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 neighbor. 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. That has already forced up the price of certain foods worldwide and is raising the costs of cosmetics and detergents and other products that palm oil is used in. The most pressing problem for palm oil producers such as FGV Holdings and Sime Darby Plantation is a lack of workers to harvest palm trees, a skilled and dangerous task.

"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 labor, attracting them to the plantations will become more difficult," said Julian McGill, head of South East Asia at LMC International. "Soon there will be no 'cheap' labor."

COVID-19 exodus

Up until April last year as many as 337,000 migrant workers, mostly from Indonesia, worked on Malaysian plantations, making up about 80 percent 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 new coronavirus. Hundreds of undocumented workers were also deported.

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