Boosting Plantation Productivity Through Modernisation, Genetic Innovation

From 2026, the government will roll out a multi-tiered levy mechanism (MTLM), charging different rates based on a sector’s dependence on foreign workers. Revenue will fund automation and mechanisation initiatives across industries. NSTP/AIZUDDIN SAAD

Two key targets under the 13th Malaysia Plan (13MP) are set to drive long-term transformation in Malaysia's plantation sector. The first aims to modernise agriculture into a competitive and sustainable industry, while the second seeks to reduce reliance on foreign labour from 15 per cent today to 10 per cent by 2030 and 5 per cent by 2035.

From 2026, the government will roll out a multi-tiered levy mechanism (MTLM), charging different rates based on a sector's dependence on foreign workers. Revenue will fund automation and mechanisation initiatives across industries.

While major plantation players have mechanised some labour-intensive processes like harvesting, full automation remains a challenge due to terrain, crop height, and operational complexity.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the sector's transformation is underway, with some companies diversifying into agri-food ventures to expand revenue.

He added that the MTLM and its dedicated fund for automation are steps toward higher productivity and profitability.

"This will result in greater productivity and improved profitability," he told Business Times.

Dr Afzanizam stressed that labour reduction targets must be implemented carefully to avoid disrupting productivity, given the industry's pivotal role in Malaysia's exports.

Industry leaders also see genetic innovation as the next breakthrough. Advancements in genomics, selective breeding, and biotechnology are enabling shorter, high-yielding, disease-resistant, and climate-resilient oil palms, potentially reducing reliance on manual labour and boosting long-term output.

"Genetic innovation is the next major leap for the industry. Mechanisation alone can only go so far when dealing with tall palms and uneven terrain. But with shorter or semi-dwarf oil palms, harvesting becomes faster, safer, and more compatible with automation," a source told Business Times.

He added that such innovations would not only lower harvesting costs but also boost yield per hectare and enable sustainable intensification, producing more output with fewer resources.

"If Malaysia can accelerate collaboration between plantation firms, research institutions, and biotech companies, we could see real breakthroughs within the next decade. It's not just about productivity – it's about future-proofing the industry," he added.

This aligns with a growing consensus among plantation players that biological innovation must complement mechanisation, ensuring Malaysia's long-term competitiveness amid stricter labour policies and rising sustainability expectations.

United Malacca Bhd (UMB) chairperson Datin Paduka Tan Siok Choo echoed this sentiment, noting that scientific innovation could reshape palm cultivation in the years ahead.

"One possibility is shorter oil palms. Dwarf coconut palms are now a reality; this suggests nurturing shorter oil palms is feasible. Because the genomes of oil palms are more complex than that for coconuts, cultivating a shorter oil palm is technically more challenging than that for coconuts," she said in UMB's 2025 Annual Report.

With a 115-year legacy, UMB, one of Malaysia's oldest plantation companies, is entering a new era of disciplined renewal and strategic growth, rebalancing its ageing Malaysian estates with rising contributions from its Indonesian operations.

Despite near-term challenges from replanting and labour constraints, UMB remains confident in the long-term fundamentals of the palm oil industry.

For the foreseeable future, palm oil's twin advantage as the highest-yielding and most cost-efficient vegetable oil per hectare is unlikely to be challenged, said Tan.

She added that while UMB remains firmly grounded in its core plantation business, the group is actively pursuing crop diversification to reduce its full dependence on palm oil in Malaysia and Indonesia.

Looking ahead, UMB expects improved fresh fruit bunch (FFB) production in the financial year ending April 30, 2026 (FY2026), driven by a better age profile of palms and enhanced operational efficiency.

"Management's priority will focus on improving labour productivity, stepping up mechanisation, and enhancing cost efficiency as well as increasing oil yield. Assuming CPO prices remain at the current level, the group expects satisfactory results for FY 2026," Tan said in the annual report.

Analysts, meanwhile, said UMB's emphasis on operational efficiency, sustainability, and asset rejuvenation will strengthen its long-term resilience, helping the group navigate replanting cycles, land constraints, and adverse weather conditions.

Founded in 1910 as a 460-acre rubber estate in Melaka by the late Tun Tan Cheng Lock, UMB has weathered over a century of commodity cycles, land reforms, and structural change. Today, it is recognised for balancing legacy with innovation and disciplined stewardship.

Its shareholder base remains tightly held, led by Prosper Group (32 per cent), Great Eastern Life Assurance (13.4 per cent), and the Tan family – descendants of its founder – with 12.5 per cent. Collectively, they own nearly 58 per cent of UMB, ensuring strong governance continuity.

At the end of April 2025, UMB's total landbank stood at 48,189 hectares, including 10,434 hectares of plasma estates in Indonesia. Of this, 32,842 hectares were planted with oil palm, supported by three mills across Pahang, Sabah, and Central Kalimantan with a combined processing capacity of 125 tonnes per hour.

Malaysian estates remain UMB's earnings backbone, contributing 67 per cent of total revenue and 77 per cent of EBITDA in FY25. However, its younger Indonesian estates – 72 per cent of which are in their prime production years – are expected to drive growth through FY26–FY28F.

To boost integration and efficiency, UMB plans to construct a new mill at its Millian-Labau estate in Sabah to lower logistics costs and enhance extraction rates. In FY25, its two Malaysian mills processed 374,734 tonnes of FFB – up 38 per cent since FY2019 – producing 70,890 tonnes of CPO and 17,006 tonnes of palm kernel.

CIMB Securities Sdn Bhd estimates UMB's FY25 production cost at RM459 per tonne in Malaysia. Every RM100 per tonne increase in CPO prices could lift group net profit by RM9–10 million between FY26F and FY28F.

As of April 2025, UMB managed 19,479 hectares of planted estates in Malaysia, anchored in Sabah and Peninsular Malaysia. Sabah remains its production powerhouse, contributing 65 per cent of FY25 fresh fruit bunch (FFB) output, led by the Meridian and Millian-Labau estates.

Despite maturing estates, UMB continues to outperform national benchmarks, averaging 19.5 tonnes per hectare between FY2019 and FY2025 – 17 per cent above the Malaysian Palm Oil Board's average. Its crude palm oil (CPO) yield of 3.7 tonnes per hectare also exceeded the national benchmark of 3.28 tonnes.

While total Malaysian FFB production climbed 10 per cent between FY2019 and FY2025, output fell 7.6 per cent year-on-year to 226,478 tonnes in FY25 due to ageing palms and active replanting. Flooding at the Meridian estate trimmed yields by nearly 20 per cent, but stronger performance at the Millian-Labau and Peninsular estates helped offset losses.

According to CIMB Securities Sdn Bhd, about one-third of UMB's local estates are over 21 years old, underscoring the urgency of replanting. With just 48 hectares of reserve land remaining, the group plans to replant 400–600 hectares annually over the next decade, a strategy that may cap short-term yields but safeguard long-term productivity.

Financially, UMB remains robust with a net cash position of RM155 million as of April 2025, giving it room for capital expansion and acquisitions. Dividends have steadily climbed from 10 sen per share in FY21 to 18 sen in FY25 – its highest payout on record.

Indonesia is now emerging as UMB's next growth frontier. The group completed its full acquisition of PT Lifere Agro Kapuas (LAK) in Central Kalimantan in August 2025, consolidating control of a high-potential estate portfolio with an average palm age of just 10 years.

In Sulawesi, UMB's 60 per cent-owned PT Wana Rindang Lestari (WRL) – with rights over 59,920 hectares under a forestry concession – remains a long-term strategic asset pending environmental approval.

CIMB Securities projects core net profits of RM101.8 million, RM97.4 million, and RM96.9 million for FY26F–FY28F, easing from FY25's record RM116.7 million on softer CPO price assumptions. However, improving yields from replanted areas, mechanisation, and maturing Indonesian estates are expected to sustain healthy margins.

Trading at about 0.8 times FY26F book value with a forecast dividend yield of 2 per cent, UMB, with a current market capitalisation of about RM1.24 billion, is rated a "Buy" by the firm with a target price of RM6.42, implying a 20 per cent upside to its sum-of-parts valuation.

Source: www.nst.com.my