Malaysia's Palm Oil Industry: MSPO Certification and the State of Sustainability

Malaysia's Palm Oil: Why It Is Drawing Attention Now

Palm oil is the world's most produced vegetable oil. It is deeply embedded in our lives, in processed foods, cosmetics, biofuel, and more. One of its major growing regions is Malaysia. In recent years, however, environmental destruction and labor problems have drawn international criticism, and the industry as a whole is entering a major period of transition.

This article explains in detail the current state of Malaysia's palm oil industry, a comparison with Indonesia, how MSPO certification works, and efforts toward sustainability. For those involved in food importing and agribusiness, the information you should know is all here.

Basic Data on Malaysia's Palm Oil Industry

First, let's grasp the big picture with numbers. Malaysia is the world's second-largest palm oil producer. Output in 2023 was about 18 million tonnes, accounting for about 25–28% of the world share.

The plantation area is about 5.9 million hectares. About 18% of the country's land has been converted to palm plantations. Export value reaches about 80 billion ringgit (about 2.5 trillion yen) a year, making it one of the important pillars of the Malaysian economy.

At the core of the industry is the government body MPOB (Malaysian Palm Oil Board). It centrally manages everything from production and research to certification and export promotion, and it also works to ensure the industry's transparency.

Comparison with Indonesia: Differences in Scale and Strategy

When discussing the world's palm oil market, Indonesia and Malaysia are always talked about as a pair. Organizing the differences between the two countries brings the industry's characteristics into view.

Indonesia is overwhelmingly ahead in output, but Malaysia has a higher yield per unit area and holds competitiveness on the quality front. If Indonesia competes on volume, Malaysia's strategy is to differentiate on quality and certification.

The EU Deforestation Regulation (EUDR), which the EU put into force in 2023, is affecting both countries' palm oil exports. In terms of the speed of response, Malaysia, whose certification system was ahead, holds the advantage.

What Is MSPO Certification: Requirements and Significance

MSPO (Malaysian Sustainable Palm Oil) is a sustainable palm oil certification system introduced by the Malaysian government in 2015. In 2019, obtaining certification was made mandatory for all plantations, including smallholders.

The Main Certification Requirements of MSPO

To obtain certification, the following areas' standards must be met.

Environment
– Ban on new development of high-carbon-stock land
– Restrictions on peatland development
– Recording and management of pesticide use
– Designation of biodiversity-conservation areas

Social and Labor
– Ban on forced labor and child labor
– Payment of fair wages
– Respect for the rights of indigenous peoples (FPIC principle)
– Compliance with occupational safety and health standards

Traceability
– Supply-chain records from production to export
– Audits by third-party bodies

MSPO is often compared with RSPO (Roundtable on Sustainable Palm Oil), but RSPO has higher international recognition and currently faces more demand from European buyers. The Malaysian government is advancing negotiations toward mutual recognition of MSPO and RSPO, with discussions still ongoing as of 2024.

The Status of MSPO Adoption

As of the end of 2023, about 92% of Malaysia's plantation area had obtained MSPO certification. Much of the remaining 8% is smallholders, for whom cost and the complexity of procedures are barriers. The government aims for 100% certification through subsidies and technical support.

Efforts Toward Sustainability: Forest Protection and Climate-Change Response

The greatest criticism directed at the palm oil industry is the destruction of tropical rainforests. In response, Malaysia has rolled out several concrete policies.

Numerical Targets for Forest Protection

The Malaysian government has pledged to "maintain more than 50% of the country's land as forest," and as of 2023 about 55% is still covered by forest. The forest area has declined compared with the 1990s, but the rate of decline is at a lower level than in Indonesia.

Peatland Management

Peatland development in particular has large greenhouse-gas emissions and has drawn international criticism. Since 2016, the Malaysian government has, in principle, banned new peatland development. For existing peatland plantations, it is promoting improved drainage management and a phased transition.

Bioeconomy Strategy

Development of biomass energy and organic fertilizer using palm oil by-products (empty fruit bunches, palm kernel shells, and effluent) is also advancing. The "zero-waste plantation" model, which brings waste close to zero, is a field the government actively subsidizes.

The Reality of Labor Problems and the Move Toward Improvement

In the sustainability debate, labor problems are as important as the environment. On Malaysia's palm oil plantations, many foreign workers (mainly from Indonesia and Bangladesh) work, and in the past, forced labor, excessive overtime, and poor living conditions have been reported.

The Background to the Problem

Plantation work is hard and wages are low, so Malaysians tend to avoid it. As a result, plantations depend on foreign workers, and as of 2023 about 70% of plantation laborers are foreign.

Many workers come to Malaysia through brokers, and cases have been pointed out where they take on high fees as debt. This creates the risk of being deemed forced labor.

The 2021 Sanctions on a Major Company and Their Impact

In 2021, U.S. Customs and Border Protection (CBP) imposed an import ban on the products of a major Malaysian palm oil company, judging that there was evidence of forced labor. This gave Malaysia's palm oil industry a major shock and prompted many companies to strengthen labor audits.

Efforts Toward Improvement

Led by major companies, the following improvement measures are advancing.

The pace of change differs by company, but as the standards demanded by international buyers rise, the pressure to improve is mounting.

Palm Oil Trade Between Japan and Malaysia

Japan is one of the world's leading palm oil importers. Its annual import volume is about 700,000 tonnes, with Malaysia as one of the main supply sources.

In exports to Japan, there is demand both for food uses (margarine, shortening, instant foods) and non-food uses (detergents, cosmetic ingredients).

Among Japanese food makers, there is a growing move to formulate supply-chain policies for procuring RSPO- or MSPO-certified palm oil. Even in the private-brand products of major convenience-store chains and supermarkets, cases of requiring the use of certified raw materials are increasing.

Summary

Malaysia's palm oil industry has strengths different from Indonesia's in terms of scale, quality, and certification system. The spread of MSPO certification is advancing steadily, but ensuring international alignment with RSPO is the next challenge.

On the environmental front, peatland management is improving while numerical targets for forest protection are maintained. As for labor problems, the 2021 import ban spurred a shift in awareness across the whole industry. The move toward improvement is real, but it will take time to permeate the entire supply chain.

For those involved in food importing and agribusiness, checking the certification status and whether labor audits are conducted at a supplier company is the first step in risk management. The palm oil market will continue to see rising demands for transparency amid EU regulations and changes in consumer awareness.

At VN AGRI, we share the latest information on Vietnamese agriculture. If you are looking for information on Southeast Asian agricultural trends and food import/export, please take a look at our other articles.

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