Old trees, ageing farmers worsen outlook for palm oil exporters

The Hindu

5 days ago

Malaysian farmer Suratmen Mosman faces a dilemma that threatens to sap supply from the world's top palm oil exporters and drive up prices of the vegetable oil essential to billions of consumers worldwide in the next five years.
The ageing trees on his plantation 300 km south of Kuala Lumpur are bearing less fruit, but the 85-year-old is holding off replacing them as he doesn't want to lose income while waiting the three to five years it takes for new trees to start yielding a crop. Government subsidies to encourage replanting are not as high as they once were and he needs to support his family.
Used mostly as cooking oil, but also to make cakes, cosmetics, and cleaning products, palm oil makes up more than half of the world's vegetable oil supply and 85% of the crude product comes from Malaysia and Indonesia.
But after decades of soaring output, the market is now at a tipping point as combined exports from the two producers are set to slow sharply, the result of stagnating production and efforts by Indonesia to divert more palm oil into the production of biodiesel.
While financial markets have factored in the slowdown, there is growing evidence that plantations run by smallholders like Suratmen may be in worse condition than previously thought as ageing and lower-yielding trees are not replaced, which will add to the decline. Smallholders make up 40% of the plantations across Malaysia and Indonesia, so they play a vital role in the supply chain.
Supplies to global markets from Indonesia and Malaysia could fall as much as 20% over the next five years, according to calculations based on government and industry projections, some previously unpublished.
Future output from smallholders may well be over-estimated because the condition of trees and the rate of planting new trees is worse than estimates by the governments in Kuala Lumpur and Jakarta, according to veteran industry figures Dorab Mistry and M.R. Chandran.
Other previously unpublished data also shows the acreage of plantations where trees are older than 20 years, a point at which they are considered beyond their peak, is growing fast.
Exports from the world's top two producing countries are set to fall further on replanting delays, rising local demand because of higher biodiesel blending mandates
Mistry, a director of Indian consumer goods firm Godrej International and a long-term palm oil analyst who has been in the industry for more than 40 years, and Chandran, the former head of the Malaysian Palm Oil Association, estimated that more than half of the trees on Malaysian smallholder plantations are well past peak production.
The estimate is significantly higher than Malaysian government data, which shows 37% of smallholder plantations are past their peak yielding phase.
In Indonesia, just 10% of a 2016 government target to replant 2.5 million ha by 2025 had been met as of October 2024, publicly available government data showed.
Thus, calculations based on Malaysian and Indonesia palm oil body estimates suggest combined exports are likely to drop by 20% by 2030 over 2024 levels.