The prosperous Malaysian palm oil industry

by Dr. Kenneth Ray Szulczyk

Oil palm trees were first brought to Malaysia from West Africa in the 19th century and were initially used as decorative plants in gardens before it was discovered that the trees’ fruits were able to produce high-quality cooking oil.

Malaysia started planting oil palms commercially in 1917 and the business grew to make the country the world’s largest palm oil producer. However, in 2007, Indonesia surpassed Malaysia to become the world’s largest producer.

Malaysia uses palm oil to boost exports, foster economic growth, and create jobs in rural communities. As Malaysia exports palm oil and its end products, it accumulates foreign currency and the palm oil industry pays export taxes to the government.

Moreover, the palm oil industry helps accelerate the manufacturing sector as it produces a variety of products from palm oil. In 2011 alone, Malaysia exported 80.3 billion ringgit worth of palm oil and oil-related products comprising about 13.7% of its gross domestic product.

The Malaysian government founded the Federal Land Development Authority (FELDA) to help low-income families establish rubber and palm tree plantations. FELDA provides training and construction loans, and buys and processes the palm fruit purchased from the family plantations. To date, FELDA has helped families develop 90,376 oil palm plantations.

Plantation owners earn greater revenues from palm oil and its many products. Many of these owners have converted their cocoa, coconut and rubber plantations into oil palm plantations. Cocoa, rubber, and coconut plantations have lost 1,648,619 hectares of land while the oil palm plantations gained 3,830,460 hectares between 1980 and 2010.

They also earn extra income from the plantations where buffaloes, cattle, goats and sheep raised at the plantations eat the grass and reduce weeding costs and herbicide use. The animals are then sold to the fresh meat markets. In addition, the plantation owners also constructed large birdhouses and sheds to attract birds that build nests. The birds’ nests are then collected and sold for the preparation of medicinal teas and soups.

Palm oil trees produce two types of oils. Processing mills extract palm oil from the pulp and palm kernel oil from the kernel. While the food industry uses a combination of palm oil and palm kernel oil in frying, baking and producing non-dairy creamers, condensed milk and ice-cream, the chemical industry utilises palm oil and leftover wastes from palm oil processing (called oleo chemicals) to manufacture chemicals for cosmetics, lubricants, paints, soap and many other products.

Diesel engines cannot combust pure palm oil because palm oil is denser and more viscous than diesel. Palm oil does not burn completely and could potentially damage engines. Thus, palm oil companies convert the palm oil into palm oil biodiesel by breaking down the long fatty molecules into smaller ones resembling diesel. Modern diesel engines can use up to 100% biodiesel without damaging the engine.

Although biodiesel does not substitute perfectly for diesel, it provides four benefits in which it recycles carbon dioxide, contains little sulphur, and as a result, vehicles would emit less sulphur dioxide. It also contains 12% oxygen and its vapours can spontaneously ignite at around 1700 Celsius, making it safer than diesel vapours that ignite at between 60 and 980 Celsius.

However, the disadvantages of palm biodiesel are that it contains less energy than diesel where there is a 5% drop in power but a 10% increase in fuel consumption; it cannot be sold to countries during winter where its temperatures plunge below freezing because palm biodiesel forms ice crystals in the fuel filter and congeals in the fuel tank; and vehicles using biodiesel may increase the emission of nitric oxide and nitrogen dioxide gases that form the brownish-orange haze and pollution in cities.

The Malaysian government passed the Malaysian Biofuel Industry Act in 2007 that requires petrol stations to mix 5% palm oil biodiesel (called B5) into all diesels sold in Malaysia.

Malaysia could potentially offset its entire diesel supply with palm biodiesel and adopt palm biodiesel on a large scale. Malaysians currently pay RM2.83 per litre for both petrol and diesel while palm biodiesel costs RM2.40 per litre. Thus, the Malaysian government could encourage its citizens to use more biodiesel if prices remain stable.

The United States and the European Union (EU) erected trade barriers against Malaysia’s palm biodiesel exports due to the oil plantations contributing to deforestation and the high levels of greenhouse gas emissions from the use of palm biodiesel. It is said the pygmy elephants and orangutans in the country, for example, have lost their natural habitat, potentially pushing them towards extinction.

However, Malaysia could take small steps in introducing renewable technology and recycling where the government could enact laws to encourage relevant industries to collect and recycle their wastes.

The average Malaysian can also help in the recycling by converting cheap wastes into biodiesel. For instance, food companies and restaurants produce 50,000 tonnes of waste annually from cooking oil and animal fats. The chemical industries could then use the old cooking oil and animal fats to manufacture clothes, cosmetics, detergents, plastics, rubber and soap. Alternatively, these oils and fats could be converted into 45.4 million litres of biodiesel that would cost about RM2.05 per litre, far below the diesel price.

Dr. Kenneth Ray Szulczyk is a senior lecturer of economics and finance in Curtin Sarawak’s School of Business. Besides teaching, he conducts research in environment and natural resource economics, particularly in the areas of biofuels and economic evaluation of endangered species. He can be contacted at

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