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Malaysia
AsiaSoutheast Asia

Malaysia and Indonesia’s oil palms are getting old – and that’s becoming a multibillion dollar problem

  • In Malaysia, replanting palms that have outlived their commercial usefulness could cost US$3 billion, while Indonesia may need at least US$5 billion
  • Ageing palms in both countries are producing less of the lucrative edible oil as they approach the end of their quarter-century commercial lifespans

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Fresh bunches of oil palm fruit harvested from smallholders’ plantations are loaded into a truck in Selangor, Malaysia, to be sent for processing. Photo: Reuters
Bloomberg

Across swathes of Southeast Asia, maturing palm oil trees, some as tall as a 12-storey building, are turning into a multibillion-dollar headache for local farmers, regional governments and consumers everywhere.

As oil palms approach their commercial lifespan of a quarter-century, they provide less of the versatile edible oil, used in everything from ice cream to cosmetics and fuel. Some plants become too ungainly to tackle for labourers, who rely on handheld sickles attached to long poles. New palms, however, take several years to yield fruit in commercial quantities.

Oil palms grow at a plantation in Indonesia’s South Sulawesi. Delays to plantation renewals threaten to dent harvests for years to come. Photo: Bloomberg
Oil palms grow at a plantation in Indonesia’s South Sulawesi. Delays to plantation renewals threaten to dent harvests for years to come. Photo: Bloomberg
In palm-producing regions of Malaysia and Indonesia, where the pandemic led to a critical shortage of the manual labour on which the industry depends, an army of farmers has been postponing the inevitable. Squeezed by high costs and falling yields, many smallholders argue they can’t replant – and have no choice but to keep going.

The result is a significant delay to plantation renewal that will dent harvests in coming years, constraining exports from two countries that account for 85 per cent of global production, which in turn may reduce profits for cultivators while pushing up global prices.

Oil World, a market researcher, warned last month of the consequences of an “alarming decline” in average yields due to slow replanting. Annual output growth may fall to 1.8 million tonnes or less in the 10 years to 2030, from an average of 2.9 million tonnes in the decade to 2020, the Hamburg-based outfit estimated. The El Nino weather phenomenon won’t help, and in the year ending September 2024, the annual output increase could be the smallest amount in four years.

“The concern is that the cost of production will become uncompetitive,” said Ivy Ng, head of plantations research at CIMB Investment Bank Bhd. in Kuala Lumpur. “The cost is going up, labour cost is going up, everything is going up – and yet your yield is falling because you didn’t replant.”

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