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IMPACT OF MSPO CERTIFICATION ON PROFIT AMONG PALM OIL

GROWERS IN MALAYSIA

Article in The Planter · December 2023

DOI: 10.56333/tp.2023.030

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 The Planter, Kuala Lumpur, 99 (1173): 789-804 (2023)
DOI: https://doi.org/10.56333/tp.2023.030

Impact of MSPO Certification on Profit Among

Palm Oil Growers in Malaysia
FABIAN LIM CHIN WEN, JUWAIDAH SHARIFUDDIN AND ANN ANAK SINDEN
Universiti Putra Malaysia, Jalan Universiti 1, 43400 Serdang, Selangor Darul Ehsan, Malaysia

Malaysian Sustainable Palm Oil (MSPO) certification is a regulatory requirement for all oil palm growers
and processing facilities in Malaysia. However, unlike the Roundtable on Sustainable Palm Oil (RSPO),
MSPO does not offer any monetary benefits. Growers have concerns about the increased costs of implementing
MSPO. The objective of this research was to identify whether there was a cost increase in terms of overall
cost per tonne of oil palm bunch, cost per area, and any changes in production. Similar methods to those
used in numerous articles on RSPO were employed, utilising the Population, Intervention, Comparison,
and Outcome (PICO) Framework coupled with a questionnaire to collect data. The data were then
analysed using a paired t-test. Samples were collected from MSPO-certified estates with the assistance of
the Incorporated Society of Planters (ISP) and Malaysian Estate Owners’ Association (MEOA) network.
While we initially aimed to collect 72 samples, we managed to obtain 76 respondents. The findings
revealed a significant cost increase per tonne of oil palm bunch, as well as an increase in cost per area
after the estates adopted MSPO. However, there was also a significant recorded increase in yield production.
When compared to current data, the yield increase, coupled with the oil palm price from the previous year,
could not justify the increase in cost and resulted in lower profits. It would be ideal for MSPO-certified
estates to obtain RSPO certification to increase their revenue, as RSPO has an impact on the selling price
of the oil palm. It is recommended that future studies include an in-depth analysis to gain a more holistic
and detailed understanding of the impact of sustainability certification on oil palm plantations.
Furthermore, a separate study focusing solely on smallholders would be beneficial as it may reveal a
different picture.

Keywords: MSPO, RSPO, sustainability, oil palm.

The oil palm tree has long been recognised as
a lucrative crop. It was introduced during the
colonial era, and Malaysia has emerged as the
second largest producer of oil palm, following
Indonesia. The country has been exporting both
crude palm oil (CPO) and final palm oil products
worldwide. According to the Malaysian Palm
Oil Board’s (MPOB) statistical report from
2020, Malaysia possesses approximately
5.8 million hectares of oil palm land, yielding a
production of 19.14 tonnes of CPO.
email: limfablim@hotmail.com
In 2015, the Malaysian government, in
collaboration with Malaysian Palm Oil
Certification Council (MPOCC) and its
partners, officially launched the Malaysian
Sustainable Palm Oil (MSPO) certification.
This certification programme began its
implementation on 1 January, 2015. The
introduction of MSPO was a historic milestone
for the Malaysian sustainable palm oil industry,
as it represented the first certification scheme
developed under Malaysia’s own initiative. This

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Impact of MSPO certification on profit among palm oil growers in Malaysia
move demonstrated Malaysia’s commitment
to promoting environmentally friendly and
socially responsible practices within the palm
oil sector.
After a grace period of three years, on
24 February 2017 the government announced
the mandatory implementation of MSPO
certification for all oil palm estates, smallholders,
and its entire supply chain. The mandatory
implementation came into effect starting
31 December 2019. With that, all oil palm
plantation and its supply chain was mandated
to be certified by 1 January 2020.
The Roundtable on Sustainable Palm Oil
(RSPO) is the predecessor of MSPO in some
way. It is an internationally recognised
independent body that certifies oil palm
plantations based on its own standards. Based
on implementation of RSPO certification, it was
expected that implementing MSPO would
introduce an additional cost factor and increase
the costs for the oil palm industry. Several
journal publications and reports (Watts et al.,
2021; Yeong et al., 2021) have indicated the cost
increase for plantations with RSPO certification.
Additionally, word of mouth among plantation
owners and managers has also served as a
source of information, highlighting the rise in
cost and the challenges associated with
implementing RSPO certification.
During the initiation of mandatory MSPO
certification, many plantation owners and
managers anticipated that implementing MSPO
would be similar to RSPO in terms of
challenges and requirements. However, they
expressed dissatisfaction for various reasons.
One significant concern was the perceived
difficulty in implementing MSPO, especially for
those lacking technical know-how. Moreover,
the additional costs involved in the certification
process was a major concern for many
plantation owners.
790
Objective
This research focuses on studying the costs
associated with implementing MSPO standards.
However, recognising the need for a
comprehensive analysis, the study further
divided the costs into two categories: the cost
per tonne of fresh fruit bunches (FFB)
harvested and the cost per area. In addition to
analysing costs, the research also examines the
difference in FFB yields before and after the
implementation of MSPO.
MATERIALS AND METHODS
Research design
The primary data for this research was collected
through the distribution of a questionnaire. The
questionnaire was developed following the
guidelines provided in the book, “Oil Palm
Cultivation and Management” by Turner and
Gillbanks (2003). This book serves as a
comprehensive resource for oil palm practices,
covering both standard practices and
environmentally friendly approaches, as well
as day-to-day operations. Additional
supplementary information was obtained from
the book by Rankine and Fairhurst (1998).
Research procedure
The research was also done using the PICO
Framework (Population, Intervention,
Comparison, and Outcome). PICO Framework
was originally used for medical studies to
identify suitable treatment on patients.
However, PICO Framework has been used in
other field of studies including marketing,
leadership, and biology. It was discovered that
PICO Framework was used in similar studies
on sustainability certification such as by Yeong
et al. (2021) and was deemed suitable.

PICO framework
For this study, PICO parameter was defined as:
a. Population - Oil palm estates.
Smallholders were not included in this
study since the majority of planted oil
palm was by estates. According to
MSPO Trace at the time this paper was
written (July 2023), 91 per cent of
planted oil palm is from estates,
b. Intervention - MSPO certification,
c. Comparison - Before and after
certification. In order to standardise,
only three years before and three years
after the certification was being
compared. Therefore, a total of six
years of data is collected. The year that
the entity was certified is classified as
part of before certification, and
d. Outcome - financial costing and yield
performance is being measured.
Paired t-test
Paired t-test was commonly used to test the
variance of mean between two linked groups.
Daya (2003) has explained how paired t-test
was often used in the medical field when
comparing treatments on the same patient or
group of patients. In the report, Daya (2003)
gave samples that are appropriate for use of
paired t-test and when it was not suitable.
To determine statistical significance, the
paired t-test was chosen as it is suitable for
comparing means between treatments within
the same sample. The guide to using the paired
t-test by Pandis (2015) provided a clear
explanation of its application. Similarly, Rietveld
and Hout (2017) also offered a comprehensive
explanation and provided sufficient data on how
to use the paired t-test, including its
assumptions. In this research, the Microsoft
application MS-Excel was selected to conduct
The Planter, Vol. 99, No. 1173, December 2023
the paired t-test, as it offers full functionality
for this purpose.
Therefore, the paired t-test was utilised to
compare the parameters before and after the
implementation of MSPO. Additionally, as
mentioned earlier, additional data on harvesting,
maintenance, and general charges were
collected and subjected to the paired t-test for
further analysis and support.
Hypothesis
Based on the problem statement, three main
hypotheses were tested for cost per tonne FFB
(RM/t), cost per area (RM/ha) and yield per
area (t/ha). The three hypotheses for all three
are:.
H0: There is no significant change.
HA1: There is significant increase.
HA2: There is significant decrease.
RESULTS
Overall cost per tonne of fresh fruit
bunches (RM/tonne)
Based on the analysis done, the mean before
MSPO certification was RM278.98 per tonne
of FFB. However, the mean cost after MSPO
certification was RM299.31 per tonne of FFB.
With the P value lesser than alpha (<0.05), null
hypothesis was rejected. The findings show
that there was a highly significant difference,
in that the cost of FFB production was higher
after MSPO certification. The increase in cost
is 14 per cent between before and after MSPO
certification (Table 1).
Overall cost per area
Paired t-test was also done on the overall cost
per area (Table 2). The mean cost before
MSPO certification was RM4 848.12 per
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Impact of MSPO certification on profit among palm oil growers in Malaysia

TABLE 1
OVERALL COST PER TONNE OF FRESH FRUIT BUNCHES (RM/TONNE)

Before MSPO After MSPO

Mean 278.9802985 299.3146269
Variance 651.5837759 571.4505484
Observations 134 134
Pearson correlation 0.014466184
Hypothesised mean difference 0
df 133
t Stat -6.779853265
P(T<=t) one-tail 0.000000000178
t Critical one-tail 1.656391244
P(T<=t) two-tail 3.56721E-10
t Critical two-tail 1.977961264

TABLE 2
OVERALL COST PER AREA (RM/HA)

Before MSPO After MSPO

Mean 4848.119179 5460.359254
Variance 2459009.878 2980829.547
Observations 134 134
Pearson correlation 0.329168848
Hypothesised mean difference 0
df 133
t Stat -3.70581466
P(T<=t) one-tail 0.000154031
t Critical one-tail 1.656391244
P(T<=t) two-tail 0.000308062
t Critical two-tail 1.977961264

hectare. After MSPO certification, the mean
cost was RM5 460.36 per hectare. At P value
of 0.00015, was lower than the alpha.
Therefore, null hypothesis was not accepted.
The cost per area was highly significant. The
cost was higher after the implementation of
MSPO. Based on percentage, the increase of
cost per area was around 12.6 per cent higher.
Yield per area
The yield per area was measured in tonnes
per hectare. All respondents replied to this. It
was discovered that mean yield before the
intervention of MSPO was 18.68 tonnes per
hectare. The mean yield after MSPO
intervention was 19.85 tonnes per hectare. The
analysis also stated the P value was lower than
alpha (<0.05), therefore null hypothesis was
rejected. There was a highly significant increase
in yields after MSPO intervention. However,
the increase was at around 4 per cent of FFB
per hectare (Table 3).

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 The Planter, Vol. 99, No. 1173, December 2023

Harvesting operation cost (RM/tonne) cent in terms of cost per tonne (Table 4).

Harvesting operational cost was analysed using
paired t-test as well. The P value was lower
than alpha, therefore alternative hypothesis was
accepted. There was a highly significant
increase in cost between before and after the
MSPO certification intervention. The mean
before MSPO certification was RM73.87 per
tonne compared to mean of RM85.66 per
tonne of FFB produced after MSPO
certification. This was an increase of 15.9 per
Maintenance operation cost (RM/ha)
The study found that the mean of maintenance
cost before MSPO certification was
RM93.69 per hectare. However, the cost was
noted to be higher at RM107.33 per hectare
after MSPO certification. Given the P value is
lower than alpha, alternative hypothesis was
accepted. The cost was significantly higher
after the intervention. In terms of percentile,

TABLE 3
YIELD PER AREA (TONNE/HA)

Before MSPO After MSPO

Mean 18.67365672 19.85358209
Variance 3.180990287 2.834720907
Observations 134 134
Pearson correlation 0.140975338
Hypothesised mean difference 0
df 133
t Stat -6.007607591
P(T<=t) one-tail 0.0000000085
t Critical one-tail 1.656391244
P(T<=t) two-tail 1.69618E-08
t Critical two-tail 1.977961264

TABLE 4
HARVESTING OPERATION COST (RM/TONNE)

Before MSPO After MSPO

Mean 73.87335821 85.65649254
Variance 142.8949488 110.6946109
Observations 134 134
Pearson correlation 0.43082265
Hypothesised mean difference 0
df 133
t Stat -11.31872112
P(T<=t) one-tail 0.00000000000000000000161
t Critical one-tail 1.656391244
P(T<=t) two-tail 3.21756E-21
t Critical two-tail 1.977961264

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Impact of MSPO certification on profit among palm oil growers in Malaysia

18.5 per cent was calculated to be the increase
(Table 5).
General charges (RM/tonne)
General charges were captured and calculated
as Ringgit Malaysia (RM) per tonne. The
general charges cost before MSPO
certification were RM109.60 per tonne but was
noted to be lower, i.e., RM107.99 per tonne
after MSPO certification. However, the P value
was higher than alpha. The null hypothesis was
TABLE 5
MAINTENANCE OPERATION COST (RM/HA)
accepted. There was no significant difference
in general charges, between before and after
MSPO intervention. The difference was only
1.5 per cent lower than before the intervention
(Table 6).
The cost impact of MSPO
The survey included a question asking
respondents about the difference in costs
before and after implementing MSPO. Out of
the 76 respondents, 71 of them indicated that

Before MSPO After MSPO

Mean 93.69216418 107.3287313
Variance 217.2360878 193.6171721
Observations 134 134
Pearson correlation 0.077620504
Hypothesised mean difference 0
df 133
t Stat -8.108285801
P(T<=t) one-tail 0.00000000000014847
t Critical one-tail 1.656391244
P(T<=t) two-tail 2.96941E-13
t Critical two-tail 1.977961264

TABLE 6
GENERAL CHARGES (RM/TONNE)

Before MSPO After MSPO

Mean 109.6023881 107.9859701
Variance 679.3450409 496.5802709
Observations 134 134
Pearson correlation 0.364333783
Hypothesised mean difference 0
df 133
t Stat 0.682015838
P(T<=t) one-tail 0.248207473
t Critical one-tail 1.656391244
P(T<=t) two-tail 0.496414947
t Critical two-tail 1.977961264

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 The Planter, Vol. 99, No. 1173, December 2023

TABLE 7 TABLE 8
MSPO COST IMPACT POTENTIAL FACTORS CAUSING COST TO
CHANGE
Does MSPO affect No. responded
overall cost? Potential Number of
factors respondents
Yes, increase 71
Yes, decrease 0 Harvesting 1
No changes 5 Maintenance 5
General charges 5
Salary/wages 22
costs had increased, while five respondents
Everything 6
mentioned no changes (Table 7). None of the Safety/PPE 6
respondents indicated a decrease in costs. As Chemical 5
a result, the majority of the respondents (93.4%) Fertiliser 11
confirmed that implementing MSPO had Pesticides 9
indeed led to an overall increase in costs. Diesel 2
Material cost 7
Main contribution to cost difference CB/Auditor fee 8
Advisory fee 4
The highest number of respondents indicated Training 5
that salary and wages were the potential factors Infrastructure 9
contributing to cost difference (Table 8). In Conservation effort 2
the questionnaire response, those that indicated
this mentioned that it is due to the chemical trap at the chemical store and general
implementation of minimum wages. This was upgrades. The auditor’s fee was mentioned
also reflected in piece rated salary. eight times while the advisory fee was
The lowest indicated was harvesting cost mentioned four times. Training cost was also
which was by only one respondent. However, noted five times while conservation efforts
no further clarification on this cost was given. were sighted twice. However, both training and
It was noted in general that maintenance cost conservation efforts were not further
and general charges were indicated five times elaborated on. Finally, the term ‘Everything’
in both. was indicated as much as six times.
Material cost was also noted to be a factor.
Fertiliser cost was mentioned 11 times, which Changes in yields
was the second highest reference, pesticide
was mentioned nine times, chemical was When participants were questioned if there
mentioned five times, Personal Protection were any differences in terms of yields,
Equipment (PPE) was mentioned six times, and 28 responded indicating an increase in yields.
diesel cost twice. Two on the other hand indicated a decrease in
There was also notable mention of yields. However, 60 per cent of the respondents
upgrading infrastructure, as much as nine times. stated there were no differences in terms of
This was inclusive of upgrading security, yields between before and after implementing
upgrading store, oil trap at the lubricant store, MSPO (Table 9).

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Impact of MSPO certification on profit among palm oil growers in Malaysia
TABLE 9
CHANGES IN FFB YIELDS
Changes Number of
in yields participants
Yes, increase 28
Yes, decrease 2 wages. This was derived directly from
No 46
DISCUSSION
Overall cost per tonne and overall cost
per area
The paired t-test showed that there was a
highly significant increase in cost per tonne
when compared before and after intervention.
The same result was also found when the cost
per area was analysed. This was also the same
as reported by the respondent. Of the
76 respondents, 71 indicated the cost did indeed
rise. One potential reason for this was most
likely the auditor’s fee. There was a total of
eight respondents who mentioned the auditor’s
fee was a reason for the rise in cost. There
was a plausibility that there were separate
charges for different auditors, e.g., MSPO and
RSPO auditors.
Harvesting cost comparison
Additional data specifically focused on
harvesting cost operations were compiled for
the research. The results revealed a significant
difference, indicating a 15.9 per cent increase
in harvesting costs, between the period before
and after the implementation of the sustainability
certification. This observation suggests that one
of the contributing factors to the overall cost
increase was the rise in harvesting operations
cost.
The respondents identified salary as the
796
primary driver of cost increase, with a total of
22 references mentioned. With the
implementation of MSPO, the estate would
have to be transparent in its dealing and
payment with the workers. Salary in the estate
comes in two forms, i.e. daily wages or normal
Minimum Wages Order. Therefore, if there
were changes in Minimum Wages Order, it
would affect the worker’s daily wages. During
the writing of this project, Minimum Wages
2020 was enforced. The minimum wage was
set at RM1 200.00 per month. Therefore, the
wages for a day of work will be RM46.15.
Daily wages = Monthly wages / 26
working days
= RM46.15 per day
Harvesting work itself is regulated by
Unions, namely the Malayan Agricultural
Producers Association (MAPA). A set of rules
and guides were provided by MAPA to
calculate and determine the rate to pay
harvesters. MAPA also dictates on the
inclusion of Special Gratification Price (SGP)
based on the price of CPO. Therefore, if the
price of CPO increases for the month, so too
will the harvester ’s rate. Before MSPO
implementation, the estate may not have
honoured the MAPA/NUPW agreement
guidelines, even if it was a member of MAPA.
Estates that are not members of MAPA, may
choose not to honour the guidelines. With that
said, members were to pledge to honour it but
may not do it regardless. With the intervention
of MSPO, estates that are MAPA members
have no choice, but to honour the guidelines.
This would most likely raise the salary of
harvesters, especially when they include the
SGP and Productivity Incentive (PI). MAPA
takes extra care to ensure the calculations for
harvesters are in accordance with the

Malaysian Government Minimum Wages
Order. Therefore, complying with MAPA’s
guidelines will automatically adhere to the
Government’s Order.
Given that harvesting operations also
include the costs of tools and transportation, it
is plausible that these factors contributed to the
overall cost increase. Out of the respondents,
a total of seven indicated that material costs
was one of the reasons for the overall cost
increase. This suggests that the respondents
agree with the notion that the cost of harvesting
tools played a role in the increased expenses
related to harvesting operations. Additionally,
two respondents specifically mentioned ‘diesel’
as a contributing factor. It is worth noting that
harvesters were provided with PPE in
accordance with safety procedures. Six
respondents mentioned PPE as a factor in the
cost increase. However, it was understood that
harvesters did not require a significant amount
of PPE, typically limited to cotton hand gloves,
helmets, and goggles. These items were
relatively inexpensive and did not require
frequent replacement.
Maintenance operation cost
When we look into overall maintenance cost,
it was calculated to be significantly higher after
the intervention of MSPO. This was also noted
to have P value lower than alpha, thus null
hypothesis was rejected. As mentioned earlier,
salary was most likely a major factor. When
MSPO standards were enforced, the piece-
rated work was also adjusted to accommodate
for the implementation of the Minimum Wages
Order. Piece-rated work is work that is paid
according to the amount they have worked.
For example, one hectare sprayed with
weedicide will be paid RM10. Therefore, the
piece-rated rate for spraying weedicide was
RM10 per hectare. Since the minimum wage
The Planter, Vol. 99, No. 1173, December 2023
was instructed, this rate must also
accommodate for the difference, usually as a
raise. Unlike the harvesting rate, there was no
direct guide to calculate piece-rated rate for
maintenance work, except for the Minimum
Wages Order. Therefore, whatever rate was
set, one must still adhere to the Minimum Wages
Order. In the case where workers were unable
to obtain their daily rate through their piece-
rated work, the estate must still top up the
workers’ wages to reach the set minimum
wages. Piece-rated work is not limited to
harvesting only but to most work in the estate.
This includes, but is not limited to, weeding,
slashing, pruning of oil palm trees, filling of
nursery bags, fertilising, pest control, palm
counting, census, and pest census.
The respondents highlighted that the costs
of chemicals, fertilisers, and pesticides were
among the reasons for the overall increase in
costs. The implementation of the Minimum
Wages Order indirectly contributed to higher
costs for these materials. Producers likely
passed on the additional production costs to the
estates, resulting in higher expenses. In terms
of absolute figures, the cost variance in
maintenance operations was the highest, at
18.5 per cent. This is primarily due to the greater
number of operations involved in maintenance
work compared to harvesting work. Most
maintenance operations require the use of
chemicals. With fertilising operations occurring
up to seven times a year and weeding up to six
times a year, even a slight increase in the cost
of chemicals could significantly impact the
estate’s overall expenses.
There is also a possibility that the cost of
PPE and training played a significant role, in
addition to the chemical costs. Considering that
most maintenance workers are involved in the
use of various chemicals, it is logical for
responsible employers to provide appropriate
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Impact of MSPO certification on profit among palm oil growers in Malaysia
and sufficient PPE. Among the workers,
sprayers who carry out spraying activities are
most likely to require an extensive range of
PPE. This typically includes eye goggles,
respirators, nitrile gloves, aprons, and rubber
boots. Respirators, especially those that comply
with standards and effectively absorb all volatile
organic compounds (VOCs), are often one of
the most expensive types of PPE. The filter
cartridges in respirators usually require frequent
replacement to ensure optimal protection.
Nitrile gloves are another relatively expensive
item, as they are different from regular rubber
gloves and are claimed to prevent chemical
seepage. Aprons are generally inexpensive but
require frequent replacement.
Workers who are sprayers require training
and regular refresher courses to prioritise their
safety. Estate personnel such as supervisors
and executives also require training and
refresher courses, which are typically conducted
through specialised programmes and courses.
This is particularly important for Occupational
Safety and Health Coordinators, who may need
to attend specialised training to fulfil their
auditing and training responsibilities within their
respective estates. According to the
Occupational Safety and Health Act 1994
(OSHA), premises with a certain number of
workers are required to have a Safety Council.
Therefore, in estates with a large number of
workers and supervisors, it is likely that a
Safety Council would be established.
Occupational Safety and Health officers or
coordinators, depending on the size of the
organisation, would be hired or elected to fulfil
these roles. With the presence of these officers
or coordinators, both in-house and external
training would be required on a regular basis.
Good agricultural practices offsetting cost
Good agricultural practices (GAP) which is the
798
keystone of Principle 6 of MSPO should be
upheld. There are a few practices that may
assist in controlling costs while maintaining
standards.
One method that can be utilised is the use
of empty fruit bunches (EFB) and palm oil mill
effluent (POME). Estates located near a mill
may have access to EFB, POME, or both.
According to Turner and Gillbanks (2003),
applying 20 to 40 tonnes per hectare of EFB
can sufficiently reduce the use of chemical
fertilisers or even replace them entirely. This
approach would be economically viable if the
estate can obtain EFB for free, which is often
the case. However, it is important to note that
while EFB is free, it is not as nutrient-dense as
chemical fertilisers. Chemical fertilisers
typically require an average application rate of
1 tonne per hectare, whereas EFB would
require significantly higher amounts, ranging
from 20 to 40 tonnes per hectare. Therefore,
the transportation and handling costs would also
increase accordingly. Considering the rising cost
of chemical fertilisers, it would be advantageous
for the estate to replace some of their fertiliser
usage with organic alternatives such as EFB
and POME, wherever feasible.
General charges costing
No significant differences in terms of costs
were observed in the general charges category.
Therefore, the factors contributing to the overall
cost increase are limited to harvesting and
maintenance operations only.
However, some respondents mentioned that
the reason for the cost increase was the general
charges category. General charges include
costs incurred other than those related to
harvesting operations and maintenance
operations. Respondents indicated that factors
such as auditor’s fees and advisory fees
contributed to the overall cost increase. While

this may be true, statistically, the overall cost
of general charges remained the same. In
absolute figures, the general charges were
actually lower by 1.5 per cent after certification.
The scenario where the cost of general
charges was lower after implementing MSPO
can be attributed to the one-time charges
incurred prior to the implementation. These
charges were likely related to the preparations
for the certification audit, as mentioned by the
respondents, such as infrastructure upgrade
costs. These costs are typically incurred once
every few years.
To provide further elaboration on
infrastructure, respondents mentioned the
upgrade of workers’ housing or quarters as a
significant item. This upgrade was necessary
to comply with the Employees’ Minimum
Standards of Housing, Accommodations, and
Amenities Act (1966). Although this Act was
introduced in 1966, many employees did not
adhere to the guidelines outlined. Consequently,
when MSPO auditors assess legal compliance,
the condition of workers’ housing becomes one
of the checked items. To meet the requirement,
estates would invest in upgrading the amenities
provided to workers. This upgrade would
typically incur a one-time cost and would not
be a recurring expense.
Another infrastructure cost that would be
incurred as a one-time expense is the upgrading
of stores or warehouses. This was frequently
mentioned by respondents when referring to
the upgrading of chemical stores. Non-
compliance in this area would indicate that these
stores did not meet the requirements of the
Occupational Safety and Health Act 1994
(OSHA 1994). To ensure the proper handling
of chemicals and prevent environmental
contamination, these stores must be equipped
with chemical traps. Similarly, workshops and
stores for petrol, oil, and lubricants (POL) were
The Planter, Vol. 99, No. 1173, December 2023
also upgraded and fitted with oil traps for the
same reason. These renovation costs would
be considered one-time expenses, and it is
unlikely that additional costs would be incurred
in the future. However, maintenance expenses
for these facilities would still be necessary after
the upgrade. Additionally, fire extinguishers for
safety compliance would most likely be
purchased only once, as indicated by the
respondents.
Other forms of costs that would likely be
incurred only once are related to environmental
conservation efforts, as mentioned by two
respondents. These costs include the installation
of signboards and setting of boundary markers
to demarcate specific areas. Additionally, the
replanting of forest trees and fruit tree seedlings
in High Biodiversity Value Areas would occur
a limited number of times. These expenses are
part of the initial efforts to establish and
maintain environmental conservation measures
and are not expected to be repeated frequently.
Based on the legal requirement (Principle
2 of MSPO), companies are obligated to obtain
all necessary permits and licenses to manage
their estates. Since the cost of general charges
was not significantly different before and after
implementing MSPO, it suggests that these
estates were already in compliance with the
required permits and licenses. Therefore, the
overall cost difference between before and
after the intervention would be close to zero in
this regard. It is worth noting that other best
practices, such as proper disposal of scheduled
waste, may result in additional costs for the
estates.
Increase in overall yield
There was a slight discrepancy between the
respondents’ answers and the analysis of the
data. The respondents provided data on their
performance over a span of six years, which
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Impact of MSPO certification on profit among palm oil growers in Malaysia
indicated a highly significant increase in yields
after the MSPO intervention. However, when
the respondents were directly asked about the
increase, only 28 out of 76 responded
affirmatively, while two indicated a decrease,
and the majority of 46 respondents reported
no variance between before and after the
intervention. This can be explained by the fact
that the difference in means between the two
groups was only 4 per cent. In the context of
plantation terms, this difference could be
considered negligible or not statistically
significant.
Although the percentage increase in yield
may seem small (4% or 1.17 t/ha), when this
figure is multiplied by the total land area, the
resulting increase is still substantial. The mean
land area based on the sample taken was
3 589.76 hectares. Therefore, multiplying
3 589.76 hectares by 1.17 tonnes per hectare
would yield a total increase of 4 200.02 tonnes
of crop. While the percentage may appear
modest, the total yield increase is indeed
impressive in terms of the overall production.
Consideration of increased cost against
increased yield
Based on Trading Economics Website (https:/
/tradingeconomics.com/commodity/palm-oil),
TABLE 10
COMPUTATION ON COST EFFECTIVENESS OF MSPO CERTIFICATION
Description
Cost (RM/t)
Yield (t/ha)
Average CPO price (RM)
Average land size (ha)
Average OER
Revenue (RM)
Cost (RM)
Net earnings (RM)
800
average CPO price for the past three years
(2018-2020) was RM2 373 per tonne of CPO.
Average oil extraction rate (OER) was around
21 per cent. With this figure, an estimation
could be created. Based on these figures, it
was computed that the total earnings’ decrease
after MSPO intervention would be
RM519 501.09 for one fiscal year (Table 10).
The calculation has accounted for all related
costs, and despite the increase in yield, the net
earnings were still lower. To make a significant
difference, the price of CPO would need to be
higher. Unlike RSPO, MSPO does not offer
an additional monetary reward in the form of a
price premium for certified sustainable palm
oil. Therefore, without a higher price for the
palm oil produced under MSPO certification,
the increase in yield alone may not be sufficient
to offset the overall lower earnings.
CONCLUSION
Based on the data collected from the
76 respondents, it can be concluded that
implementing all the sustainability principles of
MSPO would lead to an increase in costs. This
increase was observed in both the cost per
tonne of FFB harvested and the cost per
hectare of the plantation area. Furthermore,
the majority of the respondents agreed that
Before MSPO After MSPO
278.98 299.31
18.67 19.85
2 373 2 373
3 589.76 3 589.76
21% 21%
33 398 484.83 35 509 369.25
18 697 468.14 21 327 853.65
14 701 016.69 14 181 515.60

MSPO does result in increased costs.
The study also revealed that there was a
significant increase in yields during the study
period. However, the actual percentage of
increased production was only 4 per cent.
Despite this increase, when considering the
mean area, mean tonnage, and average price
of CPO over a three-year period (2018-2020),
it was found that the net income decreased by
RM0.5 million. This indicates that the increase
in production was not sufficient to offset the
additional costs incurred, resulting in a reduction
in overall profitability.
Implementing MSPO is a government
mandate and a requirement for all oil palm
estates in Malaysia. From this study, it has been
shown that there are no monetary benefits in
implementing MSPO while facing a reduction
in profits. However, implementing MSPO
demonstrates the plantation’s commitment
towards sustainability. Obtaining at least one
sustainability certification would be the first step
in raising the profile and reputation of the oil
palm sector at the national and global levels.
The European Parliament (EP) has hinted at
boycotting the procurement of oil palm due to
the plantations’ alleged unsustainable practices,
which stem from their first report 2016/
2222(INI) (European Parliament, 2017, April
4, p. 5).
Recommendation
Finding - Sustainability focus mindset
Recommendation 1 - Social impact focus
From a humanitarian standpoint, it is
important to prioritise the observation of
workers’ rights rather than focusing solely on
profit. The concerns raised by the European
Union (EU) regarding plantations should be
directly addressed. It is crucial to ensure that
workers are treated fairly, with a strong stance
The Planter, Vol. 99, No. 1173, December 2023
against modern-day slavery and child labour.
Children should have the right to education, a
nurturing childhood, and access to basic
necessities such as electricity and clean water.
Proper housing should be provided, avoiding
substandard living conditions. Therefore,
sustainability certifications like MSPO should
be implemented to uphold these principles.
Recommendation 2 - Environmental impact
focus
From an environmental perspective,
implementing MSPO would compel companies
and estates to adhere to government regulations
regarding environmental protection. The cost
of general charges, which primarily consists
of environmental protection charges, did not
show a significant increase. Therefore, the cost
of safeguarding the environment was deemed
not significant. Even if the costs were
substantial, it is crucial to recognise that there
is one earth, one planet to live in. Protecting
the environment is not optional; it is a necessity
as we consider our collective responsibility
towards our home planet.
Finding - Lower overall profit after MSPO
certification
Recommendation 1 - Estate’s own initiative
Considering the decrease in income after
implementing MSPO, estate owners and
managers should contemplate pursuing RSPO
certification in addition to MSPO. The principles
of both certifications are relatively similar,
requiring only a slightly greater effort to achieve
the “Gold Standard” of oil palm certification.
Moreover, while MSPO does not provide any
monetary benefits, implementing RSPO has
been reported to yield financial gains, as
highlighted by Tey et al. (2021). Given the
similarity of principles between the two
sustainability certifications, transitioning from
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Impact of MSPO certification on profit among palm oil growers in Malaysia
MSPO to RSPO should not pose significant
challenges. Many plantation owners would
likely recognise the additional effort involved
in obtaining RSPO certification as a
worthwhile endeavour although RSPO also
imposes additional membership requirements
apart from certification requirements.
Recommendation 2 - Government’s action
Secondly, considering that MSPO
certification is a regulatory mandate by the
Government of Malaysia, it would be beneficial
for the government to provide incentives to
MSPO certification owners even after the
31 December 2019 deadline. Currently, the
incentive is only provided for companies that
registered for audits before the 2020 deadline.
While MSPO certification ensures compliance
with legal requirements, it does not inherently
provide any proactive motivation for plantation
owners and managers. However, offering
incentives would encourage plantation owners
to wholeheartedly embrace and implement the
standards, rather than merely fulfilling their
obligations. Incentives can take various forms,
such as:
i. Financial support: The government can
offer financial assistance or subsidies
to offset the costs associated with
implementing and maintaining MSPO
certification. The government of
Malaysia only provided for those
whom registered before 31 December
2019 but does not include for those
after.
ii. Market access and premiums: The
government can facilitate market
access and create opportunities for
MSPO-certified products. This can be
done through preferential treatment in
government procurement, trade
agreements, or collaborations with
802
buyers who value sustainable sourcing.
Additionally, price premiums or
incentives for MSPO-certified
products could be established to
incentivise certification.
iii. Technical support: The government
can provide technical assistance and
expertise to help plantation owners
navigate the certification process,
implement sustainable practices, and
improve overall productivity. This
support can come in the form of
training programmes, advisory
services, or research and development
initiatives.
iv. Recognition and promotion:
Recognising and promoting MSPO-
certified estates through awards,
certifications, or marketing campaigns
can enhance their reputation and
create positive branding. This
recognition can contribute to increased
market demand and consumer
preference for sustainably produced
palm oil.
By offering incentives, the government can
foster greater participation and commitment to
MSPO certification, leading to enhanced
sustainability practices and positive outcomes
for both the environment and the palm oil
industry as a whole.
ACKNOWLEDGEMENT
I would like to express my heartfelt gratitude
to Associate Prof Dr Juwaidah Sharifuddin for
her invaluable guidance and supervision
throughout the study. Her expertise and insights
have been instrumental in shaping the research
and ensuring its quality. I am also deeply
grateful to my wife, Ann, for her unwavering
support and encouragement from the very

beginning. Her ideas and moral support have
been a constant source of inspiration for me. I
extend my sincere appreciation to my superiors
and mentors, Mr Subhas Datta, Mr Florian
Moduit, Mr Ravindaran, Mr Tan LG, and
Mr Lim BA, for their guidance, support, and
for providing alternative viewpoints that
enriched the study. I would also like to thank
Mr Tee H W, Mr Rudolf, Mr Romeo,
Mr Rashid, Mr Janeerio, Mr Hasamuddin,
Mr Robert, Mr Jamaluddin, and other
colleagues and friends who generously shared
their professional views and provided moral
support throughout the research process.
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