Palm oil glut in Malaysia threatens small producers and farmers

Record-high palm oil inventories in Malaysia are creating serious challenges for independent palm oil millers and smallholders. Amid oversupply, refineries are reducing purchases of crude palm oil (CPO) from third-party suppliers, prioritizing output from their own mills. As a result, independent producers are accumulating unsold stocks and facing shortages of storage capacity. Industry participants expect difficult market conditions to persist over the next two months, while sales disruptions could continue until February 2027 without government intervention.

According to the Malaysian Palm Oil Board (MPOB), Malaysia’s total palm oil inventories increased by 24.54% month-on-month in September 2026 to a record 3.51 mln tons, compared with 2.82 mln tons in August. Crude palm oil production rose by 16.48% to 2.12 mln tons, while total palm oil exports declined by 12.13% to 1.12 mln tons. CPO stocks increased by 31.88% to 2.16 mln tons, while processed palm oil inventories grew by 14.33% to 1.35 mln tons. MPOB is scheduled to release its October production, export and inventory data on November 10.

Due to difficulties in selling their output, some independent mills have been forced to store crude palm oil for extended periods, causing certain batches to deteriorate in quality and fall below export specifications. Further stock accumulation could force millers to stop purchasing fresh fruit bunches (FFB) from farmers, as the fruit must be processed within 24–48 hours of harvesting. This threatens smallholders not only with lower procurement prices but also with the complete loss of income from part of their harvest. Malaysia has more than 440 thsd smallholders cultivating plots of less than 40.46 hectares. However, one representative of the milling industry has disputed reports of disruptions to CPO deliveries to refineries in Peninsular Malaysia.

Amid the sales crisis, industry representatives are urging the government to temporarily suspend the 10% export duty on crude palm oil, arguing that it undermines the competitiveness of Malaysian supplies. According to industry estimates, Indonesian CPO is 700–900 ringgit per ton cheaper than Malaysian CPO. In November, Malaysia’s export duty remains at the maximum rate of 10%, based on a reference price of 4,323.78 ringgit per ton. The proposal to temporarily waive the duty is under consideration by the Ministry of Finance, which is responsible for the final decision.

Despite the substantial buildup in inventories, Malaysia’s domestic spot CPO price has risen by 11.65% since the beginning of 2026 to 4,391 ringgit per ton. Higher prices may have encouraged buyers in price-sensitive markets to switch to cheaper vegetable oils, further weakening export demand. Meanwhile, Malaysia continues to import palm oil, with inbound shipments totaling 107.6 thsd tons in August–September alone. Industry participants warn that unless inventories decline and sales recover, financial pressure on independent crude palm oil producers and smallholders will continue to intensify.

Tags: Crude palm oil, Malaysia, palm oil