Malaysia clarifies cost factors behind FFB purchase price gap between Sabah and Peninsular Malaysia

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Sabah FFB prices vs. Peninsular Malaysia

Highlights

The Sabah government imposes a 7.5% state sales tax on crude palm oil prices, while higher logistics costs than in Peninsular Malaysia add to the FFB price gap.
The Malaysian Palm Oil Board (MPOB) is stepping up enforcement of daily price displays and weighing controls, and provides daily benchmarks to ensure FFB prices are transparent and fair.
Budget 2027 allocates RM100 million for hybrid financing and RM200 million for the Oil Palm Replanting Financing Programme, with an interest rate of 4%, to help around 4,500 smallholders.

This article was translated from the original. Read the original version by our correspondent here.

Cost factors and price monitoring measures

As reported by The Edge Malaysia, Huang said the Sabah government imposes a 7.5% state sales tax on crude palm oil prices, while no equivalent tax is levied in Peninsular Malaysia. He also said that transport distances from plantations to mills are greater in Sabah and Sarawak than in Peninsular Malaysia, driving up logistics costs in both states.

He said the Ministry of Plantation and Commodities, through the Malaysian Palm Oil Board (MPOB), remains attentive to and committed to addressing the FFB price disparity between Sabah and Peninsular Malaysia. The government is committed to tackling the issue through ongoing monitoring and enforcement, he said in response to a question from Datuk Andi Muhammad Suryady Bandy in the House of Representatives about measures to address price imbalances and monitoring mechanisms to ensure smallholders receive fairer and more transparent prices.

Huang said the initiatives include MPOB’s FFB reference price formula, enforcement of daily purchase price displays, and a controlled weighing system. MPOB also publishes daily price benchmarks based on its official formula through its mobile app and official portal, providing industry guidance and a reference point for aligning prices fairly with actual quality and oil extraction rates.

Under the Malaysian Palm Oil Board (Licensing) Regulations 2005, MPOB also requires fruit dealers and mills to clearly display the daily purchase price based on a 1% oil extraction rate at their respective premises. Huang said MPOB also works closely with the Ministry of Domestic Trade and Cost of Living to ensure that all weighing instruments at mills and buying centres are certified in accordance with the Weights and Measures Act 1972.

Labour pressures and replanting finance

In response to a supplementary question about labour shortages in the palm oil industry, Huang said the problem is particularly acute in harvesting, FFB collection, and plantation care and maintenance. He said the main challenge to replanting is financial constraints, especially among smallholders, who face estimated costs of RM14,000 to RM16,000 per hectare.

He said that, in addition to the loss of income while trees are not yet productive, these constraints can lead to replanting being postponed and less productive oil palms being retained. This, he said, undermines the industry’s long-term productivity.

To address these challenges, Huang said the government has allocated RM100 million in hybrid financing under Budget 2027, targeting around 4,500 smallholders. The government has also introduced the RM200 million Oil Palm Replanting Financing Programme to fund replanting on areas of up to 40.46 hectares, with repayments deferred for four years.

With smallholders paying an interest rate of 4% and the government covering the remaining interest, the initiatives aim to ease financial pressures, accelerate replanting and ensure the sustainability of the country’s palm oil industry productivity.

In our earlier article on Malaysia’s lower crude palm oil reference price for November, we explained how the reference price was set below October’s level but remained above the threshold that keeps the export duty at the maximum rate of 10%. We also noted that this leaves export costs for industry players largely unchanged, affecting the competitiveness of Malaysia’s palm oil trade.

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