Palm oil and the price of tomorrow

ON Dec 3 2025, during the debate on the Rang Undang-Undang Perbekalan 2026 (Supply Bill 2026) or Budget 2026, Senator Robert Lau Hui Yew reminded the nation of a truth too easily forgotten in air-conditioned rooms and digital spreadsheets: palm oil is not a resource extracted from the earth; it is a crop earned through labour, discipline and sweat.

He then laid out the tax numbers for 2024.

Based on estimates from the Malaysian Estate Owners Association, the industry contributed about RM11.5bil in taxes borne by growers alone.

This formidable sum does not arrive through one neat line item.

It flows through income tax, windfall profit levy, state sales tax, Malaysian Palm Oil Board cess, land taxes, quit rents and local council assessments – seven key fiscal layers at least, stacked like a mille-feuille or kuih-lapis, finely constructed and unavoidably consumed.

And that is before factoring in the crude palm oil (CPO) export tax, which further reshapes the picture.

As global CPO prices rise, export levies rise alongside them, suppressing local netbacks.

For governments, this helps stabilise domestic supply. For growers, it caps upside.

Although this tax is technically paid by exporters, its effect is quietly transmitted through the entire supply chain in the form of lower prices, smallholders included.

What the world celebrates as a rally, the estate experiences as a moderated recovery – prosperity on paper disciplined into prudence on the ground.

When all taxes and levies are taken together, it is estimated that around half of profitability is absorbed by taxation, far above the headline corporate tax rate.

This heavy burden already makes reinvestment in oil palm less attractive.

What further blunts the incentive is that the tax take rises automatically when prices rise.

While price signals naturally encourage investment, Malaysian growers often find that a substantial share of any windfall is simultaneously channelled into statutory tax obligations.

High prices, therefore, do not necessarily mean easy money; they often mean higher taxation at precisely the wrong moment.

At the same time, palm oil remains profitable and visible on rich lists, feeding the illusion that it is an endlessly tappable “cash cow”. There is a common assumption that because plantations remain profitable, they can simply be taxed more.

What this overlooks is an uncomfortable truth: today’s profits are the delayed returns of investments made decades ago.

Those investments were largely aimed at land expansion, not yield intensification. What we see now is often the echo of old capital, not the fruit of new productivity.

Today, yield intensification through replanting and mechanisation is the only sustainable path forward, yet replanting remains sluggish. The hesitation speaks volumes.

Many growers no longer believe that reinvesting today will yield comparable returns tomorrow.

It is, therefore, unsurprising that some choose to optimise present gains during favourable price cycles, while adopting a more cautious stance toward long-term reinvestment as uncertainty clouds the horizon.

Golden crop, ageing canopy

Oil palm is unlike most businesses in one uncomfortable way: it cannot pack up and migrate when policies turn unfriendly.

The palms are rooted and so are the investments.

Every ha represents a 25-year wager placed upfront in land, planting and labour, leaving the industry uniquely exposed to policy shifts long after capital is sunk.

Yet this same “golden crop” quietly rebuilt rural Malaysia.

From Felda settlers in the Peninsula to native landowners in Sarawak, from plantation workers to smallholders, oil palm became not just a commodity but a livelihood system.

It built homes, paid for schooling, opened roads into remote interiors and stitched the countryside into the national economy.

Malaysian palm oil is also among the rare sectors that never lived on subsidies.

It funds its own research through cess, sustains its own extension services and absorbs its own labour volatility – quietly and without grandstanding.

But beneath today’s strong revenues, the trees are ageing.

Nearly one in four oil palms now stands beyond 20 years of age, many past their biological prime and grown to heights where harvesting becomes harder, riskier and costlier.

Mechanisation remains hesitant, constrained by capital cost, terrain and deep dependence on human labour.

These taxes were not drawn from buried minerals; they were harvested from living trees, from labour under monsoon or drought skies.

And if we are honest stewards of what has been collected, a meaningful portion must now return to the fields that generated it.

Replanting is falling behind the biological clock; mechanisation behind labour realities. To keep harvesting without reinvesting is to live on yesterday’s shade while eroding tomorrow’s canopy.

When taxes follow price, not cost

Today’s palm oil tax regime is triggered not by cost, but by price.

As global CPO prices rise, windfall levies, export duties and state sales taxes rise almost automatically, even though production risk does not fall.

Fertiliser still swings with global shocks. Labour remains scarce and expensive. Replanting to maturity now costs well over RM25,000 per ha.

Mechanisation demands heavy capital long before returns appear.

On paper, the margin looks comfortable.

But the headline corporate tax rate tells only a fraction of the real story.

Like a kuih lapis of levies, layered taxation – from export tax and corporate tax to cess, windfall profit levies and state sales taxes – steadily devours that margin, absorbing nearly half of profits.

Nowhere is this felt more keenly than in Sabah and Sarawak, where logistics costs and lower net realisation already compress margins, yet effective tax incidence remains among the nation’s highest.

When too much revenue is extracted today, tomorrow’s reinvestment is postponed – not in protest, but in silence.

Here lies a quiet truth seldom made clear in budget tables on palm oil.

It is one of the rare sectors where the State taxes you not only on the usual profit, but also before any profit is made.

Disregard whether the company is making profit or not, the taxman is already at the gate collecting sales taxes, levies and export duties.

These charges are not based on the company’s realised selling price but on a set reference price, which may differ significantly from market conditions.

What remains must still fund replanting, fertiliser, mechanisation and labour.

But the bunch harvested today was biologically decided two years earlier.

No fiscal instrument can compress plant physiology.

The tree may look healthy from the highway.

Up close, its feeder roots are under quiet stress.

Layered atop taxation is regulatory and compliance drag.

Multiple agencies, jurisdictions and certification regimes steadily divert time and capital into compliance, often at the expense of agronomic renewal.

The field waits while the forms multiply. From fiscal policy to biological consequence.

Here taxation becomes more than accounting. It becomes a driver of biological outcomes.

Yield growth demands front-loaded capital; returns come years later.

When tax extraction shrinks retained earnings today, risk appetite collapses tomorrow.

Replanting is delayed. Mechanisation is postponed. Yield stagnation locks in.

Stagnant yields are not merely agronomic failures.

They are economic leaks – lost exports, lost feedstock for downstream industries, lost rural income and lost future tax revenue.

A system designed to maximise short-term collection quietly erodes the base that sustains long-term national earnings.

Yet palm oil remains a net contributor, not a subsidy-dependent crop, but a self-financing engine of foreign exchange, rural stability, downstream supply and research funding through its own cess.

Simultaneously, it is asked to modernise, decarbonise, mechanise and comply with ever-rising regulatory demands while carrying one of the world’s heaviest agricultural tax burdens.

Few industries are told to run harder every year while surrendering so much of the fuel that makes running possible.

From tax extraction to tax intelligence

This is not a call for tax holidays. It is a call for tax intelligence.

Agriculture lives on biological time, not fiscal quarters.

Replanting is not a quarterly decision. Mechanisation is not an instant return. Soil fertility is not an annual reset.

Tax thresholds must reflect real input costs and inflation, not historical price bands frozen in another era.

Replanting and mechanisation must be rewarded structurally, not merely encouraged rhetorically.

Regional disparities must be acknowledged.

Downstream incentives must be aligned so value addition becomes real.

Tax must evolve into a lever for renewal, not a brake on regeneration.

The question that refuses to go away

Palm oil has paid faithfully in bright seasons and lean ones, through monsoon floods and droughts, through pandemics and price wars.

Today it stands as one of Malaysia’s net contributors to public revenue and a quiet multiplier of rural lives and local economies – earned not by digging beneath the earth, but by tending it each day under sun and storm.

Which brings us back to the Senator’s numbers and the question beneath them: how much of the RM11.5bil collected from growers in 2024, and every year before and thereafter, is being systematically reinvested to secure the industry’s future?

For the future of palm oil will not be decided in Parliament alone, but in nurseries and replanting schedules, in fertiliser ledgers and mechanisation yards, and in the quiet confidence of planters deciding whether to invest again.

You can tax a harvest. You can even tax a boom. But if you tax the roots faster than you rebuild them, the silence in the field will arrive quietly – long after the last windfall has bee spent.

What was taken from the trees must now, in part, be returned to the trees, for without urgent replanting and mechanisation, today’s prosperity becomes a borrowed season and today’s revenue becomes tomorrow’s recklessness.

Joseph Tek Choon Yee has over 30 years experience in the plantation industry, with a strong background in oil palm research and development, C-suite leadership and industry advocacy. The views expressed here are the writer’s own.