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Palm oil industry in Malaysia - statistics & facts

Palm oil is one of Malaysia’s primary industries and makes up the largest share of its agricultural sector. In recent years, the Malaysian palm oil industry has faced increasing challenges from changing weather patterns, and the growing awareness of the environmental impact of palm oil monoculture, to overreliance on foreign labor in the plantations. These issues were compounded this year by the COVID-19 pandemic, impacting the stockpile and price of this commodity.

Malaysia’s role in the global palm oil trade

Palm oil is the world’s most used edible oil and is used in many consumer goods, as well as in biofuels. Malaysia is the second leading producer of palm oil worldwide, after Indonesia. Together, these two countries supply more than 80 percent of the world’s palm oil supplies. The largest export markets for Malaysian palm oil were China and India. Other important markets include the United States and Asia. While the European Union (EU) collectively remain one of the largest markets for palm oil, the implementation of the European Green Deal could see restrictions on the use of palm oil due to concerns on its environmental impact. Malaysia has stepped up efforts to counter this negative perception of one of its largest commodities exports, including increasing the size of certified sustainable palm oil plantations. However, the sector has also started to shift its focus away from the EU to Asian and African markets.

Challenges to the Malaysian palm oil sector

Changing weather patterns also pose a threat to Malaysia’s palm oil sector. Heavy rains caused by the La Nina weather phenomenon in 2020 contributed to decreased oil palm yields. This was further compounded by the outbreak of the COVID-19 pandemic, which saw the closure of plantations as part of efforts to curb the spread of the virus. Malaysia had also closed its borders to international visitors, resulting in a shortage of cheap foreign labor from neighboring Southeast Asian countries that it relied on to work on the oil palm plantations. Together, these factors contributed to low stocks, pushing the average monthly palm oil prices up.

As countries all over the world grapple with the emergence of new mutations of the novel coronavirus, stricter lockdown measures and restrictions on travel and movement look set to remain in place for the foreseeable future. Demand for palm oil, especially from the restaurant and hospitality sector, would probably remain low until such measures are lifted. This could lead to a rising stockpile of the commodity, suppressing the prices from their peak in the previous year. Exports of palm oil were also predicted to bounce back in 2021, fueled by China’s continued stockpiling of this resource to meet its increasing consumption of palm oil.

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Palm oil industry in Malaysia

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