Industry consolidation the next chapter of oil palm?

The Star

06-06-2025

THE Malaysian plantation sector – long a cornerstone of the nation's economy and rural livelihood – is undergoing a defining transformation.
Confronted by rising production costs, chronic labour shortages, sustainability pressures, and ageing oil palm estates, the industry is nearing a critical inflection point.
Business-as-usual is no longer viable. In this changing landscape, consolidation is becoming not just possible but necessary.
A once-fragmented industry built on legacy models must evolve into a more integrated, efficient, and resilient ecosystem to stay competitive globally. The question is no longer if consolidation will happen, but how soon and who will lead it.
Larger publicly listed plantation companies – with scale, capital access, and professional managemen – are better positioned to adapt and thrive.
In contrast, smallholders and mid-sized estates face rising vulnerabilities that threaten their long-term viability.
Rather than a threat to diversity, consolidation should be viewed as a strategic evolution – promoting efficiency, best practices, and the sector's future.
While its pace and form may vary, consolidation now appears inevitable. Ultimately, this shift will be driven by the commercial choices of individual owners in a business-to-busines-driven landscape.
Growing divide in succession and scale
A major challenge facing the sector is the generational transition of estate ownership and management. Leading plantation companies like Kuala Lumpur Kepong Bhd , IOI Corp Bhd , Genting Plantations Bhd , Kim Loong Resources Bhd , J.C. Chang Group, Hap Seng Plantations Bhd and Teck Guan Holdings Bhd are largely institutionalised.
They have corporate governance, professional management, and financial capacity to invest in sustainability and innovation.
Though still anchored by founding families, these firms have evolved into professionally run conglomerates better equipped to handle global demands.
In contrast, hundreds of smaller and mid-sized estates – ranging from 100 to a few thousand acres – face stagnation. Often family-owned and passed down through generations, many now struggle with succession.
Younger heirs often lack the interest or capability to manage these assets, leading to operational fragmentation, underinvestment, and in some cases, neglect or forced liquidation.
These estates also face structural disadvantages. Unlike integrated firms with their own mills and pricing control, smaller players rely on third-party dealers and processors. This dependence reduces their bargaining power, increases price vulnerability, and often results in lower returns.
The consequences go beyond business. The oil palm sector is vital to Malaysia's rural economy, especially in Sabah and Sarawak.
The decline of mid-tier estates threatens not only productivity but also local jobs and community development. What seems like a succession issue is, in fact, a broader regional and national concern.
Economics of consolidation
Consolidation presents a strong economic case for boosting productivity. Larger plantation companies are incentivised to acquire or manage smaller, nearby estates to gain scale efficiencies. Integration allows for streamlined operations, shared resources, improved logistics, and better mechanisation – particularly in in-field crop evacuation – advantages often out of reach for smaller players.
Many smallholders can't afford replanting costs, which can exceed RM30,000 per hectare, with no revenue during the immature phase.
This leads to ageing palms, declining yields, and lower profitability. In contrast, well-capitalised firms can invest in replanting, using high-yielding varieties and precision agriculture to rejuvenate estates and boost output.
Revisiting the agency model
A promising path for industry consolidation is the revival and modernisation of the estate agency model, once common in Malaysia.
Historically, firms like Taiko Plantations and Plantation Agencies Ltd managed estates for absentee or passive landowners, who retained ownership while benefiting from professional oversight and steady income.
Today, this model could be reimagined.
Larger plantation companies could enter structured management agreements with smaller estate owners, offering agronomic expertise, mechanisation, replanting investment, and market access.
In return, profit-sharing or fixed-return contracts would provide landowners with reliable income while improving land productivity and sustainability.
For success, the agreements must be transparent, fair, legally sound, and scalable. Pilot projects and early adopters can serve as proof of concept, building trust and offering templates for broader adoption.
Such partnerships preserve land ownership for families and cooperatives while unlocking the potential of underperforming estates through professional management.
This approach benefits both sides: landowners avoid operational burdens but retain income, while companies grow managed acreage without owning land – helpful amid tighter land acquisition rules and community sensitivities.
In a context where land carries deep personal and cultural value, this collaborative model offers a sustainable and productive future for Malaysia's plantation sector.
Cooperative potential for smallholdings
For smallholders, consolidation doesn't have to mean giving up land – it can come through strategic collaboration via cooperatives or clusters. Larger plantation companies can engage with these groups, especially in areas adjacent to their operations, enabling contiguous expansion, operational synergies, and reduced logistical inefficiencies.
Shared use of infrastructure – such as mills, machinery, transport and advisory services – offers mutual benefits. Smallholders gain professional management, better pricing, and technical support, while companies expand their effective land base and achieve scale without acquiring land.
Direct engagement with individual smallholders is often complex due to land fragmentation, heir disagreements, and varying agricultural expertise. Structured cooperatives or multi-family clusters provide a more scalable alternative, enabling collective decision-making and standardised practices across plots.
The success of such partnerships depends on transparent, equitable, and enforceable agreements that align landowners' interests with agronomic best practices and sustainability goals.
The biggest challenge is the human factor – building consensus among diverse landowners across generations and motivations. Convincing both traditional elders and disengaged heirs to align under a shared vision is difficult, especially with political sensitivities and varying trust levels.
Still, if handled inclusively and strategically, this model could revitalise smallholder participation – transforming fragmented plots into productive, professionally managed, and resilient assets within Malaysia's plantation sector.
Sustainability is a licence to operate
Consolidation supports compliance with standards like Malaysian Sustainable Palm Oil, Roundtable on Sustainable Palm Oil and European Union deforestation regulation, especially as traceability requirements grow. Larger firms are better positioned to meet labour, environmental, and reporting benchmarks, while smaller operators often lack the resources and expertise to keep up.
Consolidation also aligns with the government's goal of sustainable intensification – boosting productivity without expanding agricultural land. As concerns over deforestation, biodiversity loss and carbon emissions increase, the focus must shift from organic expansion to optimising existing estates.
Pooling fragmented, underperforming small and mid-sized estates into larger, professionally managed units enables higher yields, better resource use, and stronger sustainability compliance.
Consolidated estates benefit from modern practices and consistent management, raising productivity without harming the environment. In this context, consolidation becomes both a commercial and policy-driven necessity for Malaysia's commodity future.
Conclusion: An inevitable evolution
Consolidation is not a distant possibility – it is fast becoming reality, driven by demographic shifts, economics and sustainability. For smaller estates, the choice may soon be between slow decline or joining forces through strategic partnerships.
Policymakers and larger firms must help shape a fair and inclusive consolidation framework.
Reviving estate management models, incentivising cooperatives, and enabling profit-sharing can build a more resilient industry. Thoughtfully pursued, consolidation offers a new lease on life for smaller players within a more efficient and sustainable system.
The question is urgent: Are we doing enough to secure the future of Malaysia's oil palm sector?
Without unified action, the industry risks quiet decline. This is not alarmism – it's a clear call for decisive and collective reform.
Joseph Tek Choon Yee has over 30 years of experience in the plantation industry, with a strong background in oil palm research and development, executive leadership and industry advocacy. The views expressed here are the writer's own.