Indian traders asked to halt palm oil purchases

KUALA LUMPUR: Malaysia’s mammoth palm oil sector faces a new threat after Indian traders were asked to halt purchases amid a diplomatic row over Kashmir, piling further pressure on the industry as Europe also plans cutbacks.

The Southeast Asian nation is the second-biggest producer after Indonesia of the oil, used in everything from food to cosmetics, in a sector long vilified by environmentalists who blame it for fueling deforestation.

With Western companies reducing use of the commodity as green groups ratchet up pressure, the top two growers have increasingly come to rely on demand from India, the world’s biggest buyer of edible oils, and China. But a speech by Malaysian Prime Minister Mahathir Mohamad at the United Nations General Assembly last month, in which he said New Delhi had "invaded and occupied" Kashmir, has sparked a backlash in India that could badly hit the sector.

There has been sympathy in mostly Muslim Malaysia for Kashmiris after the Hindu nationalist government in New Delhi revoked the Muslim-majority region’s autonomy in August, and imposed a lockdown to quell unrest.

Mahathir´s comments prompted calls for Indians to shun Malaysian products -- with social media users posting angry messages alongside the hashtag #BoycottMalaysia -- while rumours swirled New Delhi may hike tariffs on Malaysian palm oil.

Earlier this week, a major Indian vegetable oil trade body called on its 875 members to avoid buying palm oil from Malaysia, noting the government was mulling retaliatory measures. "In your own interest as well as a mark of solidarity with our nation, we should avoid purchases from Malaysia for the time being," said Atul Chaturvedi, president of the Solvent Extractors´ Association of India.

It is a blow for Malaysia, as India was the country´s third-biggest market for palm oil and palm oil products in 2018, with a value of 6.84 billion ringgit ($1.63 billion). Teresa Kok, the minister who oversees the commodity, scrambled to defuse tensions, describing the association´s move as a "major setback" and saying Malaysia was looking at increasing imports of sugar and buffalo meat from India.

The row is a further hit to the sector in Malaysia after the European Union announced plans to phase out palm oil in biofuels by 2030. Malaysia and Indonesia have vowed to fight the move, saying it could damage the livelihoods of millions of small-scale farmers.

Despite attempts by some Malaysian officials to calm the spat, calls are growing in India for Prime Minister Narendra Modi´s government to curb palm oil imports.

Such a move would signal that "countries gaining economically from India while criticising the country politically will not have a free run anymore", Neelam Deo, director of Mumbai-based think-tank Gateway House, said.