Promoting Agricultural Value Chains
In the OIC Member Countries
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5.5 The palm oil value chain in Malaysia
Since its introduction as an ornamental plant in 1875 and the start of the first commercial
plantation in 1917, palm oil has turned into a high value contributor to Malaysia’s
development and the backbone of the economy. Production has increased steadily over the
years by an average of 3.6 percent per annum up to a level of 19.8 million tonnes in 2014 with
an export value of US$ 11.6 billion (IndexMundi, 2015; Exim Bank, 2015) (see also
. The sector’s contribution to GDP and annual export earnings is estimated at
approximately 5 percent each. More than 600,000 people are already employed by the palm oil
sector and another 60,000 people are expected to be employed in the near future through the
current expansion of the industry into biofuel applications (MPOC, 2013).
Malaysia currently accounts for 39 percent of world palm oil production and 44 percent of
world exports (MPOC, 2012). The country is the second largest producer of palm oil after
Indonesia and collectively the two countries account for 85 percent of worldwide production.
While monoculture plantations are the main production systems in Malaysia, about 40 percent
of total output comes from smallholder farmers.
Figure 5-15 Palm oil production in Malaysia, 1993-2013
Source: FAOSTAT, 2015
The confounding increase of palm oil production is connected to a growth in global
consumption by 7 percent per annum over the past 20 years (Exim Bank, 2015). By now, palm
oil constitutes the world’s most widely consumed vegetable oil. Both palm oil and palm oil
kernel have a wide range of applications: about 80 percent are used in food while the rest is
feedstock for a number of non-food applications, including cosmetics, detergents and cleaning
agents.
Global demand for palm oil is expected to continue to increase due to growing consumption in
emerging economies, notably in India and China. The high demand for palm oil is also
attributed to its relatively low price given the low production costs and high yields in Malaysia
and Indonesia (Exim Bank, 2015).
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