Amanda Siddharta
Research expert covering Malaysia
Palm oil industry in Malaysia - statistics & facts
Whether it’s in food, cosmetics, or biofuels, palm oil has proven to be the world’s most used edible oil. In 2023, global consumption of palm oil reached more than 78 million metric tons. Nevertheless, the Malaysian palm oil industry has been facing several challenges recently, from changing weather patterns, a growing awareness of the environmental impact of palm oil monoculture, and an overreliance on foreign labor in the plantations.
The COVID-19 pandemic also led to a shortage of plantation workers, as travel restrictions prevented the entry of migrant labor from Indonesia. This led to a longer harvesting window for palm oil fruit, leading to poorer quality and increased loss of fresh fruit bunches (FFB).
Another long-term challenge facing the Malaysian palm oil industry is harder to control. Changing weather patterns in recent years have impacted the production of palm oil. After three consecutive years of heavy rains caused by the La Nina weather phenomenon, Malaysia had to deal with the dry El Nino cycle since mid-2023. This could negatively affect palm oil yields in Malaysia, which have decreased since 2020.
With the threats of climate change and lower crude palm oil prices in Malaysia, the outlook might not be so bright for the palm oil industry. Nevertheless, the world’s gradual return to normal could help the industry recover, with Malaysia still in the position to fulfill global demand for the most used oil.
Malaysia’s role in the global palm oil trade
Malaysia is the second leading producer of palm oil worldwide, supplying around a third of the world’s palm oil. Palm oil is one of Malaysia’s primary industries, contributing 2.4 percent to its overall gross domestic product (GDP). Production is concentrated in Peninsular Malaysia, where more than half of all palm oil planted areas are found. The largest single export markets for Malaysian palm oil were India and China, while the countries of the European Union made up its largest import region.Challenges to the Malaysian palm oil sector in the post-pandemic world
As the world grappled with the after-effects of lockdowns and the struggle to return to normality, the Malaysian palm oil sector also faced the challenges left behind by the COVID-19 pandemic. One clear example was the decrease in demand for Malaysian palm oil, especially from the hospitality, restaurant, and catering sector. Although the industry had seen improvements in 2022, it would take time before demand could return to the way it was before 2020.The COVID-19 pandemic also led to a shortage of plantation workers, as travel restrictions prevented the entry of migrant labor from Indonesia. This led to a longer harvesting window for palm oil fruit, leading to poorer quality and increased loss of fresh fruit bunches (FFB).
Long-term challenges to the Malaysian palm oil sector
The Malaysian palm oil sector is also facing a long-term decline in exports of Malaysian palm oil to the European Union, one of its largest export markets. This is a result of the EU’s Renewable Energy Directive recast, RED II, which phased out the use of palm oil as a biofuel source due to environmental concerns. Even so, with a forecasted increase in global consumption of palm oil this year, the decline in exports to the EU could be offset elsewhere, particularly in the Asian market.Another long-term challenge facing the Malaysian palm oil industry is harder to control. Changing weather patterns in recent years have impacted the production of palm oil. After three consecutive years of heavy rains caused by the La Nina weather phenomenon, Malaysia had to deal with the dry El Nino cycle since mid-2023. This could negatively affect palm oil yields in Malaysia, which have decreased since 2020.
With the threats of climate change and lower crude palm oil prices in Malaysia, the outlook might not be so bright for the palm oil industry. Nevertheless, the world’s gradual return to normal could help the industry recover, with Malaysia still in the position to fulfill global demand for the most used oil.
