Malaysia has a trade to GDP ratio averaging over 130% since 2010. Openness to trade and investment has been instrumental in employment creation and income growth, with about 40% of jobs in Malaysia linked to export activities. Malaysia’s economy has been continuously rising since the Asian financial crisis of 1997-1998 with an average growth of 5.4% since 2010, with the oil palm industry being a major contributor. Malaysia is expected to achieve its transition from an upper middle-income economy to a high-income economy by 2024. In 1998, exports of palm oil and palm oil products (palm olein, palm stearin, palm kernel cake, palm fatty acids, etc.) amounted to RM22.65 million or 7.9% of the nation’s total export earnings. It became the top export earner, exceeding the contributions from crude petroleum and petroleum products and forestry by a wide margin. The 1998 earnings from palm oil were 178% higher than those of the previous year and this was attributed to sharp increases in CPO prices. In 1998, CPO fetched an average FOB price of RM2,360.07 per tonne compared with RM1,412.69 in 1997, an increase of 167%. (WWF & Hai, 2000, 21)
However, the COVID-19 pandemic heavily impacted Malaysia’s economy, causing oil prices to fall and contracting the GDP by 5.6% in 2020. Mobility restrictions, rising unemployment, and falling wages dented domestic demand, with private consumption contracting by 2.5%. Similarly, investment shrank by 12.2% and exports by 8.8%. Consumer prices fell by 1.1% despite a cut in the overnight policy rate to 1.75% in July. The fiscal deficit widened to 6.2% of GDP from 3.4% in 2019 as government revenue declined by 14.9% in. GDP growth was forecast to rebound to 6.0% in 2021 before the mid-2021 surge in COVID-19 cases. GDP is forecast to grow by 5.7% in 2022.
The Malaysian oil palm industry has a significant impact on the national economy, especially on the agriculture sector, and it is the 4th largest contributor to the national economy. Around 60 % of international trade in vegetable oils whereas estimated 74 % of global palm oil usage is for food products and 24 % is for industrial purposes. Moreover, the oil palm industry is more eco-friendly compared to other related industries that produce oil crops. To overcome these discoursed obstacles, the exigency of suitable labor and immigration policies by offering more generous wages and medical/educational benefits to migrant laborers to be taken by the government has been underscored. Furthermore, companies are proposed to explore profit-sharing plans as an additional inducement to attract and keep a dedicated labor pool and more innovative mechanization can be able to reduce the labor dependency, increase productivity as well as improve the product quality. Besides, producing compost by the replantation of trees instead of burning can reduce haze problems.
It has been noted that 5.87 million hectares of land was used to plant oil palm in Malaysia in 2020. In 2020, the size of mature palm oil plantations in Malaysia was around 5.2 million hectares. Fully mature oil palms can produce around 18 to 30 metric tons of fresh fruit bunches per hectare.
In 2019, Malaysia exported $8.91B in Palm Oil, making it the 2nd largest exporter of Palm Oil in the world. At the same year, Palm Oil was the 5th most exported product in Malaysia. The main destination of Palm Oil exports from Malaysia are: India ($1.99B), China ($906M), Pakistan ($426M), Netherlands ($404M), and Turkey ($329M).The fastest growing export markets for Palm Oil of Malaysia between 2018 and 2019 were India ($769M), China ($220M), and Nigeria ($102M).
In 2019, Malaysia imported $686M in Palm Oil, becoming the 9th largest importer of Palm Oil in the world. In the same year, Palm Oil was the 55th most imported product in Malaysia. Malaysia imports Palm Oil primarily from: Indonesia ($644M), Papua New Guinea ($12.6M), Cambodia ($12.1M), Philippines ($9.92M), and Singapore ($5.71M). (Oec.World, 2019)
In September 2020 Malaysia's Palm Oil exports accounted for up to MYR3.8B and imports accounted for up to MYR229M, resulting in a positive trade balance of MYR3.57B. Between September 2019 and the exports of Malaysia's Palm Oil have increased by MYR1.04B (37.7%) from MYR2.76B to MYR3.8B on September 2020, while imports increased by MYR29.2M (14.6%) from MYR200M to MYR229M. (Oec.World, 2019)
In September 2020, Palm Oil were exported mostly to India (MYR844M), China (MYR551M), Philippines (MYR236M), Netherlands (MYR234M), and Kenya (MYR162M), and were imported mostly from Indonesia (MYR177M), Papua New Guinea (MYR51.6M), and Singapore (MYR196k).(Oec.World, 2019)
In September 2020, the increase in Palm Oil's year-by-year exports was explained primarily by an increase in exports to China (MYR296M or 116%), India (MYR150M or 21.6%), and Philippines (MYR102M or 75.5%). In September 2020, the increase in Palm Oil's year-by-year imports was explained primarily by an increase in imports from .(Oec.World, 2019)
Malaysia produced 19.14 million MT of CPO in 2020, and it is expected for Malaysia's palm oil production to reach 22 million MT by 2025 and up to 25 million MT by 2030
Palm oil products in Malaysia are most often used for cooking/frying oil, shortenings, and margarine and confectionery fats.
Technology innovation is an advantageous opportunity for the progress of the palm oil industry, where it can be used to reduce production waste and monitor the operations and production processes of the palm oil sector – with the use of advanced and complicated technologies in I4.0 in CE – social, environmental and economic challenges are more likely to appear. Some challenges that are expected for the future are climate change, emission issues, and deforestation.