Ongoing labour shortages in Malaysia’s palm oil industry are expected to persist in the short and medium term, given the sector’s heavy dependence on foreign workers who account for around 80% of the workforce
According to BMI, a Fitch Solutions company, shortages of workers will constrain the growth potential of domestic production. Tighter regulations on foreign labour, combined with low wages and demanding conditions that deter local participation, have led to plantations struggling to harvest crops, directly impacting yields.
BMI forecasts a 1.6% year-on-year decline in Malaysian palm oil production for the 2024/25 season, followed by a modest 0.5% year-on-year recovery in 2025/26, provided weather conditions remain favourable. This would bring output to approximately 19.5 million tonnes. Meanwhile, domestic consumption is expected to fall by 2% in 2025/26, with industrial demand slowing due to lagging progress towards biofuel targets and tighter regulations on the trade in used cooking oil.
The research house also highlighted that most of Malaysia’s land is already allocated to existing plantations or urban development, leaving little scope for expanding planted areas. Consequently, any production growth will rely on improving yields, primarily through replanting ageing trees.
Replanting behind annual target
Despite this clear path forward, only 2% of Malaysia’s total palm oil area was replanted in 2024, falling significantly short of the annual target of 4% to 5%. High palm oil prices since 2021 have led many growers to retain older, less productive trees to maximise short-term profits. Although prices have eased somewhat in 2025, BMI expects the trend to persist amid still-elevated price levels. Indonesia’s recent biodiesel mandate and an increase in export levies have helped stabilise global prices, indirectly benefiting Malaysia as well, according to Reuters.
Palm oil continues to face scrutiny over its links to deforestation. In 2023, the European Union introduced requirements for palm oil imports to be deforestation-free. In response, Malaysia and Indonesia have stepped up efforts to bolster sustainability standards through their respective MSPO and ISPO certification schemes. By 2024, more than 80% of Malaysia’s palm oil was certified for export under these sustainability frameworks.
BMI’s assessment is that Malaysia, constrained by limited land, cannot match Indonesia’s palm oil production scale. Nevertheless, it has cultivated a strong reputation as a reliable exporter, a standing that was further reinforced after Indonesia’s 2022 export ban disrupted global supplies. Through its emphasis on sustainability, Malaysia is well positioned to emerge as a global leader in sustainable palm oil, providing a competitive advantage amid growing demand for responsibly sourced commodities.
Source: The Edge Malaysia