The Malaysian Suratmen Mosman faces a dilemma that threatens to reduce the supply of the two world’s main exporters of palm oil and to increase the prices of this essential vegetable oil for billions of consumers worldwide over the next five years.
The aging trees of its plantation, located 300 km south of Kuala Lumpur, produce less fruit. But at 85, he hesitated to replace them, not wishing to lose income during the three to five years necessary for new palm trees to begin to produce, not to mention the additional years to reach their production peak. Government subsidies aimed at encouraging replanting are no longer as generous as before, and he must provide for his family.
Palm oil, used mainly as cooking oil but also in the manufacture of cakes, cosmic and cleaning products, represents more than half of the world supply of vegetable oils. 85 % of crude from Malaysia and Indonesia.
But after decades of exponential growth, the market approaches a turning point: the combined exports of the two producers should slow down strongly, due to stagnant production and the efforts of Indonesia to divert more palm oil to the production of biofuel.
If the financial markets have already taken this slowdown into account, more and more elements show that the plantations managed by small operators like Suratmen are in a worse state that was thought. The aging of trees, less productive, is not offset by new plants, which will accentuate the decline. Small operators represent 40 % of plantations in Malaysia and Indonesia, thus playing a vital role in the supply chain.
According to Reuters -based and industrial projections of reuters, some of which are unprecedented, world supplies from Indonesia and Malaysia could fall by 20 % over the next five years.
According to Dorab Mistry and MR Chandran, historical figures of the sector, the future production of small operators could be overestimated because the condition of the trees and the rate of planting new palm trees are worse than what the governments of Kuala Lumpur and Jakarta estimate.
This observation is confirmed by interviews conducted by Reuters with more than a dozen farmers and officials in Malaysia. Other unprecedented data show that the area of plantations whose trees are over 20 years old-therefore beyond their production peak-increases rapidly.
Mistry, director of the Indian group Godrej International and analyst of the sector for more than 40 years, and Chandran, former president of the Malaysian Palm Oil Association, believe that more than half of the trees on the plantations of small Malaysian operators are far beyond their productive peak.
This estimate is significantly higher than the data of the Malaysian government, which indicate that 37 % of the plantations of small operators have exceeded their optimal performance phase.
“Palm oil supplies are tightening,” says Mistry, who bases his estimate on planting visits, data analyzes and discussions with producers, traders and other key players in the sector.
“It is not only a problem in Malaysia, but also in Indonesia. Even if the Indonesian industry is younger, it will face the same difficulties within five years, “he warns.
In Indonesia, only 10 % of the government objective to replant 2.5 million hectares by 2025 had been achieved last October, according to public data.
Consequently, more than a third of palm trees, both among small operators and in industrial plantations, are at the end or beyond their most productive years. The area dedicated to trees over the age of 21 should increase by 11 % next year in Indonesia, according to unprecedented data from the Public Institute Riset Perkebunan Nusantara (RPN).
The reluctance to replace old trees in Malaysia and Indonesia, combined with the increase in biodiésel obligations in Indonesia, presages a sharp drop in palm oil exports in the next five years.
Estimates from Malaysian and Indonesian organizations in the sector indicate that combined exports should fall to around 37 million metric tonnes by 2030, a decrease of a fifth compared to 2024.
Indonesia should have around 20 million tonnes intended for export, a drop of almost a third compared to last year, according to the forecasts of the RPN and the Gapki (Indonesian association of palm oil).
There are no official forecasts for Malaysian exports by 2030, but Mistry estimates that they should remain stable or slightly decrease, a reflection of irregular replanting, opposite the previous forecasts which tabled on modest annual increases.
The Indonesian Ministry of Agriculture has not responded to requests concerning the expected decline in production and exports.
The Malaysian regulator body, the Malaysian Palm Oil Board, challenges the evaluation that more than 50 % of the palm trees of small operators have exceeded their peak yield.
“According to 2024 MPOB data, only 36.2 % of the palm trees of small operators are over 18 years old, and many have already started to replant with government support,” he answered Reuters.
In order to reduce costs, the government offers aid up to 50 % in the form of a grant and 50 % loan.
“The government recognizes the contribution of small operators and continues to improve aid devices to guarantee sustainability and long-term inclusion,” he adds.
An upward demand
The projections of the sector indicate that global demand will increase by 50 million tonnes by 2050, requiring minimum annual growth of the supply of 2 %, according to Chandran. However, he estimates that production will only increase 1.5 % per year, due to the aging of the trees and the slowness of replanting in the two countries.
The contrast to past growth is striking. The share of palm oil on the world market for vegetable oils doubled to reach 30.6 % between 1965 and 1995, Indonesian production increasing by 8.1 % per year and that of Malaysia by 3 % over the same period.
“There will be growing tensions between global demand and the difficulty of increasing production in a sustainable manner,” warns Chandran, also president of the Agritech Irga company, specializing in data analysis and field research.
Already, tension on palm oil supplies increases the prices of alternatives such as soy, rapeseed or sunflower.
Last year, the gross palm oil was negotiated with a bonus of $ 39/tonne compared to soy oil, while it was a discount of $ 160 in 2023, according to the Malaysian Palm Oil Board.
The main buyer, India, should see its annual imports of palm oil pass under that of other food oils for the first time this year, the rise in prices pushing refiners to other solutions.
Reluctant replaceurs
Interviews with 11 Malaysian small operators reveal that most are reluctant to replant, the mature trees constituting their main source of income in a price context at the highest price for two years.
“I have not replanted my trees because I have no other source of income,” says Suratmen, standing among his two hectares of oil palm trees in the Pontian district (Johor).
Some of his young trees have been planted on unstable peaty soils and lean.
“My replanting efforts are limited to replacing the fallen trees or planting new ones between existing trees,” he explains.
Most of the small operators converted rubber trees into oil palm in the 1990s and 2000s, so that their trees are reaching 25 years today and must be replaced, said Adzmi Hassan, president of the National Association of Smallholders Malaysia.
The challenge is aggravated by the aging of the owners, most of whom have left in town, leaving the planters without labor or physical capacity to replant.
“You have to take into account the cost of planting, the necessary work, and many small independent operators do not want to go into debt with banks,” explains Mohd Sharul Haizam Shafei, 42, owner of 20 hectares in Banting.
In Malaysia, the replant rate has reached an average of 2 % over the past five years, half of the government target of 4 %, according to data from Malaysian Palm Oil Board.
Replanting costs dissuade farmers
Although the Malaysian government subsidizes half of the replanting expenses, many small operators are reluctant to go into debt to finance the rest, says Adzmi Hassan of the association of small operators.
He pleads for a return to an integral subsidy, as before 2019, but it seems unlikely when the state reduces aid, including on fuel.
Last year, Indonesia doubled the funds for the replanting of small operators, but Gulat Manurung, president of the Apkasindo group, said that farmers struggle to access these aid due to problems of land legality and complex conditions.
With the aging of the trees, the average yield in fresh fruit regimes for small Indonesian operators was 9.6 tonnes per hectare last year, less than half of that of large public or private plantations, according to the data from the Indonesian palm oil council.
The sector is in an impasse to increase production, Malaysia capping surfaces planted and Indonesia, under pressure from the European Union and environmental NGOs, imposing a moratorium on deforestation for new plantations.
Suratmen, the farmer of Pontian, says that without total subsidy, he will not replace.
“Waiting for the new trees to mature and producing fruit takes too long. We cannot support our families during these years without income from trees, ”he concludes.