Analyst says Malaysia will retain a degree of competitive resilience, supported by its strong progress in sustainability certification

02/06/2026 (Muslim Network), Kuala Lumpur - Indonesia’s move to finalize a free trade agreement (FTA) with the European Union (EU) could sharpen price competition for Malaysian palm oil exports, but analysts say Malaysia is unlikely to lose its competitive edge in the global market, reports Business Times.

Indonesia, the world’s largest palm oil exporter, concluded negotiations with the EU on Sept 23 last year. The deal is undergoing legal review and ratification, with entry into force targeted for Jan 1 next year.

In contrast, Malaysia has made slower progress in its FTA talks with the EU, completing only the third round of negotiations in February this year. The fourth round resumes this month.

Indonesia’s palm oil exports were estimated at 23.6 million tonnes in 2025, generating $24.4 billion.

Malaysia, the second-largest exporter, shipped 17.3 million tonnes of palm oil last year.

While smaller in volume compared with Indonesia, Malaysia maintains a strong position in higher-value segments, particularly certified and refined palm oil products. Export earnings were estimated at about $30 billion.

“While there is a first-mover advantage, the situation is more nuanced than it appears at first glance,” said ESG in Malaysia executive director Dr Harald Sippel. Malaysia still has room to respond with its own strategic countermeasures, he added.

He said Indonesia’s concluded Comprehensive Economic Partnership Agreement gives it an early platform in working with the EU on sustainability and compliance requirements under the EU Deforestation Regulation (EUDR), which now plays a bigger role than tariffs in determining palm oil market access.

“That said, Malaysia has been pursuing what I would describe as a parallel regulatory diplomacy track that the FTA timeline debate almost entirely misses,” said Sippel.

“In September 2025, ahead of its own FTA conclusion, Malaysia secured recognition of its Malaysian Sustainable Palm Oil (MSPO) certification in a joint statement with the EU.

“This is significant because EUDR compliance hinges not just on tariffs but on whether a country’s domestic certification scheme is recognised as credible.

“Malaysia moved on that front independently of its FTA timeline.”

Sippel said Malaysia also concluded an economic partnership agreement with the European Free Trade Association (EFTA) states in June 2025, which includes a joint statement on palm oil.

He added that while the EFTA deal is not equivalent to an EU FTA, it helps establish frameworks and precedents that could support future FTA negotiations with the union.

“Indonesia has moved first on the FTA. But Malaysia is not standing still, and the competitive picture is more textured than a simple race narrative suggests.”

Fitch Solutions’ unit BMI commodities analyst Bin Hui Ong said an earlier conclusion of an EU FTA by Indonesia could intensify price competition for Malaysian palm oil exports, particularly if tariff reductions improve Indonesia’s relative price competitiveness.

The pressure could be further amplified by expectations of a stronger ringgit and a relatively weaker Indonesian rupiah over 2026.

“However, we believe Malaysia will retain a degree of competitive resilience, supported by its strong progress in sustainability certification.”

https://www.muslimnetwork.tv/malaysia-unlikely-to-lose-edge-in-palm-oil-market/