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

Special Report: Rainfall and Floods in Peninsular Malaysia

Since 29 November, the East Coast of Peninsular Malaysia has been inundated with floodwaters to such an extent that the Deputy Prime Minister issued a statement describing the flood situation in Kelantan and Terengganu (Peninsular Malaysia) as being worse than the severe floods of 2014. Rainfall has also flooded parts of Kedah, with water from Sungai Anak Bukit entering the official residence of the Kedah Menteri Besar and reaching up to 0.5 meters in the kitchen quarters. 

The flood death toll from northern Malaysia and southern Thailand has risen to nine with 140,896 people displaced in Malaysia and 640,000 households affected in southern Thailand, as of the time of writing. The Chana district of Songkhla province has reportedly suffered the worst floods in 50 years, triggered by three days of heavy rain in the southern region. A heavy rain warning remains in effect, with heavy to very heavy rains that may cause flash floods and overflows until early December, according to the Thai Meteorological Department.

Indeed, Met Malaysia’s Long Term Weather Outlook had predicted that November had above average anomalies in Perlis and Kedah. Rainfall for Terengganu and parts of Kelantan was predicted to be wetter, receiving >60% (about 600mm) of rainfall.  We had covered this in our Weather Update on 20 November 2024, however we note that Sabah has been downgraded from an anomaly risk. 

On 27 November, Malaysia Met issued warnings for Kelantan, Terengganu and parts of Pahang were set to receive dangerous levels of rainfall. 

On 30 November, Malaysian Met issued warnings that continuous heavy rain at danger levels is expected to occur in Kelantan, especially in Tumpat, Pasir Mas, Kota Baru, Jeli, Tanah Merah, Bachok, Machang, Pasir Puteh and Kuala Krai.

Besut, Setiu, Kuala Nerus, Hulu Terengganu, Kuala Terengganu and Marang in Terengganu are also forecasted to experience continuous heavy rain during the same period.

For December, however, Met Malaysia has predicted above average anomalies for parts of Kelantan, Terengganu, Perak, Kedah, Perlis and Sabah. Rainfall for the East Coast (Kelantan, Terengganu, Pahang) is expected to exceed >60% (about 600mm) above normal levels.

On-the-ground reports from agricultural groups in Kelantan, such as the Kelantan Farmers Association (PESAK)), indicate that 26,000ha of paddy fields have been submerged in flood waters. Some of these fields were only recently sown with seeds a few weeks ago. The sowing process for January 2025 had reportedly been already delayed due to earlier water supply issues with many farmers already unable to plant paddy for three consecutive seasons.