Pizza dough to lipstick to biodiesel — India needs Malaysia’s palm oil but traders wary now

Malaysian prime minister had ticked off New Delhi after saying India ‘invaded’ Kashmir, prompting India to threaten palm oil restrictions.

Prime Minister Narendra Modi during a meeting with Prime Minister of Malaysia Dr. Mahathir Mohamad on the sidelines of 5th EEF in Vladivostok. | ANI file

New Delhi: Palm oil traders in India are treading cautiously in dealing with Malaysia  following New Delhi’s threats to impose trade restrictions on palm oil imports from the country. The threat comes in the wake of Malaysian Prime Minister Mahathir Bin Mohamad’s statements against India’s Kashmir policy, at the United Nations last month.

India had already levied 5 per cent safeguard duty on imports of refined palm oil from Malaysia for 180 days on 5 September, following the recommendation of Directorate General of Trade Remedies, the commerce ministry’s investigation arm. The DGTR had cited a probe for its decision, claiming there was an alleged jump in imports of the product from Malaysia, after a complaint from Solvent Extractors’ Association of India (SEA).

It raised the customs levy on the product to 50 per cent for six months from the existing 40 per cent on crude palm oil and 45 per cent on refined palm oil.  

That, however, was before Mahathir’s speech at the UNGA on 28 September where he accused India of “invading and occupying the country” of Jammu and Kashmir. 

That irked New Delhi and palm oil traders now fear an impending quantitative import restriction, which they say might slash their profits by at least 20 per cent.

“Even the imposition of the safeguard duty doesn’t hurt our import prospects that much because of the free trade agreement between the two countries,” a Mumbai trader who imports palm oil from Malaysia told ThePrint. “But it is the impending quantitative import restriction that we fear might slash our profit by at least 20 per cent,” said the trader who did not wish to be named.

The trader said he has already cancelled his previous two months of orders due to a surplus stockpile of refined edible palm oil. “However, from next month onwards I have to find a supplier from either Indonesia or Thailand,” he added.

Malaysian palm oil

According to the World Wide Fund for Nature (WWF) estimate, Indonesia and Malaysia together make 87 per cent of the global palm oil production. Indonesia produces 33,000,000 MT of palm oil annually followed by Malaysia, which produces 19,500,000 MT of the product in a year.

Narendra Taneja, co-chairman of the Hydrocarbons Committee of the Federation of Indian Chambers of Commerce and Industry, told ThePrint, “Currently India imports its palm oil primarily from Malaysia and the rest from Indonesia.”

According to Malaysian Palm Oil Council for the period between January and September this year, palm oil exports to India rose by 106.98 per cent from 1,88,216 MT in the same period last year to 3,908,212 MT. This roughly translates to an import worth US$ 2 billion (over 1,400 crore, approximately).

“India has had a centuries old civilisation relation with Malaysia henceforth we imported much of the palm oil from there along with slight relaxation in trade duties,” Taneja said. “However, Indian sentiments have been hurt by Malaysia’s stand over Kashmir but any kind of knee-jerk reaction should be avoided.”

Mahathir has spoken on the crisis. He told his state media on 16 October that his country will seek a diplomatic solution with India if New Delhi enforces any kind of trade restrictions on palm oil imports.

India’s palm oil dependence

Not only India but a large part of world depends heavily on the palm oil due to its diverse use ranging from cooking oil to pizza dough, detergent, shampoo, lipstick, chocolate and even biodiesel. In India, palm oil is used as the most common cooking medium (Vanaspati).  

According to the United States Department of Agriculture report (USDA), almost 65 per cent of total demand of edible oil in India  (food and industrial use) is met through imports. The total domestic consumption market share for palm, soybean and sunflower oil  stands at 42 per cent, 22 per cent and 12 per cent respectively. India is the world’s leading vegetable oil buyer and has a record import of 7,23,158 tonne palm oil in December 2016.

Chandra Bhushan, former deputy director general of the Centre For Science and Environment while speaking to ThePrint said, “ The rising demand for palm oil from the Indian middle class can be attributed to the marketing of zero trans fat presence in palm oil as compared to the  animal oil such as ghee and butter.”

According to the United States Department of Agriculture report,  between 1990 and 2002, palm and soybean oils have become the leading edible oils consumed, accounting for 38 and 21 per cent of total consumption

The report also says producers and merchants face strong incentives to supply blends that include lower cost oils, both to compete for price-sensitive consumers and to seek higher margins by marketing unlabelled blends as pure traditional oils, such as peanut or rapeseed-mustard oil, which usually sell at a premium price.

“The demand from India was complemented by oligarchies in south east Asia that facilitated rampant destruction of rainforest for palm oil cultivation,” added Bhushan

Agriculture expert Ashok Gulati also expressed similar views. “Palm oil export is largely decentralised and hence, it depends on person to person trade agreements,” he said. “Malaysian exporters have been provided decent incentives and discounts over the free trade agreement to Indian traders until now so the country has largely been the center for Indian palm imports.”