Prime Minister of Indonesia Prabowo Subianto announced on May 20 this year that Indonesia will be routing several of its key commodity exports via a state-owned enterprise in order to regain better control over the sales profits from these.
Commodities that will be required to undertake this route will be designated as Strategic Natural Resource Commodities, and palm oil in particular has already been named as such a commodity in the first rollout of the government’s plan.
Although ostensibly a beneficial move for the national economy, major concerns still loom over both implementation feasibility as well as the potential impacts on prices of all end-products using or containing palm oil, which makes up an enormous percentage of the current food and beverage sector.
As such, any producer market that may be able to step into Indonesia’s shoes and increase its palm oil exports without requiring companies to go through an additional state-owned facility would arguably stand in good stead to capitalise on these latest developments — and for all intents and purposes this would appear to be Malaysia, which is the second-largest producer of palm oil globally.
“Palm oil is no longer viewed solely as a commodity export, but increasingly as a strategic industrial enabler that supports innovation, sustainable manufacturing, and high-value economic growth,” Minister of Plantation and Commodities Datuk Seri Dr. Noraini Ahmad said at the Malaysian Palm Oil Forum (MPOF) China 2026.
“Sustainability, traceability, and responsible production remain critical pillars in strengthening global confidence towards Malaysian palm oil, particularly within evolving international market expectations.”
Why Malaysia should be able to capitalise
Malaysia currently exports around 30% of the world’s palm oil, second only to Indonesia, and together both producer markets make up around 85% of total international palm oil supply.
Many top palm oil companies have long set up shop in this market too, from Sime Darby to the government-linked Felda Global Ventures (FGV) and Wilmar International, all operating enormous palm oil plantations locally.
The palm oil sector here is organised and well-represented by a range of government, government-linked and private organisations, including the Malaysian Palm Oil Association (MPOA), the Malaysian Palm Oil Board (MPOB), the Malaysian Palm Oil Council (MPOC), the Malaysian Palm Oil Certification Council (MPOCC) and many more.
Some of the various palm oil organisations in Malaysia:
MPOA: Private-sector umbrella body that represents plantation owners and growers, advocating in areas such as policies, labor, taxation, and production economics.
MPOB: The primary government regulatory agency and research body that conducts R&D to improve yields, issues operational licenses, and enforce industry regulations.
MPOC: The promotional and marketing agency focused on expanding global market access, managing the industry’s reputation, and promoting Malaysian Sustainable Palm Oil (MSPO), the national palm oil sustainability standards.
The government also provides a financial backing to provide for many key programmes such as cash aid for smallholder farmers through the Budi Agri-Komoditi scheme to help with rising input costs such as fertiliser; as well as to promote sustainability schemes with millions of ringgit in incentives for them to meet MSPO or other global sustainability standards.
Why Malaysia may not yet be able to capitalise
With all of this support in place, it may seem a given that Malaysia’s palm oil sector will be able to grow at a pace fast and furious enough to keep up with any possible gaps left by Indonesia’s new policy — but reader beware, as there are still various factors that prevent this from being a foregone conclusion.
First and most importantly, Malaysia’s palm oil production is facing the very real thereat of not only stagnating but significantly declining, as it has been slowly seeing this happen over several years.
One key reason for this is age, specifically oil palm tree age. According to MPOC data, some 35% of oil palm plantations in Malaysia will be at least 19 years old by 2027, covering 2 million hectares in total.
As palm trees age and grow taller, their metabolism slows and vascular systems struggle to move nutrients and moisture to the top of the tree so oil palm fruit (from which the palm oil is harvested) bunches become smaller and fewer, whereas the labour required to harvest these becomes both more expensive and more difficult.
“Malaysia’s palm oil yields have stagnated and plateaued and to a certain extent regressed, so the industry needs to do more to raise yield per hectare such as using high yield plant materials,” MPOC Chairman Dato’ Carl Bek-Nielsen said.
Such innovations would bring up the average yield from 3.5 tonnes per hectare to 4.5 tonnes, hopefully making up for some of the shortfall.
Another major strategy Malaysian palm oil producers would be able to implement is replanting, removing old trees and planting young ones — but this has also been facing increasingly serious challenges due to recent geopolitical events.
Replanting requires fertiliser and fuel, both of these key commodities that have seen sharp price hikes in recent months after the Strait of Hormuz was closed due to the Iran-US war.
MPOA Chief executive Roslin Azmy Hassan has already gone on record to say that maintaining a 3% to 4% healthy replanting rate in Malaysia this year ‘could be challenging’, indicating that this is unlikely to be a solution to increasing palm oil yields.
Adding to these troubles is the climate: Malaysia’s top palm oil producer state Sabah saw heavy rains and floods rage through it earlier in February this year, causing a sharp decline in production — and as of time of writing in June 2026, wet weather continues to be seen all around the country despite May to August historically being the driest months of the year.
Conversely, extreme dry weather in the form of El Nino has also been predicted in the country during the end of 2026 which presents yet another set of risks for the palm oil sector.
Oil palms require constant (but not too much) humidity for continuous moisture due to their shallow root systems making it hard to store water, and without sufficient water the oil palm fruit bunches would either not develop or be aborted/removed from the tree.
So is there hope?
As it stands, it appears Malaysia has quite a number of challenges to solve before it can hope to raise palm oil production to the levels required to capitalise on any gaps Indonesia has left, so in the short term it may not really be possible to take advantage of this situation.
In fact, Malaysia has seen increased pressure in recent months after Indonesia’s announcement, as there has been a rush by Indonesian palm oil companies to move cargo quickly at competitive prices.
In the long term though, there is hope yet: Malaysia’s organised palm oil sector means that there are long term plans in place to overcome these challenges, such as bringing in high-yield varieties, incentivising replanting, as well as researching weather resistant varieties or solutions to curb the impacts of extreme weather events.
The other major factor working in Malaysia’s favour will be stability: Indonesia’s move has led to concerns regarding transparency and political influence over a major economic sector, which Malaysia will be able to capitalise on.
According to industry experts such as former MPOA head M.R. Chandran, this means that companies looking for more stable trading relationships and supply diversification would thus see Malaysia as a more attractive option.
So all in all, Malaysia is in fact at a strategic point and has the right cards in hand to capture palm oil growth — but will need to both be very patient, and play its hand well.
