Where does palm oil come from?

Palm oil comes from the fruit of Elaeis guineensis, a palm native to the coastal forests of West and Central Africa. Each palm carries bunches of several hundred plum-sized fruits, and each fruit has an oily orange flesh around a hard kernel. The flesh yields crude palm oil; the kernel yields palm kernel oil, a different product counted separately. The palm begins bearing about three years after planting, peaks between ages eight and fifteen and is replanted after about 25 years. It produces more oil per hectare than any other oil crop, roughly four tonnes against well under one for soybeans, which is why it has expanded faster than the alternatives.

In 2023 Indonesia produced 47.1 million tonnes of palm oil, 59% of the world's 79.6 million tonnes (FAOSTAT). Malaysia was second with 18.6 million tonnes and Thailand third with 3.3 million tonnes. The top five producers supplied 91% of the total, and 48 countries reported production. World output was +44% compared with ten years earlier, and the leading producer grew at +5.4% a year over that decade. Measured as harvested fruit rather than extracted oil, the world crop of oil palm fruit was 418.2 million tonnes in 2023, led by Indonesia.

Two countries dominate because of history as much as climate. Sumatra's Deli region hosted the first commercial estates from 1911, Malaya's from 1917, and both countries expanded after independence through state land schemes, Malaysia's FELDA and Indonesia's transmigration and nucleus-estate programs, that settled smallholders around central mills. Indonesia passed Malaysia in the mid-2000s and kept growing on Sumatra, Kalimantan and Papua, while Malaysia ran out of land and labor. Thailand, Colombia, Nigeria, Guatemala, Papua New Guinea, Honduras and Ivory Coast (Côte d'Ivoire) make up most of the rest. Nigeria was the largest producer in the 1960s and is now a net importer.

Palm oil is the most traded vegetable oil, and the exporters are the producers. Indonesia was the leading exporter of palm oil (HS 1511) in 2024, with 48% of world export value, and India was the leading importer with 19% of import value (CEPII BACI). World exports were worth $43.8 billion. HS 1511 covers crude palm oil and its refined fractions together; crude palm oil alone is HS 151110, and Malaysia led exports of that line in 2024.

Most exports leave already refined. Indonesia has used export taxes and levies that are lower on refined oil than on crude to build a domestic refining industry, and Malaysia refines most of its output too, so what reaches India, China, Pakistan and the EU is mainly refined, bleached and deodorized (RBD) palm oil, palm olein and palm stearin. The Netherlands imports crude and refined oil through Rotterdam and re-exports it into Germany, Belgium and Italy, so Dutch trade figures overstate Dutch consumption. India, the largest single buyer, imports crude oil for its own refiners and adjusts duties to favor crude over refined, which shifts the mix from year to year.

The reference price for palm oil is set in Malaysia. The Bursa Malaysia Derivatives Crude Palm Oil futures contract (ticker FCPO, 25 tonnes, quoted in Malaysian ringgit per tonne) has traded since 1980 and settles by physical delivery of crude palm oil at Port Klang and other Malaysian ports. The third-month contract is the one quoted in headlines. Physical trade is done at differentials to FCPO or as FOB Malaysia and Indonesia prices in dollars assessed by reporting agencies, with Indonesian crude palm oil usually at a discount because of its export levy and lower quality tolerance. Refined products such as RBD palm olein carry their own premiums.

This site's primary series is Malaysia, CIF Northwest Europe, which was $1,117/t in August 2026, up 9% from a year earlier (World Bank Pink Sheet). Its record monthly average was $1,777/t in March 2022; adjusted for US inflation the real peak was $5,167/t in October 1974. The lowest monthly average was $142/t in September 1968, and the series begins in 1960. That price is for Malaysian oil delivered to Northwest Europe including freight and insurance, so it runs above the FOB price at the loading port by the cost of shipping.

A quote for palm oil is for a tonne of crude palm oil of standard quality, meaning free fatty acid content under 5%, unless a refined grade is named. Palm oil competes with soybean, sunflower and rapeseed oil in food and with diesel in fuel, so its price is usually read against those: the spread to soybean oil decides whether Indian and Chinese buyers switch, and the palm oil gasoil spread (POGO) decides whether blending into biodiesel is profitable without subsidy.

Indonesia adjusts its palm oil export tax and levy monthly against a reference price, and has at times restricted or banned exports outright, as in April and May 2022, to hold down domestic cooking oil prices. The domestic market obligation, which requires exporters to sell a share of output at home before receiving export permits, works the same way. Because Indonesia supplies more than half of world exports, each change moves the FOB price immediately and shifts demand toward Malaysian oil.

Indonesia's mandate has risen from B20 in 2018 to B35 in 2023 and B40 in 2025, meaning diesel must contain that percentage of palm-based biodiesel, and Malaysia runs a smaller B10 program. Each step absorbs several million tonnes of palm oil that would otherwise be exported, financed by the export levy. The mandates set a floor under demand that does not respond to price, and the palm oil gasoil spread decides whether the program costs the state money or not. EU rules that phase palm biodiesel out by 2030 work in the opposite direction.

Oil palm yield responds to rainfall with a delay. Drought and haze during El Niño years reduce bunch formation, but the drop in harvested fruit shows up nine to eighteen months later, while flooding in Malaysia's east coast in the monsoon months interrupts harvesting immediately. Yields also follow a seasonal cycle, with output lowest in the first quarter and peaking around September to October, so stocks build in the second half of the year. Aging trees and slow replanting cap the ceiling regardless of weather.

Palm oil is one of four oils that together supply most of the world's edible fat, and buyers switch among them. A large South American soybean crop or a strong Black Sea sunflower harvest widens the discount palm needs to hold its market; a poor crop lets palm rise with the others. US renewable diesel demand for soybean oil since 2021 has pulled the whole complex up. The spread between palm and soybean oil, normally a discount of $100 to $200 a tonne, is the main gauge Indian importers watch.

Malaysian estates depend on migrant workers, mainly from Indonesia and Bangladesh, to harvest bunches by hand with a pole knife. When borders closed in 2020 and 2021 the labor shortage left fruit unharvested and cut national output for two seasons, and recruitment freezes and rights complaints, including a US import ban on two producers, have kept the sector short of workers. Mechanization is limited by terrain and by the bunch's weight, so labor availability is a supply constraint specific to Malaysia.

The Malaysian Palm Oil Board publishes production, exports and end-month stocks around the tenth of each month, and the futures market reacts within minutes. Rising stocks signal that output has outrun exports and press on prices; a drawdown does the reverse. The USDA balance puts the world stocks-to-use ratio at 19% for 2026/27 (USDA PSD), and Malaysian stocks are the most visible piece of it. Cargo surveyor export estimates released every ten days fill the gaps between reports.

FCPO is priced in ringgit, so a weaker ringgit raises the futures price in local terms while making Malaysian oil cheaper in dollars for importers; the rupiah does the same for Indonesian FOB prices. Crude oil enters through biodiesel, since a higher diesel price makes palm biodiesel viable and adds fuel demand to food demand. A rising Indian rupee lowers the landed cost for the largest importer and lifts buying. Currency moves often explain price changes that look like fundamentals.

The EU Deforestation Regulation requires palm oil sold in the EU to be traced to plots not deforested after 2020, and the Renewable Energy Directive removes palm biodiesel from renewable targets by 2030. RSPO certification, adopted by a minority of producers, commands a small premium. These rules reroute trade more than they change supply: uncertified or untraceable oil goes to India, China and Africa, while certified oil concentrates in Europe. Announcements of new rules or delays move the differentials between grades.

Harvesting is continuous. Every seven to ten days a harvester walks the rows and cuts the ripe fresh fruit bunches (FFB), each weighing 15 to 25 kilograms, with a chisel on a long pole. Ripeness is judged by loose fruits on the ground. Because the oil's free fatty acid content rises within hours of cutting as enzymes break down the fat, bunches must reach a mill within a day, which is why mills sit inside the plantations and why oil palm needs roads and a dense mill network rather than the loose supply chains of grain.

At the mill the bunches are sterilized with steam, which stops the enzymes and loosens the fruit, then threshed to strip the fruit from the stalk. The fruit is digested into a mash and pressed; the crude oil is clarified and dried. A tonne of bunches yields about 200 kilograms of crude palm oil, an extraction rate of around 20%, and the empty bunches, fiber and shells are burned for steam or returned to the field as mulch. The nuts are cracked and the kernels sent to a separate crushing plant to make palm kernel oil and palm kernel meal, a livestock feed. Mill effluent is treated in ponds, and where captured, its methane runs generators.

Crude palm oil is a reddish semi-solid at room temperature. Refining removes the free fatty acids, gums, color and odor to give RBD palm oil, and fractionation by chilling separates it into a liquid palm olein, used for frying and cooking, and a solid palm stearin, used in margarine, shortening and soap. Further processing gives specialty fats for confectionery and oleochemicals such as fatty acids, fatty alcohols and glycerin. Palm methyl ester, the biodiesel, is made by reacting the oil with methanol. Malaysia and Indonesia refine the bulk of their output at coastal refineries before export.

Most palm oil is eaten. It is the frying oil of South and Southeast Asia and much of Africa, and, because it is solid at room temperature without hydrogenation, it is the fat in margarine, baked goods, instant noodles, confectionery, ice cream and processed foods worldwide. The USDA and industry estimates place food at roughly two thirds of world use, with the balance split between oleochemicals for soap, detergent and cosmetics and biodiesel (USDA Foreign Agricultural Service, Oilseeds: World Markets and Trade, 2024).

Fuel is the growing share. Indonesia's blending mandate makes it the single largest consumer of palm biodiesel, and Malaysia, Thailand and Colombia run smaller programs. Palm kernel oil, a separate product from the same fruit, goes largely into confectionery fats, surfactants and cosmetics, where its lauric composition substitutes for coconut oil.

Palm oil's supply chain is concentrated at every stage. Two countries produce the large majority of world output, and within them a few dozen groups own the mills and nearly all the refineries. Wilmar, Musim Mas, Golden Agri-Resources, Apical, SD Guthrie, IOI and KLK between them refine and trade a large share of everything exported, and the ports of Dumai and Belawan in Sumatra, Kumai and Balikpapan in Kalimantan, and Port Klang, Pasir Gudang and Lahad Datu in Malaysia handle most shipments. Because the oil must be milled within a day of harvest, a plantation cannot sell its fruit to a distant buyer; the mill is the single point of failure for every estate and smallholder around it.

Shipping is by chemical and product tanker, in parcels of a few thousand tonnes, through the Strait of Malacca to India's west coast ports of Kandla and Mundra, to Chinese ports, to Karachi and to Rotterdam. The route to Europe passes the Bab el-Mandeb and Suez, and Red Sea attacks in 2024 lengthened voyages around Africa. India's import duties and Indonesia's export rules are the two policy chokepoints: a change in either alters flows within weeks, because there are few alternative buyers or sellers at scale.

Traceability is the newest constraint. Roughly four in ten hectares in Indonesia and Malaysia belong to smallholders, many without land titles or plot maps, and the EU Deforestation Regulation requires geolocation of every plot behind a shipment. Integrated groups with their own estates can comply; oil from independent smallholders and unmapped dealers cannot, so it is diverted to markets without such rules. The industry's exposure to a single pathogen or pest is lower than rubber's, but Ganoderma trunk rot and the aging of the tree stock in both countries limit how fast supply can grow.