NATIONAL AGRICOMMODITY POLICY (2021-2030)

Chapter

Leveraging Smart
Partnerships On

Technological Adoption
In Palm Oil

3

46 National Agricommodity Policy 2021-2030 (DAKN2030)

Policy Document 47

48 National Agricommodity Policy 2021-2030 (DAKN2030)

Way Forward 2021-2030

21 17

Indicators Strategies
& Targets

1 2 4 5

SUSTAINABILITY PRODUCTIVITY MARKET DEVELOPMENT INCLUSIVENESS
Capture the leading Expand productivity Industry-led strategic Lead the way in
position in sustainability improvement efforts, partnerships smallholder well-being
S1. Strengthen S15. Refine models to
especially in the S13. Improve market access improve livelihoods of
sustainability measures upstream and through trade independent
and mechanisms, agreements and smallholders (ISH)
including midstream segments strengthen existing S16. Optimise government
implementation and S5. Invest in market-driven markets, especially support with targeted
standards of MSPO Southeast Asia, China, assistance, e.g., data
S2. Enhance and R&D&C to increase the India and Middle East governance and
strengthen traceability supply of high-yielding income-generation
of certified sustainable planting materials S14. Collaborate with programmes
palm oil S6. Accelerate the industry to strengthen S17. Empower Bumiputera
S3. Encourage adoption of agricultural communication on for increased
industry-driven best practices sustainability practices participation across
responsible practices S7. Facilitate the adoption upstream, downstream
across the value chain of automation, and midstream
on workers’ rights, mechanisation and
safety standards, IR4.0 technologies for
compliance higher output and
S4. Increase environmental quality
conservation and S8. Promote new
management efforts technologies to MSMEs,
association or agencies

3

VALUE-CREATION
Accelerate the shift to higher-value activities, and capture circular economy opportunities
S9. Expand market-driven product development focused on specialised products such as performance

oleochemicals and biofuels, functional foods and ingredients
S10. Intensify R&D&C efforts to produce a higher-valued and more diversified range of palm and kernel oils
S11. Ensure compliance to international and importing countries’ food quality and safety standards
S12. Capture opportunities for a zero-waste circular economy

Policy Document 49

1 CURRENT
STATUS

Palm Oil is the leading Agricommodity
for Malaysia

Palm oil is not only the leading Agricommodity in Malaysia, but it is also the most efficient oil crop
globally, requiring much less planted area to produce one tonne of oil compared to other oil crops38.
Over the last half-century, the palm oil industry has been a key growth driver in Malaysia, helping to
alleviate poverty through organised smallholder settlements across the country. Today, Malaysia is
the second-largest global producer of palm oil, with a mature industry driven by the private sector
across the upstream, midstream and downstream segments.

Development of the palm oil industry in Malaysia is supported by three main agencies and councils
who work closely with MPIC and other related ministries and agencies to fulfil the national agenda:

The Malaysian Palm Oil Board (MPOB): tasked with policy implementation, research and
development and commercialisation (R&D&C), licensing and regulation, technical advisory to
industry and human resource development

The Malaysian Palm Oil Council (MPOC): responsible for market development, including
enhancing trade opportunities, product diversification and public relations

The Malaysian Palm Oil Certification Council (MPOCC): oversees the development and
management of certification standards for the palm oil industry

Palm oil has consistently been the largest Agricommodity crop in terms of planted area, output and
export earnings. In 2020, the total oil palm planted area stood at 5.9 million ha, an increase of 22%
from 2010. This translates into 83% of total Agricommodity planted area in the country. Sectoral GDP
contribution from palm oil was RM48 billion or 3.6% of Malaysia’s total GDP in 202039, making palm
oil the largest contributor among all Agricommodity crops. The upstream segment40 contributed
RM36.9 billion (2.7%) of total GDP, while the downstream segment41 contributed RM11.4 billion (0.9%).
RM73 billion was generated in export revenues from 26.6 million tonnes of palm oil and palm-based
products in 202042. These products include palm oil (crude and processed), Palm Kernel Oil (crude
and processed), Palm-based Oleochemicals, Palm Kernel Cake and other palm-based products.

38 IUCN Issues Brief: Palm Oil and Biodiversity (June 2018)
39 MPIC
40 Upstream products include palm oil, palm kernel oil and palm kernel cake.
41 Downstream products include oleochemicals, finished products and biodiesel.
42 MPIC. At 2015 prices.

50 National Agricommodity Policy 2021-2030 (DAKN2030)

Malaysia is the world’s second-largest palm oil
producer and exporter

Malaysia produced 19.1 million tonnes of Crude Palm Oil (CPO) in 202043, an increase of 17% from
17 million tonnes in 2010. 16.2 million tonnes (both crude and processed palm oil) were exported,
a slight decrease from 16.9 million tonnes in 2010. In 2020, Malaysia’s exports made up 34% of the
world palm oil export market share, behind Indonesia at 54% while the rest of the world made up the
remaining 12%44.
Global palm oil production in 2020 is estimated at 73.6 million tonnes while consumption is
estimated to be higher at 75.2 million tonnes. On average, palm oil production grew by 4.8% annually
over the last 10 years, while consumption grew by 2.8% annually. By 2030, global palm oil production
is forecast to reach 103.9 million tonnes while consumption is forecast to increase to 105.4 million
tonnes. Consumption is expected to increase at a higher rate than production as population growth
is anticipated to drive demand for food and consumer products, many of which contain palm oil or
palm derivatives. Production, on the other hand, will continue to be limited by scarcity of land for
expansion of planted area.

Exhibit 3.1: Global Palm Oil Production and Consumption 2009-2020 & 2021-2030 (Forecast)

Export volume has increased

The total export volume of palm oil products increased from 23.8 million tonnes in 2010 to 26.6
million tonnes in 2020. However, export volumes of processed palm oil and palm oil products
fluctuated during this time. These exports fluctuated from 18.6 million tonnes in 2010 to lows of
17.7 million tonnes in 2012, 2015 and 2016, followed by a peak of 21.9 million tonnes in 2019, and then

43 ibid
44 MPIC

Policy Document 51

reduced to 19.1 million tonnes in 2020. Similarly, exports of crude palm oil also fluctuated, although
overall CAGR shows a positive rate of 3.7% over 2010-2020.

Exhibit 3.2: Exports of Crude and Processed Palm Oil Products (2010–2020)

Export earnings were affected by fluctuating CPO prices over 2010-2020, growing at a CAGR of
1.7%. During this period, average CPO prices plummeted from RM2,701/tonne in 2010 to RM2,079/
tonne in 2019. Prices increased during the second half of 2020 due to reduced supply caused by the
COVID-19 pandemic, reaching a peak of RM3,836/tonne on 24 Dec 2020. The average price in 2020
was RM2,686/tonne.

Exhibit 3.3: Export Earnings and Average CPO Price (2010-2020)

52 National Agricommodity Policy 2021-2030 (DAKN2030)

Sustainability efforts have been
actively pursued

Malaysia introduced the Malaysian Sustainable Palm Oil (MSPO) certification scheme in 2015 in
response to growing consumer demand for certified sustainable palm oil. This is also in response to
the Amsterdam Declaration signed in 2015 by seven European countries for “100% Sustainable Palm
Oil in Europe by 2020”. As at December 2020, 88.25% of all oil palm planted area in Malaysia has been
certified under the MSPO certification scheme. In 2019, Malaysia also committed to four policies
towards sustainable oil palm cultivation, further signalling the country’s commitment towards
ensuring responsible and environmentally sustainable practices in the palm oil industry. These are
elaborated further in the box article below: Four Policies towards Sustainable Oil Palm Cultivation.
Circular economy efforts have also started, for example, the use of oil palm trunks as a raw material
for furniture production, and efforts to develop oil palm biomass into marketable products.

FOUR POLICIES TOWARDS SUSTAINABLE OIL PALM CULTIVATION

The Government endorsed four (4) policies on 22 March 2019 as part of the country’s commitment to
addressing environmental concerns related to oil palm cultivation:

1. To cap the planted area of oil palm throughout the country at 6.5 million ha
The proposed limit of 6.5 million ha for palm oil planted area takes into account the annual area

growth rate as well as estimated output in the future. Limiting the expansion of oil palm plantations
will reduce the opening of forest areas for oil palm plantations, and limit land-use change from other
agricultural crops such as rubber, paddy, and coconut.

2. To ban new planting of oil palm in peatlands and to tighten regulations on existing oil palm
plantations on peatlands

Peatlands play an important role in environmental ecosystems, including storage of carbon stocks,
sources of natural resources, sources of water supply, hydrological cycles and flood mitigation as
well as biodiversity. The seventh principle of the Malaysian Sustainable Palm Oil (MSPO) certification
states that palm oil cultivation in peatlands should be prudent, in accordance with the Code of Good
Agricultural Practices, which applies to plantations and smallholders. These principles and criteria
are in line with the National Action Plan for Peatland issued by the Ministry of Natural Resources
and Environment (now known as the Ministry of Energy and Natural Resources). Plantations that
are already established on peat are required to follow the recommended Best Management Practices
(BMP) for peat which were defined by experts.

Policy Document 53

3. To restrict the conversion of Permanent Forest Reserve (PFR) for oil palm planting activities or
other agricultural crops

In 2018, Permanent Forest Reserves (PFR) covered 10.92 million ha of land area on top of 3.31
million ha of Fully Protected Areas and 4.04 million ha of Government Land Forests45. Forest
management practices in Malaysia are guided by the practices of Sustainable Forest Management
(SFM) with the objectives of preserving biodiversity, managing genetic resources and enhancing
research and education. Prohibiting new conversion of Permanent Forest Reserves (PFR) for oil palm
and other agricultural planting will prevent further deforestation and help to maintain the national
forest cover target.

4. To make available official oil palm plantation maps nationwide for public access
Currently, official maps of oil palm cultivation areas are not freely accessible through any public

domain. Data and information for oil palm maps are thus obtained through open-source sites.
Anti-palm oil movements have used such unverified information to denounce palm oil producing
countries on deforestation and related issues. Official maps for oil palm plantations nationwide will
be provided as an official reference for the public and stakeholders within and outside the country,
increasing transparency and accountability across industry and Government.

45 Kawasan Berhutan di Malaysia (1990-2018), Ministry of Natural Resources and Energy.

54 National Agricommodity Policy 2021-2030 (DAKN2030)

2 KEY
ISSUES

Despite the palm oil industry’s strong performance to date, significant challenges could affect
outcomes over the next 10 years. Key issues are declining productivity, which is partly related to the
slow rate of replanting ageing oil palms; land and labour scarcity; independent smallholder welfare;
non-tariff barriers; and negative nutritional and environmental perceptions against palm oil in the
global market. Slow downstream investment and growth are also of concern. The overall cost of
production in Malaysia is also less competitive compared to emerging economies, partly due to
higher labour costs and current tax structures.

Upstream

Productivity is declining

Malaysia’s average oil yield decreased at a CAGR of -1.0% from 2010-2020. This trend is similar but
only slightly better than Indonesia’s, whose rate has decreased at a CAGR of -2.0%. While Malaysia’s
oil yield performance remains the best among the top five producing countries in 2020, Thailand
is fast catching up. The third-largest producer of CPO in the world, Thailand’s average oil yield is
growing at a CAGR of 3.0%. This is due to improved access to better facilities across Thailand as
newer mills and refineries have been set up in response to the significant expansion of oil palm
cultivation.

Exhibit 3.4: Average Oil Yield of Malaysia, Indonesia and Thailand (2010–2020)

Policy Document 55

The decrease in national average oil yield in Malaysia from 2010 to 2020 is driven by a decline
in average oil yield in 9 states: Kedah, Melaka, Negeri Sembilan, Pahang, Penang, Perak, Sabah,
Sarawak and Selangor. Among the reasons cited are adverse weather46 47 48 (e.g., rainfall and
moisture stress, droughts due to El Niño), poor soil fertility, sub-optimal fertiliser input49, attacks from
diseases and pests50, and insufficient replanting of low-yielding aged oil palm trees51.
Low productivity in Sabah and Sarawak will significantly affect the national average due to their high
planted area. Yet, their rate of replanting oil palm trees aged 25 years and above has been slow. From
being the most productive state in 2010 at 4.3 tonnes/ha of oil yield, Sabah is now only the fifth most
productive state at 3.49 tonnes/ha. Mature planted area in Sarawak has almost doubled from 716,586
ha in 2010 to 1,431,600 ha in 2020, but yield has decreased to 2.94 tonnes/ha in 2020 from 3.10 tonnes/
ha in 2010.

Exhibit 3.5: Oil Yield by State (2010 and 2020)

46 Mohd Haniff, H., Ahmad Tarmizi, M., Mohd Roslan, M.N., Ahmad Kushairi, D., Jusoh, L., Abdul Rahim, A.S., and Ramli, A. (2010). Impact of El
Nino Occurrence on Oil Palm Yield in Malaysia, The Planters, 86 (1017): 837-852.

47 Teh, C.B.S. and Cheah, S.S. (2018). Modelling crop growth and yield in palm oil cultivation. In A. Rival (Ed.), Achieving sustainable cultivation
of oil palm (Vol. 1, pp. 183-227). Cambridge, UK: Burleigh Dodds Science Publishing.

48 Law, M.C. and Kho, L.K. 2020. Chapter 7. Climate Change in the Book “Oil Palm Industry and the Environment” (Waiting to be published).
49 Ahmad Parveez, G.K., Hishamuddin, E., Loh, S.K., Ong-Abdullah, M., Mohamed Salleh, K., Zanal Bidin, M.N I., Sundram, S., Azizul Hasan, Z.A.

and Idris, Z. (2020). Oil Palm Economic Performance in Malaysia and R&D Progress in 2019. Journal of Oil Palm Research
50 ibid.
51 Kushairi, A, Ong-Abdullah, M., Balu, N., Hishamuddin, E., Zanal Bidin, M.N.I., Ghazali, R., Subramaniam, V., Sundram, S. and Ahmad Parveez,

G.K. (2019). Oil Palm Economic Performance in Malaysia and R&D Progress in 2018. Journal of Oil Palm Research

56 National Agricommodity Policy 2021-2030 (DAKN2030)

Fresh Fruit Bunch (FFB) yield too is falling at both the estate and smallholder level. Malaysia’s
average FFB yield initially rose by 1.66 tonnes/ha from 18.03 tonnes/ha in 2010 to 19.69 tonnes/ha in
2011 before going on a downward trend to 16.73 tonnes/ha in 2020. Both estate and smallholder FFB
yield are declining at similar rates, although smallholders experienced a jump from 14.54 tonnes/ha
in 2011 to 18.53 tonnes/ha in 2012 before going on a CAGR of -1.3% from 2012-2020.

Exhibit 3.6: FFB Yield of Estates and Smallholders (2010-2020)

Production is constrained by land and labour scarcity
As mentioned above, the expansion of oil palm planted area has been capped at 6.5 million ha since
2019. At 5.9 million ha of planted area today, large-scale expansion of oil palm plantations will not
be viable in the immediate future. Hence, productivity improvements are vital to increase output
through improved yield and reduced wastage. Yet, the adoption rate of mechanisation technologies
to reduce wastage in oil palm plantations is still very low, at 2% for harvesting and 16.2% for other
activities such as collection and transport52. Aged trees that are less productive are also not being
replanted at the optimal rate, as they still cover 30% of planted area53.
The palm oil industry is also experiencing labour scarcity, with an estimated labour shortage of
40,354 workers54 as at 31 December 2020, partly driven by the freeze in entry of foreign labour due
to the COVID-19 pandemic. Even in a non-pandemic scenario, however, the Malaysian Palm Oil
Association (MPOA) estimates that two tonnes/ha of FFB are not harvested every year due to labour
shortages55. Upstream production is heavily reliant on foreign workers who make up 83% of the
total plantation workforce – a figure that has remained constant since 2012 despite various efforts to
reduce dependence on foreign labour.

52 Peningkatan Produktiviti Melalui Mekanisasi Ladang Sawit (Presentation), MPOB (2020)
53 Palm Oil Supply and Demand Outlook Report 2021, Council of Palm Oil Producing Countries (2020)
54 MPIC Commodities
55 Peningkatan Produktiviti Melalui Mekanisasi Ladang Sawit (Presentation), MPOB (2020)

Policy Document 57

This indicates a structural characteristic of the industry, as not many local workers are willing to take
up plantation jobs that are often regarded as ‘3D’. First-generation smallholders have also either
advanced in age or no longer taking care of their smallholdings. On top of that, the next generations
of smallholders or youth in plantation areas choose to instead migrate to urban areas in search of
higher wages from the manufacturing and services sectors. In some smallholdings, harvesting
and fieldwork have been contracted to labourers, creating a dependence on foreign labour among
smallholders as well.

Exhibit 3.7: Total Workers in Malaysian Oil Palm Plantations and Percentage of Foreign
Workers, (2012-2020)

Independent smallholders cultivate 16% of planted area but continue to struggle
The proportion of independent smallholders56 according to total planted area has grown from 13.4%
(651,385 ha) in 2010 to 16.3% (955,811 ha) in 2020. There are 249,641 independent smallholders with
active registered licenses under MPOB57. Yet, their incomes remain low at an average net income of
RM410.50 per ha per month in 2020 from oil palm cultivation alone. When accounting for an average
smallholding size of 3.8 ha and additional income-generation activities, their average net incomes
per smallholding per month is estimated at RM1,939.90. This is still below the latest revised national
poverty line income of RM2,208 per month.
Independent smallholders are also lagging on certification, with only 31.6% MSPO-certified58. This
situation is due to issues relating to land titles and a low level of awareness on the importance
of obtaining MSPO certification. If this low rate of certification continues, their livelihoods will be
affected.

56 Refers to licensed independent smallholders only.
57 Licensed independent oil palm smallholders are those licensed or permitted to trade oil palm fruit from their smallholdings, as per

Regulation 5 (1), Malaysian Palm Oil Board (Licensing) Regulations 2005.
58 MSPO Trace (Website), MPOCC. https://mspotrace.org.my/

58 National Agricommodity Policy 2021-2030 (DAKN2030)

Exhibit 3.8: Total Planted Area by Independent Smallholders (2010-2020)

Downstream

Non-tariff barriers and negative perceptions of palm oil
The perception that palm oil is unsustainable and damaging to the environment is being driven by
organisations championing environmental issues, food safety concerns and workers’ rights – mostly
from developed countries. Oil palm plantations have been labelled as drivers of deforestation, with
some alleged to be using forced labour or child labour. As a result, various non-tariff barriers are
being imposed on palm oil imports by these countries or trading blocs. In addition, challenges
related to logistics and also food safety are emerging.
Many palm oil companies have been working to address allegations surrounding environmental
issues and the treatment of workers, including submitting evidence of compliance with labour
standards. However, negative perceptions persist, especially among consumers who pressure
businesses on ethical practices. As a result, some companies even go so far as to label products
“palm oil-free” as a means to capture consumer support. Malaysian palm oil and palm oil product
exports face a challenging outlook if producers are unable to continuously address these and other
emerging concerns credibly. The challenge remains on how to build credibility and gain acceptance
among traders, processors, consumers and policymakers in importing countries.
For example, the revised International Convention for the Prevention of Pollution from Ships
(MARPOL) Annex II regulations have re-categorised palm oil as a Category Y Noxious Liquid
Substance. As a result, palm oil needs to undergo an additional pre-washing procedure prior to
reaching ports. This increases logistical costs, resulting in less competitive pricing of palm oil relative
to other vegetable oils in European markets.

Policy Document 59

Food safety too is also an issue, with new regulations on the maximum levels of
3-monochloropropane-1,2-diol (3-MCPD) currently in place. 3-MCPD is a process contaminant
formed unintentionally during the refining process in vegetable oils and fats, including palm oil. The
“split-level” approach adopted by the EU to subject certain oils to a lower maximum level of 3-MCPD
indirectly causes stigmatisation of palm oil as more harmful towards human health, without robust
scientific justification.

Slow downstream investment and growth

Further downstream investment and growth have been slow in the last decade. Despite policy
direction and enablers to support the local development of complex downstream products, such
as higher-value specialty foods and oleo-derivatives, attracting such investments and technology
continues to be challenging. Technical and trade barriers that affect the business case for these
investments are complex and specific to each investment.

60 National Agricommodity Policy 2021-2030 (DAKN2030)

3 WAY FORWARD
FOR PALM OIL

As a mature industry with active private sector expertise and leadership, palm oil is in a strong
position to continue growing sustainably through increased technology adoption despite facing
multiple headwinds. Increased strategic partnerships across industry players and Government will
contribute towards cementing the solid reputation of Malaysia’s palm oil and palm-based products.
The Government aims to provide the enabling environment for the industry to continue thriving
and leading through market-oriented R&D&C and technology adoption, including implementation
of circular economy practices. Going forward, more granular data will be captured and analysed to
enable fact-based interventions across the upstream, midstream and downstream segments.

PALM OIL: INDICATORS, TARGETS
AND STRATEGIES 2021-2030

Policy Thrust Indicators Baseline 2020 Target 2025 Target 2030 Strategies
99.8% 100% To maintain
SUSTAINABILITY 1. Percentage 100% planted Strengthen
Capture the planted area 31.6% 95% area certified sustainability
leading position of certified under the measures and
in sustainability sustainable palm 98.5% 100% MSPO mechanisms, including
oil (Plantations) Certif ication implementation and
95% of 457 To maintain Scheme standards of MSPO
2. Percentage mills certified 100% of mills
planted area certified under To maintain Enhance and
of certified Processing the MSPO 100% of mills strengthen traceability
sustainable palm Facilities under Certif ication certified under of certified sustainable
oil (Independent SCCS: 75% of Scheme the MSPO palm oil
Smallholders) 649 facilities To maintain Certif ication
certif ied at least 90% Scheme Encourage industry-
3. Percentage of processing To maintain driven responsible
planted area facilities at least 98% practices across the
of certified certified under of processing value chain on workers’
sustainable palm the MSPO facilities rights and welfare,
oil (Organised Certif ication certified under safety standards and
Smallholders) Scheme the MSPO compliance
Certif ication
4. Certif ied Scheme Increase environmental
processing units: conservation and
Percentage of Mills management efforts
certified under
MSPO Part 4

5. Certif ied
processing units:
Percentage
of Processing
facilities certified
under SCCS (Mills,
refineries, kernel
crushers, oleo-
chemical and
biodiesel facilities)

Policy Document 61

Policy Thrust Indicators Baseline 2020 Target 2025 Target 2030 Strategies
RM18 million 90% of total
PRODUCTIVITY 6. Percentage funds over 5 90% of total
Expand of MPOGCF spent by funds over 5
productivity funds spent on MPOC through years
improvement conservation years
efforts, especially efforts/ MPOWCF 3.70
in the upstream programmes (RM since 200660 4.00 Invest in market-driven
and midstream million)59 18.25 R&D&C to increase the
segments 3.33 19.50 supply of high-yielding
7. Productivity 20.25% planting materials
VALUE-CREATION 16.73 20.50%
Accelerate the Oil Yield (Tonnes/ 11 : 1 Accelerate the
shift to higher- Ha) 19.92% 12 : 1 adoption of best
value activities, 10% agricultural practices
and capture FFB Yield (Tonnes/ 10 : 1 10%
circular economy Ha) 10% Facilitate the adoption
opportunities 10% (Harvesting) 30% of automation,
Oil Extraction Rate (Harvesting) mechanisation
(OER) (Percentage) 2% 25% and Industrial
(Harvesting) (Other 35% Revolution 4.0 (IR 4.0)
8. Labour intensity- mechanisation (Other technologies for higher
Land to Labour 16.2% activities) mechanisation output and quality
ratio (ha : worker) (Other 57,656 activities)
mechanisation 69,075 Promote new
9. Transfer/ activities) 39,751 technologies to
licensing and 48,321 17,905 41,931 MSMEs, association
commercialisation 1 : 0.82 27,144 and agencies
rate of R&D 36,869 1 : 0.85
projects 11,451 Expand market-driven
1 : 0.8 product development
10. Mechanisation focused on specialised
Rate (Percentage) products such
as performance
11. Contribution to oleochemicals and
GDP (RM million) biofuels, functional
foods and ingredients
Upstream
Intensify R&D efforts
Downstream to produce a higher-
valued and more
12. Utilisation diversified range of
rate (Ratio of palm and kernel oils
Production:
Domestic Ensure compliance
Utilisation)61 to international and
importing countries’
food quality and safety
standards

Capture opportunities
for a zero-waste
circular economy

59 Generated from cess of RM1 from every ton of CPO produced, collected under the MPOGCF. Estimated collection is RM 20 million per year.
60 Private companies have spent almost more than twice the amount through their own conservation efforts
61 Domestic Utilisation refers to the domestic utilisation of crude palm oil (CPO) and crude palm kernel oil (CPKO) for local consumption, the

refining industry and the downstream segment (after deducting CPO and CPKO exports only). The formula used to calculate the ratio is =
1: (1 - [(CPO & CPKO exports) / (CPO & CPKO production)])

62 National Agricommodity Policy 2021-2030 (DAKN2030)

Policy Thrust Indicators Baseline 2020 Target 2025 Target 2030 Strategies
Improve market
MARKET 13. Total Exports:
DEVELOPMENT access through trade
Industry- Volume (‘000 26,587 31,000 34,500 agreements and
led Strategic tonnes) strengthen existing
Partnerships markets, especially
Value (RM million) 73,253 75,000 84,000 Southeast Asia, China,
INCLUSIVENESS India and Middle East
Lead the way in 14. Exports Upstream62 Collaborate with
smallholder well- industry to strengthen
being Volume (‘000 19,885 20,500 21,000 communication on
tonnes) sustainability practices

Value (RM million) 51,102 50,000 57,000 Refine models to
improve livelihoods
15. Exports of independent
Downstream63 smallholders (ISH)

Volume (‘000 6,701 10,500 13,500 Optimise government
tonnes) support with targeted
assistance, e.g., data
Value (RM million) 22,151 25,000 27,000 governance and
income-generation
16. Ratio of Upstream 79 : 21 66 : 34 61 : 39 programmes
to Downstream
exports Empower Bumiputera
for increased
17. Balance of Trade 62,576 64,200 71,500 participation across
(RM million) upstream, midstream
and downstream
18. Smallholders Income (RM) - Average income per month per
smallholding

Net income 1,560 1,540 1,580
(MONOCROP) (MONOCROP) (MONOCROP)

1,940 1,960 2,040
(INTEGRATED) (INTEGRATED) (INTEGRATED)

Gross income 3,020 3,020 3,400
(MONOCROP) (MONOCROP) (MONOCROP)

3,560 3,620 4,050
(INTEGRATED) (INTEGRATED) (INTEGRATED)

19. FFB price RM8/tonne RM8/tonne RM8/tonne
premium received
by smallholders
in cooperatives
over independent
smallholders

62 Includes palm oil, palm kernel oil and palm kernel cake
63 Includes oleochemicals, finished products and biodiesel

Policy Document 63

STRATEGIES TO LEVERAGE

SMART PARTNERSHIPS

ON TECHNOLOGICAL ADOPTION
IN PALM OIL

Seventeen strategies will be implemented across the five policy thrusts over the DAKN2030 policy
period from 2021-2030:

1
Sustainability: Capture the
leading position in sustainability

Strengthen sustainability measures and mechanisms, including implementation
and standards of MSPO

The nationwide implementation of MSPO will be strengthened to ensure good practices are
consistently implemented. Efforts to accelerate smallholder certification will continue through
engagement and education; cluster or cooperative development for scattered smallholdings and
resolving land issues surrounding Native Customary Rights (NCR) land and land titles.

In addition, MSPO standards will be strengthened through the revised MSPO standard, which is
expected to be launched by the end of 2021. More stringent principles and criteria aligned with
global sustainability standards and traceability requirements will be developed in consultation with
stakeholders. Concurrently, the credibility of MSPO as a certification standard will be strengthened
by enhancing the capabilities of accredited certification bodies to carry out independent third-party
verification processes. Engagement with multinational companies (MNCs) and importing countries
will be expanded, to increase recognition and acceptance of MSPO among buyers.

Regulation and future plans for oil palm cultivation will be harmonised with state agricultural and
land use planning, taking into account the states’ role in managing land matters. Licensing for
sale of fresh fruit bunches (FFB) will be revised to start before planting is done to better monitor
the expansion of planted area, and discourage new plantings in unsuitable areas that could result
in reduced yield, i.e., forested, peat areas, marginal soil or unsuitable terrain. These efforts will
contribute towards improving overall operations and sustainability of the upstream segment.

Enhance and strengthen traceability of certified sustainable palm oil

Enhancing the traceability of certified sustainable palm oil will increase the transparency of
transactions across the end-to-end value chain. The MSPO Trace system was launched in 2019 to
track and trace certified raw material flows, promoting upstream certification and greater buyer

64 National Agricommodity Policy 2021-2030 (DAKN2030)

acceptance of end products. The traceability of certified sustainable palm oil will be further
developed and strengthened in the Supply Chain Certification Standard (SCCS) through the
adoption of IR 4.0 technologies such as blockchain, big data and geotagging which will provide
traceability from plantations to end product and reduce the cost of tracking and certification.

FLAGSHIP PROGRAMME 1: MSPO TRACE APPLYING
TECHNOLOGY TO STRENGTHEN PALM OIL AND PALM-
BASED PRODUCT TRACEABILITY

Background

The MSPO Trace - Traceability Module requires MSPO-certified entities to register their
suppliers and buyers, as well as to declare all transactions involving MSPO-certified materials
within the system. This allows the system to depict the movement and availability of MSPO-
certified materials within the supply chain.

With advancements in technology, the MSPO Trace Traceability Module will harness new
technologies such as blockchain and big data to improve traceability. Information of all entities
within the blockchain is tamper-resistant while also safeguarding their privacy by only allowing
required information to be accessed by different parties.

Objectives

Improve traceability within MSPO Trace by integrating blockchain technology
Use available data provided in MSPO Trace and blockchain to produce data analytics to

determine trends and patterns of the supply chain

Target Segments

MSPO-certified entities
Traders and buyers

Lead Agency and Relevant Stakeholders

Lead Agency: MPOCC
Relevant Stakeholders: MSPO-certified entities

Expected Outcomes

Improve traceability by applying blockchain, which will utilise a secured hyperledger and
smart contracts

Better understanding of the certification cycle and movement of certified palm oil and
palm-based products

Policy Document 65

Encourage industry-driven responsible practices across the value chain on workers’ rights
and welfare, safety standards and compliance

To address the concerns raised by markets that have driven the recent negative image of the palm
oil industry, industry players will be encouraged to develop more sustainable practices surrounding
workers’ rights and welfare, such as in the issues of housing, children’s education, and freedom of
movement. The safety standards of workers will also be improved to increase occupational safety
and health and eliminate hazards and accidents, especially during harvesting and field operations.

Increase environmental conservation and management efforts

Environmental conservation projects will be funded through greater government-industry
collaboration, such as through the Malaysian Palm Oil Green Conservation Foundation (MPOGCF),
to strengthen biodiversity conservation and sustainability. A biodiversity conservation plan in oil
palm plantations will be developed and implemented along with awareness programmes on the
value of biodiversity conservation among smallholders and plantation managers. Concurrently,
the Department of Environment guidelines on water, air and noise pollution will be strictly
enforced on plantations, mills and downstream industries to safeguard the interests of surrounding
neighbourhoods and water catchment areas.

66 National Agricommodity Policy 2021-2030 (DAKN2030)

Malaysian Palm Oil Green Conservation Foundation (MPOGCF)

The Malaysian Palm Oil Green Conservation Foundation (MPOGCF) is an initiative established to support
conservation initiatives related to the palm oil industry, reflecting the commitment of the industry towards
conserving the environment. Before the establishment of MPOGCF, several conservation efforts had been
conducted under the Malaysian Palm Oil Wildlife Conservation Fund (MPOWCF). The existing MPOWCF and
its associated projects will be integrated into the foundation. The objectives of MPOGCF include:
encouraging reforestation, wildlife conservation and biodiversity programmes
promoting conservation initiatives and sustainability practices in plantation landscapes
enhancing, assisting and complementing initiatives on conservation, biodiversity and sustainability by

the private sector, NGOs, local communities and government agencies
These objectives are being achieved through various means such as financing and supporting reforestation,
R&D and educational programmes on environmental conservation, and providing environmental databases.
Community engagement efforts include supporting and promoting awareness campaigns, appointing and
assigning organisations to monitor wildlife as well as organising seminars and dialogues.
29 projects have been completed since 2006, with seven (7) projects currently on-going, such as the 1
Million Forest Trees Replanting Programme in partnership with the Sabah Forestry Department as well as
Tiger, Orangutan and Elephant Conservation efforts with the Department of Wildlife and National Parks
(PERHILITAN) and the Sabah Wildlife Department (SWD).
Among the key outcomes observed are: more than 500 wildlife rescue or translocation operations by the
Wildlife Rescue Unit supervised by the SWD and the establishment of a 1,214 ha Borneo Elephant Sanctuary
in the Kinabatangan Wildlife Sanctuary.

Source: MPOC

Policy Document 67

2
Productivity: Expand productivity
improvement efforts, especially in the
upstream and midstream segments

Invest in market-driven R&D&C to increase the supply of high-yielding planting materials

R&D efforts will be intensified on the breeding and selection of high yielding planting materials. The
production and supply of these high-yielding planting materials will be increased by tissue culture
techniques, as well as conventional seed production techniques to meet the demand for replanting.
Within the next decade, the R&D from the use of molecular biology techniques on dwarfed, high-
yielding, resilient and higher disease and pest-resistant planting materials, and market-driven oil
quality will be made ready for commercialisation.

Clonal Palm Series (CPS): New Planting Material For Improved
Productivity

Moving the oil palm clonal industry forward has been an uphill struggle despite tissue culture being one of
the earliest and most widely used agricultural technology. The promise of increased productivity of at least
10-15% against the most improved current seed-derived Dura x Pisifera (DxP) and touted as the ‘second
wave’ in yield improvement for the oil palm, have been the key selling point for clones. This stemmed from
the fact that they are carbon copies of selected individuals (ortets) generally sourced from the best crosses.
And when planted in a designated plot, their uniformity or true-to-typeness would contribute to increased
yields per planted area. Against the backdrop of shrinking land resource whilst balancing environmental
and social goals, positive outcomes from extensive field evaluations (conducted both by MPOB and industry)
have now provided the impetus for wider utilisation of clonal oil palm as planting material.

In order for clones to impact national yields, their consumption needs to be further intensified from the
current clonal-planted area nation-wide at below 5%. Several initiatives spearheaded by MPOB are in
progress to address this. They are:

emboldening planting of clones through a mandatory inclusion of at least 10% of clonal oil palm in
replanting programmes

encouraging clonal oil palm producers to market 5-10% of their products either for smallholders or
other interested parties as part of a corporate social exercise.

promoting the concept of “Contract Farming” to safeguard the interest of independent farmers, whereby
premium fresh fruit bunch (FFB) rates are tagged to clonal produce for their higher oil extraction rates
(generally 2% - 3%, sometimes 5% more than the commercial DxP).

uplifting the local workforce by providing skilled employment through the establishment of “Affiliated
Laboratories” to meet increasing clonal demands.

68 National Agricommodity Policy 2021-2030 (DAKN2030)

Oil palm clones are established not only for their yields but also for their unique characteristics e.g., fruit
colour (virescent), compactness, dwarfism and several others providing the variety in clonal production. In
addition, through leveraging cutting-edge molecular tools as well as platform technologies, tissue culture
processes are further improved as part of a quality assurance procedure in clonal production.
To date, MPOB has rolled out three commercial clones, namely the Clonal Palm Series 1 (CPS1), CPS2 and
CPS3. CPS1 and CPS3 are promoted mainly for their outstanding yield performance in comparison to the
current DxP whilst, CPS2 aside from producing above average yields also possesses shorter rachis making it
ideal for high-density planting.

Source: MPOB

Accelerate the adoption of best agricultural practices
Smallholders will be equipped to adopt best agricultural practices such as optimal fertiliser
application, effective pest and disease control, harvesting practices and field management to
achieve maximum yields. Training will be carried out through extension services, in collaboration
with plantation companies where feasible and will be further enhanced by guidance and audit
through the MSPO certification process.
A regulated replanting programme will be introduced to replant a fixed percentage of planted area
with ageing, low-yielding oil palms that are above 25 years old every year. The regulated programme
will also ensure that high-yielding planting materials are sourced only from certified nurseries under
the Code of Good Nursery Practice for Oil Palm Nurseries (CoPN). Where necessary, the SureSawit Kit
will be used to detect contamination and assure the quality of planting materials. Smallholders will
be provided with loans to carry out their replanting, while plantations will be encouraged to utilise
commercialised high-yielding planting materials.

Policy Document 69

Facilitate the adoption of automation, mechanisation and IR4.0 technologies for
higher output and quality

To increase labour productivity in the upstream segment, R&D&C to automate and mechanise field
operations will continue to be supported through joint public and private sector research. Schemes
such as the Oil Palm Mechanisation Fund (OPMF) will continue to help incentivise the R&D&C of
new and emerging automation and mechanisation technologies for the industry. Adoption of digital
technologies will be encouraged to create fully integrated, modern and digital plantations, enabling
precision agriculture and extensive data sharing.

For the midstream segment, R&D&C will be focused on technologies to automate plant-wide
processing, quality control at the mills and refineries, as well as FFB grading and trash removal
processes at the mills. This will be supported by technical assistance where necessary and the
certification process to assist lagging mills in upgrading their operations and efficiency.

FLAGSHIP PROGRAMME 2: MECHANISATION AND
AUTOMATION RESEARCH CONSORTIUM OF OIL PALM
(MARCOP) INTENSIFICATION OF MECHANISATION AND
AUTOMATION IN OIL PALM PLANTATIONS

Background

Oil palm mechanisation provides advantages such as increasing workers’ productivity,
hastening fieldwork and improving the sustainability of oil palm plantation operations.
However, current mechanisation uptake is still very low at a reported rate of 2% for harvesting
and 16.5% for other mechanisation activities.

Several factors contribute to the low uptake rate of mechanisation technologies. Existing
technologies, in particular for harvesting, are not able to provide the desired results compared
to labour-intensive operations. Various domestically developed and imported technologies
have been tested and deemed unsuitable for oil palm plantations. These perceived “failures”
tend to dampen industry’s willingness to mechanise. A different approach is needed to identify
and pilot automation and mechanisation technologies that are more relevant to the Malaysian
context. A database of market available technologies available backed up with verification and
Standard Operating Procedures (SOPs) will help industry to select appropriate machinery for
their plantations, reducing the risk of failure when heavily investing in mechanisation.

Objectives

Expedite the adoption of automation and mechanisation among plantations and
smallholders

Provide information on available and verified mechanisation technologies for the reference
of industry and smallholders

Provide SOPs for each identified oil palm mechanisation technology
Facilitating the development of new mechanisation technologies

70 National Agricommodity Policy 2021-2030 (DAKN2030)

Target Segments

Oil palm plantations and smallholders

Lead Agency and Relevant Stakeholders

Lead Agency: MPOB
Relevant Stakeholders: Research universities and institutes, engineering companies,

industry associations and smallholders’ associations/cooperatives

Expected Outcomes

The Oil Palm Mechanisation Technologies Database is made available online
Standard Operating Procedures (SOPs) disseminated with industry players and

smallholders
Increased uptake of mechanisation technologies by plantations and smallholders

Promote new technologies to MSMEs, associations and agencies

Technologies developed by MPOB across the value chain will be actively promoted to MSMEs,
associations and agencies to increase industry-wide commercialisation of new technologies. To
highlight the strengths and potential of these new technologies, they will be pitched through
presentations to funders and also by sharing the current success stories of pilot and existing industry
takers.

3
Value-creation: Accelerate the shift to
higher-value activities, and capture
circular economy opportunities

Expand market-driven product development focused on specialised products such as
performance oleochemicals and biofuels, functional foods and ingredients

In order to enable focused market-oriented product development, industry stakeholders, target
consumer product companies and research experts will be involved in determining the research
direction and strategies on these high-value functional and performance food, feed, oleo and fuel
products. The Government will continue to encourage industry to prioritise the utilisation of locally
produced and refined oil for downstream processing activities.

Policy Document 71

R&D&C into specialised functional foods and ingredients using palm and kernel oils will focus
on producing novel high-quality products suited to the local climatic conditions and culinary
preferences of importing countries while providing cost and nutritional advantages. Potential
products include liquid cooking oils and solid fats as well as high-value food ingredients such as
cocoa butter replacers, substitutes and extenders for chocolates, bakery and confectionery fats,
butter oil and milk fat substitutes.

The Government will continue R&D&C on specialised performance chemicals for consumer products
using palm-based oleo-derivatives as feedstock such as surfactants, glycerol derivatives, bio-polyols
for sealants and adhesives as well as other bio-based chemicals.

Intensify R&D&C efforts to produce higher-valued diversified range of palm and kernel oils

R&D&C on breeding and selection as well as molecular or genome modifying technologies will
be intensified to produce a more diversified range of higher valued oils. Research directions will
be in palms producing as higher polyunsaturated oils, with higher cocoa butter fat profile, and
higher composition of medium-chain fats in kernel oils. This will not only meet the wide-ranging
requirements of markets but also increase the value of palm-based oils in functional food and
chemical products.

Ensure compliance to international and importing countries’ food quality and safety standards

A surveillance and alert system will be established to identify and develop early responses to
emerging palm oil quality and food safety issues. Early responses, such as R&D on these issues and
the effective communication of their resolution, will provide the competitive edge for Malaysian
palm oil exports. As palm oil is widely traded and exported by sea to importing countries, food
quality and safety issues related to its logistics and shipment will be proactively monitored for
improvements. Processors will also be encouraged to upgrade their facilities and adopt best
practices to meet product standards for safety, quality and performance.

Capture opportunities for a zero-waste circular economy

The industry can continue to create further value through the circular economy concept and help
the country meet its commitments to Greenhouse Gas (GHG) reduction by utilising oil palm biomass
and biogas for bioenergy and to develop bio-based products. These strategies are further elaborated
in the Biomass and Biofuels chapters.

Cross-industry and intra-industry collaboration to capture waste to wealth opportunities will also be
encouraged, where compounds extracted from the by-products and residues from the industry can
serve as potential inputs in the nutraceutical, cosmeceutical and petrochemical industries. Low-
hanging opportunities such as sourcing palm kernel cake as a feedstock in the domestic production
of feed for aquaculture and livestock farming will be encouraged to contribute to national food
security.

72 National Agricommodity Policy 2021-2030 (DAKN2030)

4
Market Development: Industry-led
Strategic Partnerships

Improve market access through trade agreements, as well as strengthen existing markets,
especially Southeast Asia, China, India and Middle East

Multilateral and bilateral trade agreements will be negotiated to improve the market access of
Malaysian palm oil, especially with countries with high tariff barriers and restrictive non-tariff barriers
on palm oil products. Exports to existing markets will also be strengthened, particularly focused on
Southeast Asia, India, China and the Middle East. The involvement of palm oil producing companies
in trade and investment missions will be encouraged to strengthen markets through Government-
to-Government (G2G) and private business partnerships for investment and trade. Joint venture
partnerships between importers and Malaysian exporters will be encouraged, including to actively
participate in the comments process on new regulations imposed on palm oil imports on the basis
of food safety and marine pollution. Where escalating tariffs on processed products are a barrier to
exports, producers will be encouraged to locate or expand their processing facilities through joint
ventures in these countries to increase and strengthen market share.

Collaborate with industry to strengthen communication on sustainability practices

Producers and processers will be encouraged to promote the MSPO certification of their products
through effective communication and a transparent process. Malaysian producers will be
encouraged to use MSPO logo labels on their finished and packed products for both the domestic
and export markets, leveraging on the institutional strengths of Malaysian products as being of
premium and high quality. This will result in the increased recognition of the sustainability and
branding of MSPO certified products, and differentiate Malaysian products from those by competing
producing countries by enabling the traceability of those Malaysian products throughout the entire
supply chain.

International collaboration will also be sought with both developed and emerging markets via G2G
channels, business and trade associations as well as individual companies in terms of recognising
and strengthening the MSPO. Platforms such as the Association of Southeast Asian Nations (ASEAN),
the Council of Palm Oil Producing Countries (CPOPC) and others will be leveraged to pursue
international MSPO recognition.

Policy Document 73

5
Inclusiveness: Lead the way in
smallholder well-being

Refine models to improve livelihoods of independent smallholders (ISH)

The complementary Sustainable Palm Oil Cluster (SPOC) and Sustainable Palm Oil Growers
Cooperative (KPSM) models will be refined to better assist independent smallholders (ISH) in
increasing their economies of scale in the various stages of cultivating and marketing their produce,
thus improving their livelihoods, with more ISH encouraged to participate and organise themselves
in these models. SPOC organises non-contiguous ISH within a specific geographic boundary who
are committed to producing sustainable palm oil in a cluster model, while KPSM is a cooperative
model that enables ISH to collectively carry out activities such as FFB selling, agricultural input sales
and farm management services.

New models may also be studied and explored to organise independent smallholdings with
partners within the oil palm supply chain such as mills to assist the transfer of good agricultural
and management practices, the centralised purchase of inputs for better pricing, coordinated
selling of products for higher prices and in outfield transportation logistics to the mills as well as to
support sustainable certification under the MSPO. To strengthen the implementation of smallholder
cooperatives and clusters, the current smallholder definition of owning and cultivating 40.46
ha (or 100 acres) will also be reviewed in consultation with experts and industry. In addition, B40
smallholders will be encouraged and supported to integrate cash crops or livestock to increase their
incomes.

Optimise government support with targeted assistance, e.g., data governance and refined
income-generation programmes

Existing welfare programmes for smallholders will be reviewed and optimised by reviewing current
qualifying criteria and streamlining funding to maximise impact and better target assistance.
Government support through technical assistance and the purchase of agricultural inputs will
be aided by increased collaboration and data-sharing across all relevant agencies and ministries.
Outcomes tracking will be prioritised to ensure that funds spent are having the desired impact of
improving the well-being of smallholders.

Empowering Bumiputera for increased participation across upstream, midstream
and downstream

Government programmes among Bumiputera entrepreneurs and MSMEs will be refined
and increased to promote Bumiputera advancement especially in the downstream segment.
Development programmes will be coordinated and implemented through various agencies across
different ministries to provide training, promote funding opportunities and collaboration on product
development.

74 National Agricommodity Policy 2021-2030 (DAKN2030)

ENABLERS NEEDED

Two enablers are needed to support the implementation of the above strategies.

Investment Facilitation

The Government will facilitate the private sector seeking to increase downstream investment
through joint ventures (JVs) or the acquisition of foreign companies with expert knowledge on
the production and use of specialised food ingredients, performance chemicals, and biofuels.
Investments that increase local industrial expertise through the transfer of technologies and human
capacity building will be encouraged.

Improving Market Access

The various promotion and technical marketing programmes for palm oil products will be
coordinated and streamlined among relevant agencies such as MPOB, MPOC, the Malaysian
External Trade Development Corporation (MATRADE) and the Malaysian Investment Development
Authority (MIDA), as well as Malaysian missions abroad. Officers representing Malaysia overseas
through these organisations will also be trained with tailored programmes to enhance their
effectiveness in dealing with trade barriers, responding to negative perceptions of palm oil, and
addressing concerns over food safety/nutrition and sustainability. Existing Export Market Promotion
and Technical Cooperation Programmes will be reviewed to strengthen palm oil product exports
and target emerging markets for cooperation and promotion.

Increased and sustained funding will be allocated to respond to active anti-palm oil campaigns
around the world. Fact-based online and offline communication will be increased, focusing on the
impact of palm oil on people’s lives, and sustainability measures being implemented. The private
sector will also be encouraged to collaborate and share their skills to disseminate information in a
credible yet engaging manner.

Policy Document 75

76 National Agricommodity Policy 2021-2030 (DAKN2030)





Chapter

Synergising
Transformation Of The
Rubber Industry Value

Chain

4

80 National Agricommodity Policy 2021-2030 (DAKN2030)

Policy Document 81

Way Forward 2021-2030

18 11

Indicators Strategies
& Targets

1 2 4 5

SUSTAINABILITY PRODUCTIVITY MARKET DEVELOPMENT INCLUSIVENESS
Transform upstream Expand productivity Grow markets through Enhance Bumiputera
through increasing raw improvement efforts industry-led strategic
participation and
material supply across upstream, partnerships safeguard smallholders’
and quality assurance midstream and S8. Promote the transition
S1. Revive smallholders’ downstream wellbeing
of high-potential S10. Increase support for
sector through S4. Strengthen advisory companies into
strengthened and extension services higher-value industries local Bumiputera
cooperatives, to smallholdings and higher value enterprises
institutional alignment branding and S11. Increase adoption of
and cross-functional S5. Introduce incentives distribution digital tools and
reform initiatives and encourage S9. Intensify promotional platforms for
S2. Identify and earmark progress towards IR4.0 efforts to increase establishment of a
suitable areas for for modernisation of global market share for comprehensive
large-scale rubber the midstream specialty and dry database
cultivation segment rubber products,
S3. Implement a quality creating Malaysia’s
assurance scheme to presence in higher
regulate imports of value product
rubber products, and to
support trade and
domestic consumption
of rubber and
rubber-related
products

3

VALUE-CREATION
Strengthen R&D&C for greater commercialisation of products
S6. Strengthen R&D&C capabilities and coordination between industry, academia and research
institutions with a specific focus on developing specialised and high value-added products
S7. Extend financial support for commercialisation of products with high potential

82 National Agricommodity Policy 2021-2030 (DAKN2030)

1 CURRENT
STATUS

Rubber remains one of the main pillars of the
Agricommodity sector

The Malaysian rubber industry has a history of more than 120 years. Today, it continues to be an
integral part of the Agricommodity sector. Despite setbacks encountered since the 1970s due
to the emergence of alternative raw materials, industrialisation and rapid expansion of oil palm
plantations, the rubber industry has contributed significantly to the nation’s economic growth. The
industry has achieved significant milestones and became a forerunner in R&D&C and technological
advancement. Today, Malaysia is the number one producer and exporter of rubber gloves and
condoms, with its superior quality standards widely used as a benchmark in international markets.
Over the last ten years, total rubber planted area remained at approximately 1.1 million ha, with more
than 92% managed by smallholders. However, production of natural rubber declined sharply due
to a host of challenges besieging the upstream segment. The downstream segment, nonetheless,
continues to grow, relying on imported raw materials and capitalising on growing demand for
Malaysian rubber products, particularly for latex-based gloves.
Sectoral GDP contribution from rubber in 2020 was RM14.5 billion, contributing 1.1% of Malaysia’s
total GDP64. The upstream segment is shrinking at -5.6% CAGR from 2010-2020, contributing RM2.4
billion in GDP in 2020. The downstream segment contributed RM12.1 billion, with a CAGR of 9.0%,
driven by a steep rise in demand for rubber gloves in 2020 due to the COVID-19 pandemic.

Exhibit 4.1: Rubber Contribution to Total GDP (2010-2020)

64 At 2015 prices.

Policy Document 83

Value addition has increased

Overall, total rubber export earnings grew by a CAGR of 6.4% from 2010 to 2020, driven by strong
demand for Malaysian rubber products. Natural rubber prices fluctuated during this period, with
average Standard Malaysian Rubber 20 (SMR20) prices dropping from 1,058 cents per kilogram (Kg)
in 2010 to 522 cents per Kg in 2015, and stabilising at 548 cents per Kg in 2020.

As a result, export earnings of natural rubber declined from RM12.5 billion in 2010 to RM6.2 billion in
2020, decreasing at a CAGR of -6.9%. However, rubber product exports increased from RM12.9 billion
in 2010 to RM23.6 billion in 2019, with a sharp spike to RM41 billion in 2020.

A total of RM48.5 billion was generated in export revenues from natural rubber and rubber-based
products in 2020. Of this, RM41 billion (84%) was generated from rubber products driven by the
increased demand for rubber gloves worldwide due to the COVID-19 pandemic; about RM6.2 billion
(13%) from natural rubber and RM1.4 billion (3%) from other rubber products such as compound,
synthetics, waste, reclaimed and unvulcanised rubber.

Exhibit 4.2: Rubber Export Performance (2010-2020)

84 National Agricommodity Policy 2021-2030 (DAKN2030)

Sustainability efforts are focused on making
the upstream segment more resilient

From an environmental sustainability perspective, the Malaysian rubber industry does not face big
challenges yet. Planted area is expected to be sustained at current levels, and there are no major
issues around environmental degradation, biodiversity loss or indirect land-use change (ILUC).
Sustainability efforts going forward are focused on making the upstream segment more competitive
and resilient through more sustainable business models for smallholders, better farming practices
and promoting compliance for product certification. Capturing circular economy opportunities will
also be encouraged to minimise wastage.

THE METEORIC RISE OF MALAYSIAN RUBBER GLOVES

The rubber gloves industry in Malaysia has come a long way since the first
glove factory opened in the 1970s, started by foreign enterprises. Homegrown
manufacturers gradually replaced them in the 1980s to 1990s. Over the last two
decades, exports of rubber gloves increased more than tenfold from RM3.1 billion
in 2001 to RM35.3billion in 2020, accounting for 86% of Malaysia’s total rubber
product exports. Today, Malaysia is the world’s largest manufacturer of rubber
gloves, supplying more than 60% of the global demand and exporting to more
than 190 countries worldwide.

Growing healthcare concerns since the 1980s coupled with the spread of the AIDS
epidemic propelled a surge in the demand for medical gloves worldwide. This
was an opportune time for Malaysia, as it had the advantage of know-how and
entrepreneurship as well as plenty of latex supply. Strong government support
and intense R&D by the Malaysian Rubber Board (MRB) provided further impetus
for the rapid growth and investment in the industry.

Rubber glove manufacturing was designated as a promoted activity under the Promotion of Investment
Act 1986, with attractive tax breaks and incentives, and given preferential access to energy. Promotional
activities were spearheaded by Malaysian Rubber Council (MRC). The concerted strategic initiatives and
collaboration between the Government and industry players have been the key drivers for the continued
growth of the industry, notching significant milestones domestically and worldwide.

The industry is equipped with modern, innovative production technologies which include double former
dipping lines, robotic dipping process and automatic glove packaging system. These developments have
contributed towards increased output and raised operational efficiency. Malaysian enterprises now produce
45,000 gloves hourly, compared to only 3,000 gloves per hour in the 1990s.

The Standard Malaysian Glove (SMG) was introduced in 1998, the world’s first glove certification scheme
which became a registered trademark in Malaysia, the United Kingdom (UK), the United States of America
(USA) and Ireland by the mid-2000s. SMG is now regarded as the “standard-bearer” for quality medical
gloves, meeting the stringent standards and requirements of the healthcare sector.

Policy Document 85

Today, Malaysian manufacturers produce both natural rubber and synthetic gloves, besides having a
well-established reputation for manufacturing good quality gloves at competitive prices. This enabled the
industry to capitalise on the sudden surge in demand for gloves worldwide arising from the outbreak of
Covid-19 in 2019-2020. Moving forward, it is expected that Malaysia will continue to hold its world-leading
position in the coming years, increasing global market share to 67%.

Source: Malaysian Rubber Council (MRC)

86 National Agricommodity Policy 2021-2030 (DAKN2030)

2 KEY
ISSUES

The Malaysian rubber industry faces a number of challenges that need to be addressed to ensure
that the industry is well-balanced across the value chain and can remain competitive in the
international arena.

Upstream

Declining domestic raw materials supply

Declining domestic natural rubber production remains a major concern within the context of
revitalising the upstream segment. Over the last ten years from 2010-2020, domestic rubber
production declined by 45%. The upstream segment faces numerous challenges in raw material
supply as 92% of total planted area is held by smallholders with uneconomic size of land holdings.
Furthermore, ageing smallholders, ageing trees, labour shortages, ineffective maintenance of farms
and unattractive rubber prices are some of the factors severely affecting production.

Exhibit 4.3: Rubber Production of Smallholdings and Estate (2010-2020)

Policy Document 87

Rubber price instability is another major factor that greatly influences domestic rubber production
as illustrated in the figure below. Although the Government implemented a minimum guaranteed
price scheme through the Insentif Pengeluaran Getah (IPG), the scheme has not attracted
smallholders to produce more rubber, especially latex which has more value than cuplump. The
majority of smallholders continue to produce cuplump rubber, which is cheaper and easier to
manage compared to latex.

Exhibit 4.4: Rubber Production and Price (2010-2020)

Institutional complexity is another bottleneck leading to inconsistent implementation of plans to
address issues affecting the rubber industry. Governance of the rubber industry is spread across
a number of agencies such as the Malaysian Rubber Board (MRB), Rubber Industry Smallholders
Development Authority (RISDA), Federal Land Development Authority (FELDA), Federal Land
Consolidation and Rehabilitation Authority (FELCRA), Sabah Rubber Industry Board (LIGS) and
Department of Agriculture Sarawak (Jabatan Pertanian Sarawak – JPS). This has led to a lack of
accountability for raw material supply and diluted efforts to strengthen smallholders’ output and
performance.

88 National Agricommodity Policy 2021-2030 (DAKN2030)

Midstream

The stagnating midstream segment poses a risk to downstream growth

The midstream segment plays crucial roles in the rubber value chain by processing raw materials
into semi-processed products or Technically Specified Rubber (TSR), compounded rubber for supply
to local manufacturers or exports. This segment serves as a vital link between smallholders and
consumers, both locally and overseas.

However, this segment too, is saddled with a host of issues:

Declining domestic raw material supply leads to greater reliance on imports; however, the
relatively lower quality of imported rubber is a concern

The unorganised and scattered nature of rubber smallholdings create bottlenecks for a steady
supply of raw materials

Inadequate raw material supply and a reliance on Standard Malaysian Rubber (SMR) production,
resulting in under-utilised installed capacity in SMR and latex concentrate (LC) factories

Little incentive for additional investment in new technology and effluent control measures to
modernise the segment.

Due to these challenges, an increasing number of SMR and latex concentrate factories have
ceased operations over the last few years. There is a risk of breaking a vital link in the supply
chain, with severe potential impact on the continuous growth of the downstream segment.

Downstream

Heavy focus on latex-based products

The downstream segment is dominated by latex-based products, with rubber gloves forming the
bulk of output. Dry rubber products currently contribute only 10% of total exports, while latex-based
products contribute a staggering 90%. In 2019, the global demand for dry rubber products was
valued at RM600 billion, but Malaysia’s share was only 0.7%. There is huge potential for Malaysia to
unlock the global market, which offers high export value.

With the current COVID-19 pandemic, glove production is enjoying high demand worldwide.
However, the saturating global market and competition from viable alternative raw materials in the
form of synthetic rubber will limit prospects for sustained long-term growth in the industry.
Low industry involvement in the green and specialty rubber products market – which could become
an important element of the circular economy - add further constraints to Malaysia’s market share
growth. Green and specialty rubber products have higher value but require more sophisticated
technical skills and production techniques.

Malaysia is now a net importer of raw materials for midstream and downstream production

Malaysia ranks seventh amongst the world’s rubber-producing countries, producing about
4.0% of total global production in 2020. Domestic production declined drastically by 45% from
939,000 tonnes in 2010 to 515,000 tonnes in 2020, as shown in Exhibit 4.3 earlier. This requires the

Policy Document 89

downstream segment to rely on imported rubber for production, mainly from Thailand. In 2020,
only 7% of the latex requirement from the downstream segment was produced locally. From 2010 to
2020, imports of natural rubber grew by 6.1% CAGR, whilst exports contracted by 1.5%. If this supply
gap grows further, there is a risk that local manufacturers may relocate to areas where the supply is
assured.

Exhibit 4.5: Natural Rubber Trade (2010-2020)

90 National Agricommodity Policy 2021-2030 (DAKN2030)

3 WAY FORWARD
FOR RUBBER

Whilst the rubber upstream segment is experiencing a drastic decline in production, the
downstream segment continues to contribute significantly to national GDP and export earnings.
The policy direction for the rubber industry upstream will focus on reviving the upstream segment
and further empowering the downstream segment, including increasing sustainability by applying
circular economy principles.

The content that follows covers key indicators and targets for the rubber industry to 2030, across
upstream, midstream and downstream. Related strategies and enablers needed are also discussed.

RUBBER: INDICATORS, TARGETS
AND STRATEGIES 2021-2030

Policy Thrust Indicators Baseline 2020 Target 2025 Target 2030 Strategies

SUSTAINABILITY 1. Planted area – 20,000 25,000 25,000 Revive smallholders’
Transform rubber replanting sector through
upstream (Ha) strengthened
through cooperatives,
increasing raw 2. Number of Malaysian standards and other recognised standards used institutional alignment
material supply to enhance the quality of rubber products and cross-functional
and quality reform initiatives
assurance Accredited testing Baseline Additional number of standards
number of based on accredited testing Identify and ear-mark
PRODUCTIVITY standards suitable areas for large-
Expand scale rubber cultivation
productivity 437 10 10
improvement Implement a quality
efforts across Product Baseline Additional number of standards assurance scheme to
upstream, certif ication number of based on product certification regulate imports of
midstream and standards rubber products, and
downstream to support trade and
17 3 3 domestic consumption
of rubber and rubber-
3. Yield (Kg/Ha) 1,415 1,820 1,950 related products
4:1 4:1 4:1
4. Labour intensity – Strengthen advisory
Land : Labour ratio 10% 13% 15% and extension services
(ha : worker) to smallholdings
1,107,881
5. Transfer/ 1,106,861 Introduce incentives
licensing and and encourage
commercialisation 1,020 progress towards IR4.0
rate of R&D for modernisation
projects of the midstream
segment
6. Planted area (Ha)
1,120,860 1,115,860
Total 1,100,860 1,095,860
20,000
Rubber Plantation 20,000

Rubber Forest
under Forest
Plantation
Development
Programme

Policy Document 91

Policy Thrust Indicators Baseline 2020 Target 2025 Target 2030 Strategies

7. Production 515 690 810
(’000 Tonnes) 515 640 760
N/A 30 30
Total
34 70
Rubber Plantation 34 70
N/A N/A
Rubber Forest
under Forest 1,222 1,150
Plantation 14,520 24,423
Development 2,444 3,032
Programme 12,076 21,390

8. Latex production 1:1 1 : 1.1
(’000 Tonnes)

Total 100
100
Rubber Plantation N/A

Rubber Forest
under Forest
Plantation
Development
Programme

9. Natural Rubber 1,250
Imports

(’000 Tonnes)

10. Contribution to 37,004 Strengthen R&D&C
GDP (RM million) 3,701 capabilities and
33,304 coordination between
Upstream GDP 1 : 1.4 industry, academia and
research institutions
VALUE-CREATION (RM million) 70,500 with a specific focus on
1,350 developing specialised
Strengthen Downstream GDP 10,000 and high value-added
(RM million) 57,000 products
R&D&C for greater 3,500
49,100 Extend financial
commercialisation 11. Utilisation support for
commercialisation of
of products rate (Ratio of products with high
potential
Production:
Promote the transition
Domestic of high-potential
companies into
Utilisation) higher-value industries
as well as higher-
MARKET 12. Total Exports 48,536 58,000 value branding and
DEVELOPMENT (RM million) 1,072 1,190 distribution
Grow markets 6,153 7,700
through industry- Exports - Natural 40,967 Intensify promotional
led Strategic Rubber 1,415 48,000 efforts to increase
Partnerships 30,854 2,300 global market share
(’000 Tonnes) 38,700 for specialty and dry
15 : 85 rubber products,
Exports - Natural 90 : 10 15 : 85 creating Malaysia’s
Rubber 85 : 15 presence in higher
value product
(RM million)
17 : 83
Exports - Rubber 80 : 20
Products

(RM million)

Exports - Other
Rubber

(RM million)

12. Balance of Trade
(RM million)

Ratio of Exports

Upstream:
Downstream

Latex-based
Products : Dry
Rubber Products

92 National Agricommodity Policy 2021-2030 (DAKN2030)

Policy Thrust Indicators Baseline 2020 Target 2025 Target 2030 Strategies

INCLUSIVENESS 15. Smallholders Income (RM) – Average income per month per Increase support
Enhance smallholding for Bumiputera
Bumiputera enterprises
participation Net Income 589 1,250 1,580
and safeguard (MONOCROP) (MONOCROP) (MONOCROP) Increase adoption
smallholders’ of digital tools for
wellbeing 2,030 2,550 establishment of
(INTEGRATED) (INTEGRATED) a comprehensive
database
Gross Income 902 1,730 2,170
(MONOCROP) (MONOCROP) (MONOCROP)

2,720 3,480
(INTEGRATED) (INTEGRATED)

16. Contribution of RM2.4 billion RM3.4 billion RM4.4 billion
Agricommodity-
based MSMEs to
Agricommodity-
based output (RM)

17. Percentage of 4% 7% 9%
Bumiputera (13/325)3% (23/325)6% (33/367)8%
MSMEs in
midstream &
downstream
segments–
especially “Next
Gen” Bumiputera
Entrepreneurs

18. Local : Foreign
worker ratio

Midstream 64 : 36 66 : 34 68 : 32

Downstream 53 : 47 55 : 45 57 : 43

Policy Document 93

STRATEGIES TO SYNERGISE

TRANSFORMATION OF
THE RUBBER INDUSTRY

VALUE CHAIN

Eleven strategies will be implemented along the five policy thrusts, with the objective of
restructuring the upstream segment, modernising the midstream segment and supporting the
growth of the downstream segment.

1
Sustainability: Transform upstream
through increasing raw material supply
and quality assurance

Revive smallholders’ sector through strengthened cooperatives, institutional alignment and
cross-functional reform initiatives

Smallholders will remain as a major source of production in the upstream segment. Whilst
exploring the potential to strengthen the sector, the long-term strategy will look into alternative
ways to increase raw material supply and retain domestic production viability. A clustering concept
for smallholders will be introduced to support smallholders for improved and more efficient
management of rubber plantations. To this end, the implementation of the East Coast Latex Corridor
programme will be rolled out in 2021.

Smallholder cooperatives will be strengthened, especially through the National Rubber
Transformation Programme (TARGET), which aims to increase smallholder incomes. Institutional
alignment and cross-functional reform initiatives will ensure that rubber smallholders are
adequately and efficiently supported to produce a consistent supply of raw materials.

In addition, the Malaysian Sustainable Natural Rubber (MSNR) guidelines will be established to
enhance the image of the Malaysian rubber industry as a producer of sustainable rubber. It will
provide guidelines for locally produced raw rubber to be certified as sustainable raw rubber –
sourced sustainably, free from deforestation issues and in compliance with the current social and
environmental regulations in Malaysia.

94 National Agricommodity Policy 2021-2030 (DAKN2030)

FLAGSHIP PROGRAMME 3: EAST COAST LATEX CORRIDOR

Background

The rubber downstream segment is dominated by latex-based products, namely rubber
gloves, condoms and catheters. However, local latex production only meets less than 7%
of industry demand. In line with efforts to increase local production of latex and increase
smallholders’ incomes, the East Coast Latex Corridor in Peninsular Malaysia will be established,
spanning the states of Terengganu, Kelantan and Pahang. The Government has allocated
RM16 million in 2021 for the implementation of the Insentif Pengeluaran Lateks (IPL)
programme inclusive of RM6 million for the establishment of 15 Rubber Collection Centres
(Pusat Mengumpul Getah, PMG) equipped with facilities to determine the dry rubber content
(DRC) in latex and raw rubber. From the 227,000 ha of existing rubber planted area and 140,000
smallholders in the three states, an earmarking activity will be carried out to identify potential
areas and farmers to participate in the Latex Corridor.

Objectives

Raise incomes of rubber smallholders
Increase the national latex production for a continuous supply for domestic consumption,

reducing reliance on imported latex

Target Segment

Rubber smallholders

Lead Agency and Relevant Stakeholders

Lead Agency: MRB
Relevant Stakeholders: rubber smallholders, rubber entrepreneurs

Expected Outcomes

Establish 15 clusters consisting of corporations and rubber entrepreneurs
Produce 5,000-10,000 tonnes of latex in its first year of operation

Source: Malaysian Rubber Board (MRB)