KUALA LUMPUR: Coconut oil has stormed out of Asia's kitchens and into the global commodities spotlight, cementing its position as one of the hottest and most premium agricultural commodities.
Prices are hitting record highs as supply tightens and demand accelerates across food, beverage, and personal care industries.
Datuk Dr Mad Nasir Shamsudin, professor at Putra Business School, said the rally is transforming coconut oil into a strategic global commodity reshaping trade flows, underpinned by ageing plantations, erratic weather, chronic underinvestment, and surging demand.
But soaring prices come with a sting. Consumers and manufacturers are being forced to either cut back or pivot to cheaper substitutes such as palm kernel oil, soybean, sunflower, and palm oil.
The battle for dominance in edible oils has entered a new and volatile phase, Mad Nasir warned.
In India, the world's biggest consumer, coconut oil prices have nearly tripled in less than two years to a record 423,000 rupees (US$4,840) per metric tonne, while global benchmarks have climbed to an unprecedented US$2,990, according to Reuters. The rally, which accelerated in late 2024, has been years in the making – fuelled by chronic underinvestment in coconut plantations, intensifying climate shocks, and booming demand for coconut-based food, beverages, and personal care products.
Malaysia's modest role, premium prospects
For Malaysia, although the industry faces limitations in scale and stiff competition from palm oil, opportunities exist in the premium segment – particularly virgin, organic, and cosmetic-grade oils, Mad Nasir said.
He added that this niche could become a strategic growth area if backed by sustainability branding and value-added innovation.
"In 2023, the planted area of coconuts in Malaysia stood at 85,400 ha. Over the past five years, the compound annual growth rate (CAGR) was about 0.48 per cent, reflecting modest but steady expansion. Despite fluctuations, the overall trend from 2013 to 2023 indicates relative stabilisation with only incremental growth," he said.
He pointed out that coconut production in 2023 was 464,000 tonnes. However, the five-year CAGR up to 2023 was -1.32 per cent, pointing to a marginal decline.
"Forecasts suggest a continued downward trend, with production expected to reach 428,770 tonnes by 2028 – an overall decline of 6.11 per cent from 2024, equivalent to a negative CAGR of -1.25 per cent. While the planted area has remained stable, yields have fallen slightly, resulting in lower output. Malaysia's coconut self-sufficiency ratio (SSR) was 71.6 per cent in 2022."
From a market perspective, he said that coconut oil recorded fluctuating growth between 2014 and 2023. In 2023, market volume reached 40,000 tonnes, reflecting year-on-year growth of 2.56 per cent. Over the past five years, the CAGR was 0.51 per cent, showing a gradual upward trend.
"This growth underscores coconut oil's increasing traction as a premium commodity, fuelled by greater consumer awareness of its health benefits and versatility. While Malaysia is traditionally known for palm oil, the coconut oil sector is emerging as a potential growth area, with promising prospects in both domestic and export markets. The strongest potential lies in the production of extra virgin coconut oil and other high-value coconut products," Mad Nasir said.
Nevertheless, he said the coconut industry faces several challenges and constraints, such as a limited raw material base, which is declining acreage, and low copra output, which restricts expansion.
"There is also competition from palm oil, which remains dominant, supported by significantly higher yields per hectare, strong government incentives, and a long gestation period. New plantings require 4 to 5 years to reach oil-bearing maturity, delaying returns. There are also global supply volatility issues. The weather variability and plantation health issues add uncertainty to long-term planning," he said.
Mad Nasir said despite these constraints, coconut oil is transitioning into a global premium commodity, supported by health-driven consumer demand and tightening supply.
For Malaysia, although not a major producer, opportunities lie in strengthening refining capacity, developing niche export markets, and aligning industry strategies with global demand.
The inclusion of coconut under the Pineapple Board marks a positive policy step toward greater focus on the crop, he said.
"To transform coconut oil into a new growth pillar, Malaysia must scale up production, enhance value-chain development, and design forward-looking policies that encourage innovation, sustainability, and private-sector investment," Mad Nasir said.
On the implications for the palm oil industry, he does not foresee many implications given that Malaysia's oil palm sector spans about 9 million hectares and remains the backbone of the edible oil industry, supported by robust R&D, advanced technology, extensive market networks, and strong institutional frameworks.
"Given its sheer scale and entrenched strengths, the palm oil industry will not be significantly affected by renewed interest in coconut oil. Instead, coconut oil is likely to serve as a complementary niche, carving out a premium space rather than displacing palm oil.
A wake-up call for Malaysia
Bank Muamalat chief economist Dr Mohd Afzanizam Abdul Rashid described the rally as a "wake-up call".
"This is where economic complexity comes into play, where the agricultural sector will become a driver of economic growth," he told Business Times.
He said that by diversifying away from crude palm oil, Malaysia is able to reduce dependence on a single commodity and unlock fresh opportunities.
"It shows an opportunity to diversify our agriculture by ensuring our high dependence on crude palm oil (CPO) will be reduced as a result of the diversification decision. Not to mention, it creates some sense of awareness that agriculture has a lot of potential for corporates to explore," he said.
"Our dependence on imported agri-food products is apparent. The country has been recording widening in trade deficits for agri-food from merely RM1.1 billion deficits in 1990 to RM39.3 billion in 2024," Afzanizam said.
He said key agri-food products that have experienced deficits are meat and meat preparations (-RM6.9 billion), dairy products and bird's eggs (-RM3.8 billion), fish, crustaceans and molluscs and preparations thereof (-RM2.3 billion), cereals and cereal preparations (-RM9.1 billion), vegetables and fruits (-RM9.7 billion), sugars, sugar preparations and honey (-RM6 billion), coffee, tea, cocoa, spices and manufacturers thereof (-RM3.6 billion) and feeding stuffs for animals, excluding unmilled cereals (-RM3.1 billion).
Afzanizam argued that with land, labour, and modern tools such as drones and precision farming, Malaysia has the capacity to reposition agriculture as a new growth engine.
Global supply crunch
Worldwide, coconut oil production has stagnated at 3.67 million tonnes for three decades, USDA data shows. Weather disruptions – from El Niño droughts to typhoon damage – continue to weigh on yields. Farmers chasing profits from coconut water are harvesting younger nuts, reducing supply for oil and copra.
Reuters reported that the International Coconut Community expects prices to remain between US$2,500 and US$2,700 per tonne in the second half of 2025, well above historical averages. Traders say a retreat below US$2,000 is unlikely in the near term, pointing to the neglect of plantations and unfavourable weather in recent years.
Coconut oil's premium over rival palm kernel oil has ballooned to US$1,000 per tonne – up from the usual US$100–US$200 – while palm kernel itself has climbed 30 per cent this year. Any major shift away from coconut oil could drive up prices of alternatives, including palm kernel oil for industry and palm, soy, and sunflower oils for households, Reuters said.
While coconut oil is popular in Asia, demand for copra, coconut cream, and milk is strong in Britain, China, Europe, Malaysia, the United States, and the United Arab Emirates.
The price shock is forcing policy debates across producer and consumer nations. Indonesia, the world's largest supplier, saw coconut oil exports fall 15 per cent in the first half of 2025 as farmers shifted to selling whole coconuts and desiccated products, which jumped 58 per cent, government data showed. Industry groups are urging Jakarta to suspend coconut exports for up to a year to stabilise prices.
In India, where import duties exceed 100 per cent, trade associations are lobbying for relaxed rules to allow coconut oil and copra inflows. But even if policymakers act, supply relief will be slow. Farmers are expanding plantations, but seedlings take four to five years to yield – leaving little prospect of a swift correction.
To ride the wave of booming demand, Indonesian farmers are opting to export whole coconuts rather than process them into oil, Reuters reported, quoting Amrizal Idroes, vice-chairman of the Indonesian Coconut Processing Industry Association.
Source: https://www.nst.com.my/business/economy/2025/08/1263814/coconut-oil-becomes-premium-global-commodity-asia-faces-supply
