A century of resilient palm oil industry

The oil palm plantation area had blossomed from 55,000ha to 5.74m ha in a span of 60 years 


FROM a humble start over a century ago, Malaysia is now the second-largest producer of palm oil and a major exporter globally. 

Oil palm was first introduced to Malaya as a commercial plant sometime between 1916 and 1917 at the Tennamaran Estate in Selangor. 

According to a journal titled “Malaysia: 100 Years of Resilient Palm Oil Economic Performance”, the oil palm plantation area had blossomed from 55,000ha to 5.74 million ha in a span of 60 years. 

In line with the area expansion, the production of palm oil grew tremendously from less than 100,000 tonnes in the early 1960s to approximately 17.32 million tonnes in 2016. 

The cultivation of oil palm increased at a fast pace in early 1960s under the government’s agricultural diversification programme, which was introduced to reduce the country’s economic dependence on rubber and tin. 

Additionally, around the same time, the government introduced land settlement schemes for planting oil palm to eradicate poverty for the landless farmers and smallholders. 

Further down the road, the industry directly employed more than 570,000 workers by 2020, and contributed US$21.09 billion (RM90.9 billion) to Malaysia’s exports. 

Currently, more than 39% of oil palm plantations are owned by small landholders, contributing to one of the largest poverty alleviation projects in the world, overseen by the Federal Land and Development Authority (Felda). 

Meanwhile, apart from promoting the benefits of one of the world’s essential oilseed crops, the Malaysian Palm Oil Council (MPOC) was also created to represent the interests of palm oil growers and small farmers in the country. 

This is due to the fact that 40% of all palm oil plantations in Malaysia are owned or farmed by small farmers who have benefitted from oil palm cultivation and business. 

According to MPOC’s report in 2020, this industry has been a major factor in Malaysia reducing poverty from 50% in the 1960s to less than 5% today. 

On top of the half-a-million direct workers, the palm oil industry supported more than 290,000 workers in the downstream business. 

What is Palm Oil? 

Palm oil is derived from the flesh of the E Guineensis oil palm fruit. 

The oil is bright orange-red in colour due to the high content of carotene in its virgin form. Typically, oil palms will start bearing fruits after 30 months of field planting and will continue to be productive for the next 25 to 30 years, hence, ensuring a consistent supply of oil.

Each ripe bunch is generally known as a fresh fruit bunch (FFB).

The oil palm trees planted in Malaysia are mainly from the “tenera” variety, a hybrid between the “dura” and “pisifera”. 

The tenera variety yields between four and five tonnes of crude palm oil per ha per year and about a tonne of palm kernel. 

In comparison, soybean, sunflower and rapeseed require 2.22ha, 2ha and 1.52ha of land, respectively, to produce a tonne of oil, while the oil palm requires only 0.26ha of land to produce the same amount of oil. 

There is an abundance of benefits from the palm fruit oil and it is consumed worldwide in more than 100 countries. 

In fact, in some parts of the world, palm fruit oil is still consumed in its unrefined state, as an ingredient of traditional dishes, where it contributes its characteristic golden red colour and unique flavour. 

However, to most users, palm oil is more familiar as a refined vegetable oil product purchased at their local store and incorporated into their everyday foods. 

Contribution to GDP 

In 2011, the sector was the fourth largest contributor to Malaysia’s economy, accounting for RM53 billion of Malaysia’s gross national income (GNI). 

Palm oil research and innovation are adding new jobs to the nation’s economy every year, while noteworthy investment are also made in the development of new downstream sectors and harnessing palm oil biomass. Under former PM Datuk Seri Mohd Najib Razak’s government, the 1Malaysia Biomass Alternative Strategy was developed, created more than 66,000 new jobs and increased the industry’s contribution to Malaysia’s GNI by RM30 billion.

On Sept 21, 2010, the government launched the Economic Transformation Programme (ETP) to assist Malaysia in achieving its high-income status by 2020. 

A number of industrial and economic sectors were identified under the ETP as the National Key Economic Areas (NKEA), through which Malaysia will achieve prosperity and economic growth. The palm oil industry is one of those NKEAs. 

In recognition of the industry’s significant contribution to the Malaysian economy, the ETP outlines eight entry-point projects to improve industry practices and increase income from palm oil cultivation. 

Current Challenges 

It is worth noting that the current major challenge that the industry is facing is the discriminatory policies of the US and Europe. 

Deputy Prime Minister Datuk Seri Fadillah Yusof recently said that, Malaysia is weighing a range of trade initiatives to strike back against the unfair policies from the European Union (EU) that are blocking market access for the tropical oil. 

Malaysia is coordinating its response with Indonesia, the largest edible oils supplier globally. 

“Strategies being considered include slowing commodities trade with Europe and reviewing imports from the bloc,” Fadillah was reported as saying. 

Sometime in December 2022, the EU agreed to a historic law that will stop products causing forest destruction from being sold in European shops and supermarkets. 

Products like wood, rubber, beef, leather, cocoa, coffee, palm oil and soy will not make it past the port unless proven to be deforestation-free, hence, Malaysia and Indonesia are leading international criticism of the policy. 

“If they are too firm on their decision, if they do not want to listen to us, I think one of the areas that we can be looking at together with Indonesia is how we should look at Europe. 

“If we are not treated fairly, I think there should be some counter action by us,” Fadillah said in an interview at his office in Putrajaya early this year. 

The two countries, which together make up more than 80% of the world’s palm oil supply, deem the rule is discriminatory. 

“The action by the EU is trying to phase out smallholders from the system,” Fadillah added. 

On another note, recently, Reuters reported that production plunged 14.1% to 1.39 million tonnes, the lowest in nearly a year, as harvesting in the world’s second-largest producer was disrupted by tropical storms and floods. 

Meanwhile, exports slumped 21.7% to 1.15 million tonnes due to slowing shipments to largest consumers India and China, and imports were seen 8.3% higher. 

For this, analysts said demand is expected to ramp up in the coming months as buyers stock up ahead of the Ramadhan month, which is capped by the Hari Raya Aidilfitri holiday. 

A representative from commodity price risk management firm TransGraph Consulting said with declining production and pent-up Ramadhan demand, Malaysian palm oil stock is expected to decline towards 1.9 million tonnes by the end of the first quarter. 

  • This article first appeared in The Malaysian Reserve weekly print edition