KUALA LUMPUR (Reuters) - A slump in the number of Indonesian workers applying for jobs in Malaysia's palm oil sector is worsening a labour crunch that industry players say is taking a heavy toll on the export earnings of the world's second-largest grower of the edible oil.
The two countries account for about 85 percent of the global output of palm oil - used in foods ranging from margarines and biscuits to instant noodles - and Indonesia's booming economy also poses a longer-term threat to its own palm oil output as urbanisation drains rural workers.
Malaysia has long relied on plantation workers from neighbouring Indonesia to harvest fresh fruit bunches from oil palm trees that can grow up to 20 metres (66 feet) tall - jobs that are proving hard to replace with mechanisation.
But the number of Indonesians willing to leave their homes and families for the gruelling work is dwindling due to higher wages at home and rapid urbanisation in Southeast Asia's biggest economy. Indonesian applicants for jobs in Malaysia's palm oil sector plunged to 38,000 in 2013 from more than 120,000 in each of the previous two years, according to data from the Indonesian embassy in Kuala Lumpur.
"Some are not interested (in working on plantations) anymore," said Abdul Rahim, a 32-year-old Indonesian working on a 2,000-hectare oil palm estate in Malaysia's Selangor state neighbouring the capital Kuala Lumpur.
"If I have the means, I will go home and open up my own business there."
Industry officials and analysts estimate that planters lose up to 5-10 percent of their fruit each year due to labour shortages, cutting Malaysia's total export revenues by about 2.5 billion ringgit ($766 million) annually.
In 2013, Malaysia's palm oil exports dipped to 45.27 billion ringgit ($13.85 billion), its lowest since 2010, from 52.99 billion ringgit a year before. Palm oil accounts for about six percent of the country's total exports.
Faced with a labour shortage, Malaysian planters face an unpalatable choice between paying more to hire and keep workers - hurting their already thin profit margins - or cutting harvesting rounds and leaving fruits to rot.
"The Malaysian palm industry is losing billions (of ringgit) in net export earnings in the form of missed-out bunches due to the chronic labour shortage," said Carl Bek-Nielson, the CEO of Danish-Malaysian United Plantations UTPS.KL.
"We just can't get enough employees to come. If one can get sufficient labor, it will make everything more effective, from harvesting rounds to reducing losses."
Of the 550,000 Indonesian plantation workers currently in Malaysia, about 95 percent are in the oil palm industry, embassy data showed. About 80 percent of Malaysia's palm oil workforce are Indonesians, with Indians accounting for most of the rest.
Planters prefer Indonesians because they are seen as harder working, may have had prior experience in palm oil estates, and share a somewhat similar language.
A plantation worker can earn an average of about 900 ringgit ($280) per month in Malaysia, up to about 2,000 ringgit, compared to an average of about 700 ringgit in Indonesia. But a foreign worker in Malaysia may also have to pay more in taxes and for utilities.
But salary was not the only factor for workers, said Mohd Emir Mavani Abdullah, chief executive of the world's third-largest palm plantation operator Felda Global Ventures Holdings (FGVH.KL).
"They're looking at social benefits, wellbeing and so on," he said.
Robust economic growth in Indonesia, averaging an annual 6 percent in recent years, has boosted consumer confidence and opened up more jobs outside the agriculture industry and narrowed the salary gap between the two countries.
The capital Jakarta, one of 505 administrative districts and with a population of about 10 million, raised its minimum wage level by 11 percent late last year and 44 percent in 2012.
Agriculture contributes about 15 percent to the GDP of Indonesia, with around 35 percent of the 240 million population dependent on agriculture for their main source of income.
McKinsey Global Institute (MGI) estimates that the share of the population living in cities could reach 71 percent in 2030, from 53 percent now as people seek greater opportunities and higher paid jobs.
"Urbanisation could result in about eight million fewer farmers by 2030," said MGI, the research arm of consultancy McKinsey & Co.
That could eventually strain the labour force in Indonesia's palm oil sector as well as Malaysia's.
"It will be a problem for the next five years if the government is not careful," said Wahyu Widodo, director of wages and worker's social security at Indonesia's Manpower and Transmigration Ministry.
"It will be dangerous for Indonesia's agriculture."
Malaysia is expected to produce between 19.5 and 19.7 million tonnes of palm oil this year, only slightly higher than 19.2 million tonnes in 2013, while Indonesia is forecast to churn out 28-30 million tonnes.
Malaysia's average yield of crude palm oil per hectare was 3.85 tonnes in 2013. Growers said a lack of labour would limit programmes such as planting superior seeds that can boost yields up to 7.0 tonnes a hectare.
Harvesting palm fruit bunches that weigh up to 25 kilograms (55 pounds) each is labour intensive, especially as trees mature and grow taller each year.
While mechanized tools are widely used in manuring and to cut fruit from shorter trees between 3 and 8 years old, robotic technology to harvest from mature trees does not exist.
A Malaysia-based inventor whose company specializes in labour-saving devices in the palm industry told Reuters his team is working on a mechanical cutter for trees above 8 meters tall that may be ready in the next three years.
"If this works, it can increase productivity by about 100-200 percent. So far we have had some drawbacks, but we are still doing a lot of research and development," said the inventor who did not want to be identified. The cutter would still have to be operated by a worker.
Additional reporting by Anastasia Arvirianty in JAKARTA; Editing by Stuart Grudgings and Richard Pullin