The Haze Report 2025 on Palm Oil: Market Trends, Policy Shifts, Biofuel Expansion, and EU Deforestation Regulation

Markets

Trump’s proposed differential tariffs are expected to have minimal disruption in Indonesia's palm oil sector. Analysts, however, are watching for potential indirect effects, such as reduced Chinese purchases of U.S. soybeans, which could shift demand toward palm oil.

Indonesia’s palm oil stands out, supported by:

• Global demand

• Robust downstream industries

• A strong domestic market buoyed by ambitious biofuel mandates (B35, targeting B50)

Despite rising global demand, especially for food and biofuel, Malaysia’s mature oil palm acreage has declined for four consecutive years, while Indonesia’s growth remains marginal. Meanwhile, Brazil’s expanding soybean cultivation has driven high palm oil prices for nine months leading into 2025. Domestic biofuel consumption in Indonesia (B35, aiming for B50) is also drawing down exports, prompting buyers to seek alternative oils and intensifying deforestation elsewhere, notably in Brazil, where forest loss reached 2.82 million hectares in 2024.

On the other hand, calls are growing to revisit Indonesia’s palm oil moratorium. Analysts urge sustainable expansion and urgent replanting with higher-yield seeds, citing aging trees, disease, and underperforming government-linked estates as bottlenecks. While environmental groups often disproportionately target palm oil, they frequently overlook the environmental impact of other commodities like soy and cattle.

Despite being the most efficient oil crop, palm oil continues to face reputational challenges, particularly in the EU, where sustainability concerns and competition from alternative fats and stricter biofuel standards are limiting market access.

Before 2015, commodity price spikes often triggered forest loss in Indonesia through plantation expansion and political cycles. The 2015 fires acted as a wake-up call, and since then, deforestation has moderated despite price fluctuations. In 2024:

• Oil palm expansion slowed slightly

• Peatland conversion dropped

• Overall, deforestation fell 9% compared with 2023.

Forest loss rose modestly in Kalimantan and Sumatra but shifted from illegal to legal clearing within approved concessions. Globally, Indonesia and Malaysia show reduced deforestation, with fire-related losses far below mid-2010s levels, even as major forest loss continues in Brazil, Bolivia, DR Congo, and Peru.

Policies

Under President Jokowi, Indonesia made significant strides in curbing emissions through forest protection and peatland fire prevention. This included a 2021 commitment to achieve a net carbon sink in the forestry and land-use (FOLU) sector by 2030, potentially delivering up to 60% of national emissions reductions. The effort was supported by new carbon pricing and trading regulations and a climate cooperation pact with Singapore. By 2024, Jokowi’s final year, fire rates remained low due to restoration efforts, favorable rainfall, and private-sector action.

Post-Jokowi, concerns have emerged over political support for plantation expansion, threatening climate and haze goals. A recent rise in forest loss in Sumatra and stalled peatland regrowth between 2017–2022 highlight ongoing challenges in sustaining land-based climate gains.

The Prabowo administration’s priorities differ markedly from Jokowi’s.

• While Jokowi implemented palm oil expansion moratoria alongside infrastructure development and mineral downstreaming (with environmental and social costs), Prabowo emphasizes national self-sufficiency in food and energy, viewing carbon markets largely as commercial ventures rather than conservation tools.

• Rising public debt and costly social programs further strain fiscal space.

• State-linked Agrinas aims to control up to one million hectares of contested land, potentially capturing 6–7% of national output. With stagnant palm oil output and limited technological progress, Agrinas’ expansion may strain productivity further.

Nonetheless, Indonesia’s downstreaming strategy seeks to boost value-added processing in palm oil and coconut to support high-income ambitions. Key areas include oleochemicals, food products, and biodiesel expansion (B40 to B50 by 2029). However, rising land-use tensions create a “food vs. fuel vs. export” trilemma. The sector also faces competition from advanced hubs like Malaysia and the EU. Meanwhile, planned estate expansion in Papua faces high development costs and complex local dynamics, raising investor concerns. Amid policy uncertainty and political sensitivities, businesses may become increasingly cautious.

Palm Oil, Biofuels & Industry Transformation

Global demand for palm-based biofuels remains strong, driven by EU and U.S. policies favoring low-carbon fuels. While traditional palm oil faces restrictions, certified waste-derived products such as PFAD and used cooking oil are gaining traction, particularly for aviation and marine fuels. Strict sustainability standards and tight supply make policy clarity essential for future investment.

Indonesia and Malaysia face challenges in balancing domestic needs, subsidy costs, and exports. Indonesia's growing biodiesel demand, stagnant output, and unlicensed mills complicate regulation, while Malaysia focuses on higher-margin exports over domestic biodiesel use.

Indonesia’s palm sector is undergoing a shift, with state-backed Agrinas targeting 1 million hectares of reclaimed land, potentially reshaping industry dynamics. Export competitiveness is at risk amid court scrutiny of major traders and ongoing concerns over governance, land control, and regulatory transparency.

EU Deforestation Regulation (EUDR) and Implications

The EU’s deforestation regulation (EUDR), now delayed to late 2025 for large firms and mid-2026 for smaller ones, aims to eliminate imports linked to deforestation, including palm oil, cocoa, and rubber. Recent revisions ease compliance for large companies by allowing annual due diligence submissions and data reuse, resulting in up to a 30% reduction in administrative costs.

Smallholders, however, remain largely unsupported, and compliance depends heavily on origin-country systems. While Malaysia is advancing digital traceability for smallholders, Indonesia appears to have deprioritized EUDR implementation amid other economic pressures. The EUDR is expected to support haze prevention, but risks excluding smallholders from EU markets without additional support.

The Annual Haze Outlook Report 2025 can be found here.

Reach us at khorreports[at]gmail.com

Outlook on forest fires, market indicators, farmers, and EU trade compliance

The Shift from Low to Medium Haze Risk in 2025 (Transboundary Haze in Sumatra)

The Haze Outlook 2025 has raised the regional risk level from green (low risk) to amber (medium risk), citing elevated agricultural prices, an uptick in deforestation, and economic and policy shifts driven by pressure to boost agricultural output for food security as attributes to this change.

Key points to note from the report:

• While deforestation declined between 2017 and 2022, it has increased again from 2023 into 2024, particularly in Sumatran provinces near Singapore and Peninsular Malaysia, where fire activity surged in July 2025.

• Despite forecasts of a shorter dry season, hotspots and smoke haze in parts of Sumatra in mid-July have already affected air quality in parts of Peninsular Malaysia, indicating that fire risk remains elevated even under average weather conditions.

With climate trends pointing to another unusually dry season between 2027 and 2030, and structural drivers like land clearing and commodity demand continuing to fuel haze episodes, the report recommends prioritizing sustainability measures “to avoid creating more fire-prone conditions.”

The surging of commodity prices with deforestation on the uptick (Most especially, palm oil prices surpassing soybean)

Linked to these structural pressures, the Outlook notes that agricultural commodity prices, especially for palm oil, have surged due to supply failing to keep pace with rising global demand.

According to the report, palm oil from Indonesia and Malaysia, typically the world’s cheapest vegetable oil, has traded above soybean oil prices at key destinations for nine consecutive months, an unprecedented trend. This price surge is significant because historical spikes in commodity prices have often preceded increased deforestation in subsequent years. 

Although the rate of primary forest loss between 2015 and 2019 remained largely flat or declined despite fluctuations in commodity prices, the report notes that the current cycle may differ: “estimates show some uptick in deforestation in Indonesia from 2023–2024.”

Will EUDR be further delayed to 2028? How will smallholders cope with these regulations

The report also highlights the approaching enforcement of the European Union’s Regulation on Deforestation-free Products (EUDR), scheduled to take effect for large companies on 30 December 2025. The regulation targets seven commodities, palm oil, soy, wood, cocoa, coffee, cattle, and natural rubber, and requires proof that imports are not linked to deforestation after 31 December 2020.

According to the report, key developments related to the EUDR include:

• The regulation imposes strict reporting requirements, which critics argue may exclude smallholder farmers unable to meet compliance standards.

• In response, the EU has simplified some administrative rules, allowing annual submissions and reuse of due diligence statements for reimported goods, cutting estimated compliance costs by 30%.

• Indonesia and Malaysia have developed national digital platforms to provide legality and traceability data, while respecting data protection laws. These systems aim to support smallholders and enable international buyers to file EUDR-compliant submissions through national dashboards.

• Indonesia has urged the EU to postpone full implementation until 2028 to allow more time for preparation and alignment across all stakeholders.

The report suggests that while the EUDR aims to curb deforestation linked to commodity trade, its real-world impact will depend on how effectively origin countries and the EU implement and enforce these measures, especially regarding smallholder inclusion.

The Annual Haze Outlook Report can be found here.

Reach us at khorreports[at]gmail.com

Social media scan on palm oil @ 16 Oct 2024

Here’s a scan of some news and issues that have caught the attention of palm oil watchers, in the last three weeks! We mostly pick up on things on Twitter/X. Come here for more, https://x.com/khorreports. 

EUDR. A hot topic amongst regulators and market players, we have argued it would be a two year muddle-through. Maybe for three years, with the one year additional time? Alerts on X (1) and (2). There is positive feedback about enhanced regulations and traceability in the palm and rubber industries, including in Ivory Coast, Malaysia, and Thailand. The regulatory upgrades are being underestimated, while costs may be overestimated. Aida Greenbury praises how cocoa farmers in Ghana are preparing for the EU's Deforestation-Free Due Diligence regulations.

On prices and trade. Susan Stroud is a notable expert on soy from North America. A 25-year palm oil price chart from Malaysia's BMD is mentioned, and Indian buyers are canceling palm oil shipments due to a sharp duty hike and rising Malaysian prices. Alerts on X (1), (2), (3).

Malaysia’s palm oil consumption has dropped significantly. Diesel consumption in Malaysia is down due to subsidy reforms, but oleochemical exports may gain from Indonesia's export duty adjustments.

News on Indonesia. New data shows an increase in palm oil deforestation in Indonesia in 2022, with no data yet for 2023. The government's Food Estates program faced challenges, particularly in peat areas, due to difficult terrain and market issues. Indonesia's Food Estates project raises concerns about food inflation, with climate change, a weak rupiah, and high imported food prices posing potential risks.

News from India. India's palm oil yields are around 12 tonnes/hectare, lower than major producers like Malaysia and Indonesia. India's vegetable oil imports dropped 30% in September due to lower demand and high prices, following higher imports in July-August. 

Palm oil is used in the energy sector and in renewables. Gas oil and Brent crude are key factors for palm oil market watchers. An oil asset map from @SPGCI provides detailed insights into the Middle East. Energy, beyond food and personal care, is crucial for the palm oil sector. The rapid growth of renewables is important. By 2030, solar PV and wind are expected to double their share to 30% of the global power mix, meeting around half of global electricity demand. (Palm oil biomass should count in the dark green “other renewables” segment.) But there’s always a risk of being called out on greenwashing… The UK advertising watchdog ruled Virgin Atlantic’s “100% sustainable aviation fuel” ad misleading and instructed them to clarify the environmental impact in future ads (note: SAF is a technical term and it still contains fossil fuels). 

Catch up on interviews with BFM

By Claudia Nyon, Research Associate, research@segi-enam.com 

Here’s a belated update on two BFM interviews back in August.

Yu Leng was on BFM’s Morning Run on 26 August 2024 to provide her insights on the increase of rubber prices against the impending implementation of the European Union’s Deforestation Regulation (EUDR). Yu Leng also considered the present challenges of smallholder producers of palm oil and rubber. The full podcast may be found here. 

Key points included: 

• Malaysia’s rubber yield may sound low but specialists think that trees are overcounted. Thailand has faced challenging wet weather conditions and output is down but on the other hand Malaysia’s output is up. Malaysia’s ranking in global production is below.

• Commodities are handled by different government agencies or statutory boards in Malaysia. There is one for palm oil, rubber, pepper and so forth. (Agronomists seem to complain about these as “silos”). Another complexity in rubber is that different zones have different farmer income models, notably for profit sharing or share cropping. 

• Rubber is largely produced in the northern states, where palm oil has not taken over these dryer regions. Smallholder experts think that (the true) rubber farmers needing help are individuals in remote areas. But domestically, there has been an understandable push for group farming (with hired/migrant labour) near towns. Perhaps a majority of rubber is produced under profit sharing, and this may need more consideration in current policy. 

A few extra points that didn’t make it, owing to time constraints:

• A near geographical monopoly concept exists and persists in Malaysian regulations. The ideal is a farmer having multiple mills to sell for then will there be better prices for a standard product. But mills have a clear incentive to partner with their smallholders for product quality and international ESG standards. 

• A lot can be gained from having information on the location of ultra low-yielding oil palms (“dura contamination” in industry parlance, where yields are -56% of normal yield). The Malaysian Palm Oil Board (MPOB) has invested a lot in detecting via genomic testing. Seeds can be verified for normal yield. There is a marginal cost increase for a major gain in production. One in eight oil palms in Malaysia are ultra low-yield, i.e., financially impaired. This is pretty surprising. 

• However, the industry needs to reconsider how they can expand these good practices from planting material all the way to harvesting and field logistics, and fairer prices. 

Yu Leng was also invited to give her take on Malaysia’s latest pledge to halt new palm oil plantations in forested areas on BFM’s Top 5 at 5, on 19 August 2024. Deforestation regulations such as the EUDR were raised and how its shaking up global commodity supply chains with origins competing against each other to sell high value add products, however limiting land might cause liberal state development policies to clash against federal powers over exporting and licensing via the MPOB. The full podcast may be found here. 

Editor’s Note: this clash between state and federal powers over the ban on new palm oil plantations in forested areas has recently materialised in the Kuala Nerus district, Terengganu. As reported by Malaysiakini in September (paywalled), Pure Green Development Sdn Bhd submitted an environmental impact assessment (EIA) to clear a state-owned peat swamp forest to develop a palm oil plantation. Following reports, the Department of Environment rejected Pure Green’s EIA (paywalled) and the Plantation and Commodities Minister, Johari Abdul Ghani, issued a statement (Bahasa Malaysia only) that the government’s bar against new palm oil plantations in forested areas still remains in force and referred to the Malaysian Sustainable Palm Oil (MSPO) certification policy.