India will replace Malaysian palm oil imports, says trade body

India, the world’s top palm oil buyer, is shunning purchases from Malaysia after the Southeast Asian nation’s prime minister criticized its policy in Kashmir, sparking the latest trade spat in the region.

Malaysian Prime Minister Mahathir Mohamad last month told the United Nations that India “invaded and occupied” Kashmir. Since then, many Indian buyers of palm oil have started shifting to Indonesian supplies amid concern that Prime Minister Narendra Modi will curb purchases of the vegetable oil from Malaysia.

“India will replace Malaysian palm oil imports by buying more from Indonesia and increasing edible oil supplies from Ukraine,” said Bipul Chatterjee, who heads the CUTS Centre for International Trade, Economics and Environment in Jaipur, India. “It’s the first time ever that India has used its heft as a trade partner to express unhappiness about a political statement.”

The spat is the latest regional diplomatic dispute to impact trade flows. South Korea and Japan’s disagreement earlier this year over the latter’s colonization of the Korean Peninsula has resulted in stricter export checks and hits to tourism, while the China-U.S. conflict over issues including intellectual property has roiled global trade flows and financial markets.

Means of Power

“China and the U.S. often use trade ties as a means of power,” Chatterjee said. “It seems India has also entered the game where trade is not just trade, it is also a weapon.”

Any action by India to stop palm oil purchases from Malaysia will hit at the heart of the Southeast Asian country’s industry. Palm is Malaysia’s biggest agricultural export, while India is its top buyer. India purchased about 3.9 million tons of palm oil between January and September, worth about $2 billion. That’s more than double last year’s shipments after New Delhi cut import duties on the commodity in January 2019.

Mahathir’s comments on Kashmir have sparked anger among India’s citizens too, with the #BoycottMalaysia hashtag trending on Twitter, and netizens calling on people not to travel to Malaysia and avoid trade with the nation.

“This is a reaction from traders so we cannot react to their personal decision,” Mahathir told reporters in Kuala Lumpur on Wednesday, referring to Indian buyers avoiding Malaysian palm oil. “If the government launched a boycott or something like that, then we will have to work diplomatically perhaps to reduce the kind of action that they have taken.”

Malaysia will seek a diplomatic solution if India restricts imports of some products from the Southeast Asian nation, Mahathir added. The Indian foreign ministry didn’t immediately respond to messages seeking comment.