Malaysia’s role in the global palm oil tradeMalaysia 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 2.5 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 China and India, while the countries of the European Union made up its largest import region.
Challenges to the Malaysian palm oil sector in the post-pandemic worldAs 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 some 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 sectorThe 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, global consumption of palm oil was forecast to increase this year, and 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, palm oil yields in Malaysia 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.