. Bhd., One of the world’s largest producers of refined tin, has cut staff at the smelter and halted operations in recent months to comply with government regulations aimed at limiting the spread of Covid-19.
Malaysia’s tin exports fell 29% in June from the previous year.
A representative from Malaysia Smelting said tin production has not yet returned to normal, but added that it plans to gradually restore operations to pre-pandemic levels as the Malaysian government reopens the facility. ‘economy.
“Tin prices continue to rise, supported by continued demand for tin solder in consumer electronics and supply disruptions due to blockages in tin-producing countries around the world.” , the company said in a financial report last month.