Malaysia's mammoth palm oil sector, the second-biggest in Southeast Asia, faces a new threat after Indian traders were asked to halt purchases amid a diplomatic row with India, piling further pressure on the industry as Europe also plans cutbacks.
With Western companies reducing the 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 UN General Assembly last month sparked a backlash in India that could badly hit the sector.
There has been sympathy among Muslims in Malaysia for Kashmiris after the government in New Delhi revoked the Muslim-majority region’s autonomy in August.
“I think this might be the first social-media fuelled trade sanction,” said Ariz Rizvi, whose Facebook page had been overrun with angry messages over the issue.
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 that 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 $1.63 billion.
Teresa Kok, the Malaysian 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 EU 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.