CarpeDiem IAS • CarpeDiem IAS • CarpeDiem IAS •

Palm Oil Sector – Challenges and Outlook

05 Aug 2025 GS 3 Economy
Palm Oil Sector – Challenges and Outlook Click to view full image

Context

  • Major palm oil exporters like Malaysia and Indonesia are facing a potential supply crisis.

  • Key causes: Ageing oil palm trees, reluctance to replant, and ageing smallholder farmers.


  • Palm oil is an African tree in the palm family (Arecaceae), cultivated as a source of oil.
  • Distribution: It is grown extensively in its native West and Central Africa, and Malaysia and Indonesia. Due to its high demand, plantations are spreading across Asia, Africa and Latin America.

Key Data Points

  • Palm oil accounts for over 50% of global vegetable oil supply.

  • 85% of crude palm oil is produced by Malaysia and Indonesia.

  • Smallholders contribute 40% of total production in both countries.

  • Combined exports may decline by 20% by 2030 over 2024 levels.

Reasons for Decline in Production

1. Ageing Trees

  • Palm trees over 20 years old are past peak production.

  • Malaysia: Govt data – 37% smallholder plantations past peak; Experts estimate – >50%.

  • Indonesia: Targeted replanting of 2.5 million ha by 2025; only 10% achieved by Oct 2024.

2. Ageing Farmers

  • Farmers hesitant to replant due to:

    • 3–5 years waiting period for new trees to yield.

    • Reduced replanting subsidies.

    • Need for continuous income to support families.

3. Policy Shifts

  • Indonesia’s biodiesel mandates: Increased domestic consumption.

  • Efforts to divert palm oil into biofuel production reduce exportable surplus.

Impact on Global Market

  • Global prices of palm oil (used in food, cosmetics, cleaning products) may rise.

  • Financial markets already pricing in slowdown, but extent underestimated due to underreported field realities.

Implications

  • Food security concerns in importing countries like India, China, EU.

  • Sustainability challenges: Slow replanting affects long-term supply.

  • Necessity for policy innovation to support rejuvenation of plantations and incentivise younger farmers.

Way Forward

  • Enhance subsidies and incentives for replanting.

  • Launch targeted schemes for smallholders and promote youth participation in palm cultivation.

  • Increase transparency in data on plantation health and replanting status.

National Mission on Edible Oils – Oil Palm (NMEO-OP)

Launch Year: 2021–22
Type: Centrally Sponsored Scheme
Implementing Agency: Ministry of Agriculture & Farmers Welfare

Objective

  • To enhance domestic production of edible oils by increasing area under oil palm cultivation and improving productivity.

Aim

  • Reduce India’s heavy import dependence on edible oils, especially palm oil (India imports ~60% of its edible oil demand).

Funding Pattern

  • 80% share by Government of India

  • 20% share by State Governments

Special Focus Regions

  • North-Eastern States

  • Andaman & Nicobar Islands

15 states covered under the scheme including:

  • Arunachal Pradesh

  • Assam

  • Manipur

  • Mizoram

  • Nagaland

  • Tripura

Salient Features

  1. Planting Material Support

    • Financial assistance for quality planting material to boost initial productivity.

  2. Intercropping Support

    • Inputs for intercropping (alternative crops grown between oil palm rows) during the gestation period of 4 years.

  3. Maintenance Support

    • Support for maintenance of plantations until maturity.

  4. Price Assurance Mechanism

    • Ensures farmers get Minimum Support Price–like security through a Viability Price Formula.

  5. Viability Gap Funding (VGF)

    • Central support to cover the gap between actual cost and market viability to make projects economically feasible.

Significance

  • Helps tackle:

    • Food security concerns

    • Rising edible oil prices

    • Supply shocks due to import dependency (like during Ukraine War or Indonesia’s export bans)

  • Aligned with Atmanirbhar Bharat and Doubling Farmers’ Income targets.



← Back to list