New Delhi moved against Malaysian palm oil on Wednesday, 8 January 2020. The Ministry of Commerce and Industry published a notification that changed refined palm oil and palmolein from “Free” to “Restricted” import status.
Officially, that is a licensing matter. Four industry sources told Reuters it works as a ban on refined oil, leaving crude palm oil as the only form India can still bring in freely. Indian government and industry sources described it to the news agency as payback aimed at Malaysia, the main supplier of refined palm oil and palmolein to India. The ministry did not respond to a request for more information, and Malaysia’s Primary Industries Minister, Teresa Kok, declined to comment.
What Mahathir said
The sources tied the move to remarks by Malaysian Prime Minister Mahathir Mohamad. In October he said India had “invaded and occupied” Kashmir, a disputed Muslim-majority region that Pakistan also claims. A month before the restriction, he said India was stoking unrest with its new citizenship law, which critics argue erodes the country’s secular foundations.
Earlier in the week, New Delhi had informally asked refiners and traders to stop buying Malaysian palm oil.
A lose-lose situation
For Malaysia the stakes are large. Palm oil makes up 2.8 per cent of gross domestic product and 4.5 per cent of total exports, and it is the country’s single biggest agricultural export. Malaysia shipped about 3.9 million tons to India in 2019, including 2.04 million tons of palmolein. It had overtaken Indonesia as India’s top supplier that year after a lower duty on refined oil made its product cheaper. Indonesia used to hold around two-thirds of the Indian market.
“Malaysia is in a lose-lose situation with this ruling,” said Sathia Varqa, co-founder of Singapore-based Palm Oil Analytics. He expected India to “ramp up buying” of crude oil from Indonesia.
Jamil Haron, chairman of the Palm Oil Refiners Association of Malaysia, saw a price fight coming. “We can still sell crude palm oil, but now we need to compete with Indonesia,” he said, adding that Malaysia would be “at the losing end”. A Kuala Lumpur trader expected Malaysian exports to start falling from the end of January, once existing contracts ran out.
Some Indian buyers had already pulled back. One leading refiner said there was officially no ban on crude oil from Malaysia, yet “nobody’s buying” because of government instructions. A Mumbai trader recalled the warning given to importers: “Don’t come to us if your shipments get stuck.”
Winners in India
Indian refiners welcomed the change. Their business had suffered over the past year as cheaper imported refined oil flooded in. B.V. Mehta, executive director of the Solvent Extractors’ Association, said they had been “struggling for survival” and that the ban would help refiners and local farmers and create new jobs. A Mumbai refiner who asked not to be named said the move would “punish Malaysia” while helping local processors. Prices for Indian crude palm oil, soyoil and rapeseed jumped after the announcement.
India buys more than 9 million tons of palm oil a year, and palm oil is nearly two-thirds of its edible oil imports.
Malaysia looked elsewhere. Kok visited Pakistan and said that country was “one of Malaysia’s most regular and dependable buyers”. Pakistan took 1.16 million metric tons of Malaysian palm oil in 2018, worth $730 million, according to the Primary Industries Ministry.
Analyst Prashanth Parameswaran said relations between the two governments had been frosty since Mahathir returned to power in May 2018. Mahathir had engaged more with Pakistan and refused to send the preacher Zakir Naik back to India. A compromise could still be found, Parameswaran wrote, but the lack of any resolution so far “does not bode well for ties”.
Sources
- India restricts refined palm oil imports after Malaysia's criticism of Modi
- India Restricts Palm Oil Imports From Malaysia
