To Reduce Palm Oil Prices Mitigate Cost Hike ;Sime Darby Said,

PETALING JAYA: Sime Darby Plantation Bhd is likely to incur additional operating costs of “slightly more than 7% in financial year 2022” due to measures to address the International Labour Organization (ILO)’s forced labour indicators in the former’s production process.

The plantation group said in a briefing to update on its actions in addressing the ILO indicators the additional costs arising from these measures were necessary and the additional cost will likely be temporary.

“However, as some of the expenses are not recurring items, thus, the increase in cost is not persistent. Importantly, we opined that the high palm oil prices would be enough to mitigate the increase in costs,” TA Research said in a report.

In December 2020, the United States Customs and Border Protection (USCBP) issued a Withhold Release Order against Sime Darby Plantation based on ‘information that reasonably indicates the presence of all 11 of the ILO’s forced labour indicators in the company’s production process’.

Subsequently, in January 2022, USCBP published a notice of finding, whereby the government agency determined that certain of the company’s palm oil products are produced using convict, forced or indentured labour. The finding is primarily aimed at Sime Darby Plantation’s Malaysian operations.

TA said that overall, it is positive on the changes and improvements to the company’s governance structures, policies and procedures that have been taken so far. Towards this end, seven workstreams have been established to address all 11 ILO indicators and to strengthen overall governance mechanisms for human rights.

“We understand that a potential mitigating factor would be for Sime Darby Plantation to show the due diligence and to prove to USCBP that the forced labour indicator no longer exists within the supply chain by engaging a third-party auditor. According to management, the assessment report by the auditor Impact Ltd will be released and published by the end of this month and submitted to the USCBP in April,” added the research firm.

Meanwhile, Hong Leong Investment Bank Research said the plantation group’s measures to tackle USCBP’s ban issues will likely pave the way to alleviate concerns on environmental, social, and governance. The research firm said it is maintaining its earnings forecast for now, pending a review on its crude palm oil price assumptions and the potential impact from the recently announced minimum wage hike in Malaysia and the revised palm oil export levies in Indonesia.