PALM oil has been trading at a premium to other vegetable oils on global commodity exchanges, signalling a shift in supply and demand dynamics which belie Malaysia’s serious ongoing commitment to the environment and long-term sustainability.

This trend not only reflects tightening supplies but also emphasises palm oil’s critical role as the world’s most versatile edible oil, used for both food and non-food purposes.  

While global demand remains strong, reduced planting by major producers, among other factors, is pushing prices higher, reaching as high as RM4,400 per tonne in October. Additionally, Indonesia’s decision to increase its biodiesel mandate from B35 to B40 is expected to boost palm oil consumption by two- to 2.5 million tonnes next year, further limiting export availability. This reduced supply is likely to continue supporting higher palm oil prices. 

However, focusing solely on supply and demand trends overlooks the significant progress the Malaysian palm oil industry has made in balancing environmental responsibility with economic growth. In recent years, the sector has transformed with sustainability, transparency and traceability, becoming the backbone of its supply chains. 

One notable achievement is the expansion of the Malaysian Sustainable Palm Oil (MSPO) certification scheme, which now covers over 80% of the industry, including smallholders who account for 27% of Malaysia’s oil palm plantations. MSPO, Malaysia’s legally mandated and independently audited standard for sustainable palm oil production, strengthens traceability across the entire supply chain. 

Many Malaysian companies are also certified under both the MSPO and the RSPO (Roundtable on Sustainable Palm Oil) scheme, making palm oil one of the most certified vegetable oils globally. These efforts are making a tangible difference. According to the World Resources Institute’s Global Forest Watch, Malaysia achieved a 57% reduction in primary forest loss as of 2022, demonstrating the success of government and industry initiatives to curb deforestation.

No other vegetable oil — whether olive, rapeseed, or sunflower — faces the same level of scrutiny or commitment to sustainability as palm oil.

Of course, sustainability comes with trade-offs. The current high palm oil prices are largely due to supply shortages. Since 2019, Malaysian palm oil production has not exceeded 19.85 million tonnes, partly because the oil palm plantation area has decreased by 4.2% (247,588 hectares) over the past four years. This decline reflects Malaysia’s decision to refrain from expanding into new areas to prioritise environmental concerns. This further strengthens Malaysia’s position as a low-risk country under the European Union Deforestation Regulation, or EUDR’s unilaterally imposed benchmarking system. Malaysia has reported a reduction in the expansion of its affected commodities under EUDR, namely oil palm, timber, cocoa and rubber. 

While Malaysia has seen a reduction in mature oil palm areas over the past four years, other vegetable oils are expanding. For example, Brazil has increased its soybean area by six million hectares — more than Malaysia’s entire oil palm area, which stands at 5.65 million hectares after over a century of cultivation. 

Despite palm oil being a critical source of income for many smallholders, Malaysia remains firmly committed to sustainability. While this may limit production growth and affect smallholders’ income, prioritising responsible practices is the right long-term strategy. The benefits of sustainable palm oil production — for both the environment and the industry — far outweigh the short-term challenges.

Palm oil plays a crucial role in economic development, especially in rural areas, where it provides livelihoods, infrastructure, and social services. Sustainable practices not only protect the environment but also ensure higher and more stable prices for smallholders, improving their economic security. 

The World Wildlife Fund (WWF) estimates that palm oil accounts for 35% to 40% of global vegetable oil demand, yet it is produced on just 6% of the land used for oil crops. Replacing palm oil with other vegetable oils would require seven- to 10 times more land to achieve the same production volume. Additionally, palm oil uses far fewer inputs — such as fertilisers, pesticides, and energy — compared to other oil crops.

Dr Hannah Ritchie from Oxford University’s Our World in Data project emphasises this point in her book “Not The End of the World”. She argues that demonising palm oil is counterproductive. Replacing palm oil with other oils would result in far greater environmental harm. If we produced all the world’s oil crops using only oil palm, it would require just 77 million hectares of land — four times less than what is currently used for oil crops. In contrast, switching to olive oil would demand an enormous 660 million hectares, twice the size of India. 

The reality is clear: no other vegetable oil matches palm oil in terms of yield and versatility. Once seen as a cheap and abundant commodity, palm oil is now proving that sustainability and profitability can coexist. The recent price increase signals that embracing sustainability is not only beneficial for the environment but also economically viable.

With over 80% of Malaysia’s palm oil production exported, the country will continue to play a vital role in global food security, particularly for nations lacking sufficient domestic production of oils and fats. 

As we look ahead, we must continue to strive for a future where all stakeholders — smallholders, corporations, consumers, and the environment — can prosper together. Palm oil, once viewed through the lens of controversy, is emerging as a sustainable, responsible, and indispensable component of the global food system.

Belvinder Sron is chief executive of the Malaysian Palm Oil Council.