KUALA LUMPUR: Malaysia is considering waiving the crude palm oil (CPO) export tax to help clear record-high stockpiles and narrow the pricing gap with Indonesia.
The move aims to make Malaysian exports more competitive and help producers regain lost market share.
The proposal comes as Malaysia's palm oil inventories climbed to 3.5 million tonnes last month, putting growing pressure on exporters because Indonesian palm oil continues to enjoy a significant price advantage.
According to a wire report, the government is considering the waiver. The Plantation and Commodities Ministry is expected to discuss the proposal with industry players.
Beyond offering short-term relief to plantation companies, the proposed waiver raises a bigger question: Can lower export costs boost shipments, improve producer prices and increase foreign exchange earnings without significantly denting government revenue?
ESG Malaysia executive director Dr Harald Sippel said a temporary waiver of crude palm oil (CPO) export tax could help Malaysia reduce swelling inventories and boost exports.
However, it is unlikely to close the price gap with Indonesia or deliver lasting competitiveness.
Sippel said Malaysia's 3.5 million tonnes of palm oil stocks will require broader measures to clear, as Indonesian palm oil remained significantly cheaper despite the country imposing higher export duties and levies.
Malaysia's 10 per cent export tax amounts to about RM450 a tonne at current prices, while Indonesian palm oil trades RM700 to RM900 a tonne cheaper.
"Even if every ringgit of the waiver were passed on to buyers, it would close only half to two-thirds of that gap," he told Business Times.
Sippel said Indonesia could also lower its levy in response to falling exports, potentially offsetting Malaysia's move.
The waiver could nevertheless lift shipments in the short term, particularly to price-sensitive markets such as India.
He said Malaysia could clear stocks more quickly by combining the waiver with measures to boost domestic demand, particularly through higher biodiesel blending.
On the fiscal impact, Sippel estimated that every million tonnes of CPO exported tax-free would cost the Treasury about RM450 million at current prices.
Some of the revenue loss could be recovered through higher corporate tax and windfall levy receipts, but not all.
He said any waiver should have a firm end date and clear exit conditions to prevent temporary relief from becoming a permanent subsidy.
Plantation companies will benefit from higher domestic CPO prices, while smallholders could gain from improved fresh fruit bunch prices if mills passed on the increases.
However, downstream processors could lose out as removing the crude oil tax would erode the cost advantage enjoyed by Malaysia's refining industry.
Refiners will face higher feedstock costs while competing with Malaysian crude palm oil in export markets, Sippel said.
He said a time-limited waiver could support prices by helping clear stocks, but lasting competitiveness would depend on better yields, replanting, labour productivity and stronger supply-chain traceability.
The latter is becoming increasingly important as the European Union's Deforestation Regulation (EUDR) requires palm oil sold in the bloc to be traceable to plots of land and supported by evidence that they were not deforested after 2020.
Sippel said Malaysia could not assume it would automatically gain an advantage over Indonesia, as the EU classified both countries as standard risk in its risk benchmarking.
Malaysia must demonstrate traceability across shipments, including those sourced from smallholders, who face the same geolocation requirements as large plantation groups but have fewer resources to meet them, he said.
He suggested that the government and industry consider using part of the revenue forgone through the waiver to map smallholder farms and strengthen traceability systems.
Although the EU buys less Malaysian palm oil than India or China, stronger traceability could help exporters meet the requirements of global consumer goods companies that increasingly apply EU-level standards across their supply chains.
Sippel said the waiver could provide temporary breathing space, but Malaysia's long-term competitiveness would depend on improving productivity and proving the origin of its palm oil rather than competing on price alone.
Public Investment Bank (PublicInvest) analyst Chong Hoe Leong said the potential waiver will likely be welcomed by the industry and could help Malaysia regain market share from Indonesia.
"We believe the (prospect) will be well received and likely will take effect soon. Such a waiver of the CPO export tax will help Malaysia regain market share from Indonesia," he said in a note.
At present, Malaysia imposes a 10 per cent CPO export tax, while Indonesia's combined export duty and levy stands at US$273 per tonne (RM1,113 per tonne).
The difference in export costs has contributed to Indonesian CPO trading at a discount of RM700 to RM900 per tonne against Malaysian prices, putting local exporters at a competitive disadvantage.
"This wide discount has put Malaysia's CPO exporters at a disadvantage, resulting in a significant loss of market share to our counterparts and a record inventory level of 3.5 million tonnes last month.
"This is evident as Indonesian palm oil exports have grown, in contrast to Malaysia's lacklustre performance," Chong said.
For economists, the central question is whether removing the export tax will narrow the price gap sufficiently to stimulate demand and accelerate inventory clearance, or whether other factors, including global demand, competing vegetable oil prices and Indonesia's export policies, will continue to constrain Malaysia's competitiveness.
The impact on government revenue would also need to be weighed against the potential economic benefits of higher export volumes, improved cash flow for producers and stronger activity across the palm oil supply chain.
Malaysia previously waived its CPO export tax for six months in 2020.
Chong suggested that any new waiver should remain in place until domestic inventories fall below two million tonnes.
The proposal could also have uneven implications for industry players.
Upstream plantation companies could benefit from stronger export demand and improved CPO prices, while downstream processors may face margin pressure if greater export availability pushes up the cost of their raw materials.
The policy's effectiveness would therefore depend not only on the tax reduction itself, but also on how much of the savings exporters pass on to buyers and whether stronger demand translates into better prices received by Malaysian producers.
Meanwhile, plantation companies are heading into their third-quarter 2026 results season with support from stronger production and higher average CPO prices.
Chong said all plantation companies under PublicInvest's coverage recorded production growth, led by Ta Ann Holdings Bhd, whose fresh fruit bunch (FFB) output rose 30 per cent year-on-year.
Sarawak Plantation Bhd followed with 23.2 per cent growth, while Kuala Lumpur Kepong Bhd recorded a 16.4 per cent increase.
Average CPO prices rose to RM4,552 per tonne in the third quarter of 2026, compared with RM4,275 per tonne in the corresponding period last year.
The combination of higher output, lower production costs and firmer selling prices is expected to support earnings in the second half of the year.
Chong maintains an "Overweight" rating on the plantation sector, naming Sarawak Plantation and Ta Ann as his preferred picks because of their attractive dividend yields and above-industry-average FFB production growth.
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