‘Getting back to normal’: Malaysia-India palm oil trade back on track due to better prices, food security needs

By Pearly Neo

- Last updated on GMT

Palm oil trade between Malaysia and India has moved back on track with the latter running low on local stock and the former relaxing export tariffs. ©Getty Images
Palm oil trade between Malaysia and India has moved back on track with the latter running low on local stock and the former relaxing export tariffs. ©Getty Images

Related tags Malaysia India Palm oil

Palm oil trade between Malaysia and India has moved back on track with the latter running low on local stock and the former relaxing export tariffs as both countries move to repair a trade relationship wrecked by previous political clashing.

The Indian government issued a boycott order on Malaysian palm oil to all its traders in January this year after then-Malaysian Prime Minister Tun Dr Mahathir Mohammad criticised India’s move to strip Kashmir of its special status and ‘invading and occupying’​ it.

Tun Mahathir was ousted by successor and current Prime Minister Muhyiddin Yassin in March, and since then both countries have been trying to repair ties, although the progress for this is ‘taking time’​.

“For the first few months of 2020, Malaysian palm oil exports to India were hit pretty badly, they were only taking some 10% to 12% of their normal monthly intake,”​ Malaysian Palm Oil Council (MPOC) CEO Datuk Dr Kalyana Sundram told FoodNavigator-Asia​.

“One of the primary reasons for this was also due to the shutdown of the Hotel, Restaurants and Cafes (HORECA) industry in the country, as palm oil is mostly used by this industry and it could not function under lockdowns.

“Demand seems to be back on the rise now. Also domestic stocks they had left were running out and they need to replenish, so are importing more palm oil again – At the end of the day, palm oil is a crucial part of the country’s food security so they have to replenish.”

According to MPOC data, India purchased just short of 400,000 tonnes of Malaysian palm oil in the six months between January to June 2020 – a 85% drop year-on-year from nearly 2.6 million tonnes between January to June 2019.

In a clear sign that both countries are looking to repair frayed trade ties, Malaysia signed a deal with India to purchase 100,000 tonnes of Indian rice earlier this year, to which India reciprocated with a contract for 200,000 tonnes of Malaysian Crude Palm Oil (CPO).

“When not buying from us, India compensated by buying more palm oil from other competitors such as Indonesia – but Indonesia charged a higher duty on CPO exports and ended up being more expensive than Malaysian palm oil,”​ said Datuk Sundram.

“So Malaysian palm oil has had a price advantage for some months, being on par or lower than Indonesia’s, which could also be [what drew India back]. The Malaysian government has also relaxed the duty for CPO exports, which had positive effects on India’s decisions.”

Malaysia’s palm oil export duty rates are usually dependent on the market price of its palm oil per tonne and will be 0% when the price is less than RM2,250 (US$531.48). The price of Malaysian CPO was RM2122.77 (US$501.42) in June, hence export duty was relaxed to 0%. The Malaysian government announced that from June, all palm oil export duties would continue to be waived for the rest of the year under the country’s Pelan Jana Semula Ekonomi Negara (PENJANA) scheme.

According to data from the Economics and Industry Development Division (EID), the price of Malaysian CPO in July was RM2,235.27 (US$528), and this month it is RM2442.59 (US$576.97) per tonne. Normally, an export duty of 3% would apply, but this no longer applies under the PENJANA scheme.

“We have seen larger export volumes to India over the past couple of months, so I am positive about the improvement and that things will slowly get back to normal,”​ said Datuk Sundram.

Palm oil and COVID-19

The advent of COVID-19 caused many supply chains to be affected and commodity markets to take a hit – but Datuk Sundram is confident that the impacts on palm oil will not be overly massive.

“Due to the pandemic, overall demand for all commodities, not just palm oil, slipped by around 20%. For palm oil, we saw this impact more amplified in certain markets [such as India] due to other factors, but we’re already seeing a rise back in demand,”​ he said.

“I am confident that the impact of COVID-19 won’t be overly drastic on the palm oil market as a whole this year – as a matter of fact, I would be surprised if overall 2020 global palm oil utilisation turns out to be anything beyond 15% less as compared to 2019 numbers.”

Not everyone shares Datuk Sundram’s confidence though, even in India. Dr B.V. Mehta, Executive Director of the Solvent Extractors’ Association of India (SEA), believes that it will be at earliest December 2020 before things see any normalcy​ in the country.

“Even as lockdowns and restrictions ease, I don’t believe demand will go back up [at least until the end of the year],”​ he told us

“It will be hard for people’s habits to change and they won’t go out so much just yet, so food stores, HORECA and others will not recover so quickly – by the time they do decide to in another few months, that will be practically 2020 gone for everyone already.”

Demand aside, Malaysian palm oil also faces another type of challenge​ from the European Union, which has been near-openly hostile with its intentions to ban palm oil imports in the name of sustainability.

Related news

Show more

Related suppliers

Follow us


Food & Beverage Trailblazers

F&B Trailblazers Podcast