New EU requirements pose risks for Malaysia’s small palm oil producers

New EU traceability requirements for palm oil could strengthen the position of large Malaysian plantation companies while creating additional risks for small producers. Malaysia’s national Malaysian Sustainable Palm Oil (MSPO) certification is the only government-backed scheme officially recognized by the EU, giving certified suppliers an advantage in the European market.

However, Malaysia remains classified as a “standard-risk” country, meaning 3% of relevant shipments are subject to annual compliance checks. This increases costs and regulatory scrutiny compared with countries classified as low risk. Malaysia aims to obtain low-risk status in the future through its national traceability system, which integrates the e-MSPO, GeoSAWIT and SIMS platforms.

Competition is intensifying as the European palm oil market itself contracts. EU palm oil imports fell 5% to 2.85 mln tons in MY 2025/26. The decline was driven mainly by the phase-out of palm-based biofuels rather than EUDR requirements. At the same time, stricter traceability rules could allow compliant Malaysian supplies to command a price premium.

Large Malaysian plantation companies are better positioned to comply with the new requirements, while smallholders with less transparent supply chains could face significant challenges. If similar verification standards are increasingly adopted by Japan, South Korea and China, certification could become even more important for market access, potentially shifting trade flows toward larger producers.

UOB Kay Hian maintains a positive outlook for Malaysia’s plantation sector, supported by expected demand growth from Asian biofuel mandates, including Indonesia’s B50 program. The average crude palm oil price is forecast at MYR 4,500/t in 2026 and MYR 4,400/t in 2027.

Tags: EU, prices, Malaysia, palm oil