Rising diesel costs threaten palm oil production in Indonesia and Malaysia

Higher diesel prices and fuel supply shortages are disrupting palm oil harvesting in Indonesia and Malaysia, the world’s two largest palm oil producers. Smallholders are being forced to reduce harvesting rounds, threatening yields and potentially tightening global supplies of the world’s most widely used edible oil.

The biggest impact has been reported in the Malaysian states of Sabah and Sarawak, which account for 43.9% of the country’s crude palm oil production. Following a nearly 120% increase in unsubsidized diesel prices, smallholders have reduced harvesting frequency from about 2.5 rounds per month to just 1-1.5 rounds. Industry representatives warn that Sarawak’s yields could decline by 15-20% if fuel prices remain elevated.

Another major concern is the expected El Niño weather pattern later this year, which could reduce rainfall across the region. During the severe El Niño of 2015-2016, Malaysia’s palm oil production fell by nearly 18%, while Indonesia’s output declined by around 3%.

In Indonesia, where Sumatra accounts for about 55% of the country’s palm oil production, farmers have been hit primarily by diesel shortages. Limited fuel availability has forced growers to extend harvesting intervals, reducing both productivity and crop quality.

Industry groups are urging the Malaysian government to revise its diesel subsidy policy, arguing that current fuel allocations do not reflect the challenging terrain of plantations in Borneo. Farmers also report sharply higher operating costs for transport, power generators, and agricultural machinery.

Analysts warn that prolonged fuel shortages and elevated diesel prices could curb palm oil production across Southeast Asia. With Malaysian benchmark palm oil futures already up more than 15% this year, any further supply disruptions could provide additional support to global palm oil prices.