INTRODUCTION

Malaysia is the second largest producer of palm oil after Indonesia. Together, these two countries account for about 85 per cent of total exports around the world. In 2022, Indonesia alone produced 51.33 million tonnes of output, while Malaysia produced 18.45 million tonnes. A shortage of sunflower oil supplies arising from the Russia-Ukraine war, and Indonesia's export restrictions of palm oil due to domestic shortages in cooking oil, lowered worldwide supplies and led to a rise in palm oil prices. A prolonged labour shortage caused by COVID-19 restrictions on the entry of foreign labour also lowered oil palm production in Malaysia. These factors added pressure on prices and increased Malaysia's oil palm revenues (export of palm oil and palm-based products) from RM108,515 million in 2021 to RM137,891 million in 2022, an increase of about 27 percent.

This paper first discusses the economic significance of the Malaysian oil palm industry within the context of the agriculture sector, as well its significance to individual states. The history of oil palm is then discussed. The focus then moves to smallholders who are dependent on oil palm for their livelihoods. The political economy of palm oil is then examined in light of new European Union regulations requiring deforestation-free sources along manufacturing supply chains. Sustainability certification is seen as a solution to these new obstacles to Malaysian exports, but there are myriad challenges involved. The Malaysian Sustainable Palm Oil (MSPO) certification system has been gaining ground, but has yet to attain full international recognition and acceptance. An alternative international standard by the Roundtable for Sustainable Palm Oil (RSPO) also has its issues, and this will also be examined in the paper. This will be followed by a case study on certification efforts in Sabah.

In 2022, agriculture contributed 6.6 per cent of total Malaysian GDP (Constant 2015 Prices), of which 2.4 per cent was from oil palm. Agriculture is among Malaysia's top three sectors, with services (57 per cent) and manufacturing (24 per cent) contributing the most to annual GDP. Oil palm alone contributed, on average, over 35 per cent of the total gross value of the agriculture sector from 2018 to 2022.