In wake of Indonesian ban, Malaysia plans to increase palm oil exports

Iskandar Zulkarnain and Nisha David
2022.05.10
Kuala Lumpur
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In wake of Indonesian ban, Malaysia plans to increase palm oil exports A worker harvests palm oil fruit at a plantation in Johor, Malaysia, May 3, 2021.
S. Mahfuz/BenarNews

Malaysia plans to increase exports of palm oil by 30 percent this year to meet a growing global demand following a decision by neighboring Indonesia last month to ban foreign shipments of the product, the minister for plantation industries and commodities said Tuesday.Malaysia is recruiting foreigners for the plantation sector to meet the demand after a similar effort in February that brought in 30,000 workers, Minister Zuraida Kamaruddin said.

“Both upstream oil palm growers and downstream oil producers in Malaysia should join hands to reap the benefit of the void following neighboring Indonesia’s decision to halt its palm oil exports,” Zuraida said.

Last September, the Malaysian government approved plans to recruit 32,000 migrant workers for palm oil plantations – a move that led to an influx in mid-February. A new batch of foreign workers is expected to arrive through June to meet the manpower needs to harvest palm fruit and produce oil.“[I]n the longer term, the ministry projects palm oil production and export to rise by 30 percent by the end of 2022, which comes against the backdrop of Malaysia having reopened its international borders,” Zuraida said in a statement.

The announcement follows the Indonesian government’s decision to halt palm oil exports, beginning on April 28, to control prices and address domestic shortages of the commodity.

“[T]his is nonetheless the best time for Malaysian palm oil players to enhance their innovation capability while exploring the best possible strategies to meet a spike in demand by palm oil importing countries,” Zuraida said.

Malaysia is the world’s second largest oil producer, trailing only Indonesia. It exported 17.2 million tons in 2021, a figure expected to increase to more than 22 million tons by the end of the year.

Tax-cut proposal

Zuraida said her ministry had proposed temporarily slashing the export tax on palm oil to 4 percent to 6 percent from the current 8 percent, Reuters news service reported.

“During these times of crisis, probably we can relax a little bit so that more palm oil can be exported,” Zuraida told the news service, adding that the request came from importing countries.

Despite the ministry’s upbeat projection, local players remained cautious because of manpower concerns.

“The reality is we can increase our production, but this still would not be enough to meet world demand, given the huge market size left by Indonesia,” said Mohd Nageeb Abdul Wahab, the chief executive officer of the Malaysian Palm Oil Association.

He said Indonesia’s ban added urgency to addressing the labor crunch.

“Unless the government expedites the process to bring in the migrant workers as soon as possible, Malaysia may not be able to fill the supply gap to meet global palm oil demand,” he told BenarNews.

Swapping rice and warplanes for palm-oil?

Zuraida noted that Indonesia’s move to ban its exports left a huge vacuum for the Indian market.

“India is currently the biggest consumer of Indonesian palm oil – importing around 13 million to 13.5 million metric tons of edible oils – of which palm oil makes up around 8 million to 8.5 million metric tons,” she said. “Almost 45 percent of the quantity was expected to come from Indonesia while the remainder is sourced from Malaysia.”

B.N. Reddy, the Indian High Commissioner to Malaysia, said his country was in talks with the Malaysian government to raise its annual imports from Malaysia by 2 million tons.

He told local media that India had proposed paying for the additional palm oil with commodities such as rice and sugar along with military technology, manufacturing and services.

India’s Hindustan Aeronautics Ltd. has sought to sell 18 Tejas fighter-jets valued at about 4 billion ringgit (U.S. $912 million) to the Royal Malaysian Air Force (RMAF) which announced plans in mid-2021 to purchase trainer/light combat aircraft.

A Ministry of Plantation Industries and Commodities spokesperson said a working committee had been established to discuss India’s proposal.

“No decision has been made yet,” the spokesperson said.

India’s proposal to acquire Malaysian commodities in exchange for military could be expected, said Mohd Nazari Ismail, a professor at the University of Malaya’s Department of Business Strategy and Policy.

“This is quite normal. We have also acquired military equipment from Russia in exchange for palm oil. Countries that want to preserve their foreign exchange reserves will normally ask for countertrade arrangements,” he told BenarNews.

“I think Malaysia should accept the offer, depending on the quality of military equipment being offered, but it is for our military experts to decide.”

While India is the biggest customer, Malaysia is receiving inquiries from Europe and China following Indonesia’s announcement.

Noah Lee in Kuala Lumpur contributed to this report.

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