India has decided to ban crude palm oil (CPO) import from Malaysia following the latter's harsh criticism on India's citizenship law that discriminates Muslims, paving the way for Indonesia's CPO business to grab India's CPO market share.

Despite the impact of India's boycott on Malaysia's CPO industry, Malaysian Primer Minister Mahatir Muhammad will not soften his stance on India's controversial law that targets Muslims. Previously, the outspoken veteran leader dubbed India as an aggressor on the Kashmir dispute with neighbouring Pakistan.

New Delhi has yet to make an official statement regarding the CPO ban. While Malaysia's Minister of Industry Teresa Kok once refused to comment before denying reports that India has called to stop CPO import from Malaysia. "What boycott? They just want us (Malaysia) to export more crude palm oil and reduce the export of refined palm oil," Kok said as Bernama and The Edge Markets quoted.

How severe is India's boycott on Malaysia's CPO sector?

Oil palm
Reuters

According to Reuters citing data from Refinitiv Eikon, Malaysia exported around 3.9 million tons of CPO to India in 2019, 2.04 million of which is palmolein, which is used for cooking. India's CPO industry players warned that CPO purchase could drop below 1 million tons if the India-Malaysia ties have yet to improve.

CPO is Malaysia's agricultural biggest export, accounting for 4.5 percent of the country's total exports. In 2019, Malaysia beat Indonesia as India's largest CPO supplier.

Indonesia vs Malaysia on CPO Export to India

Both Indonesia and Malaysia have competed to be the biggest CPO exporter in India since 2016. According to Katadata, Indonesia's CPO export to the South Asian country dropped from February 2019 to April 2019.

After Malaysia's critics on Kashmir and the citizenship law, Malaysia's CPO export to India dropped significantly, as CNBCIndonesia wrote. In October, the CPO export to India reached below 200.000 tons, the lowest since January 2019.

Boycott on Malaysia's CPO is a blessing for Indonesia?

Both Indonesia and Malaysia contribute 80 percent of the world's total CPO exports. Despite the European Union (E.U) negative sentiment on Indonesia's CPO related to forest loss, Indonesia can still benefit from India's import ban on Malaysia's CPO.

Indonesia's export tended to rise to India, as Refinitiv Eikon data showed. Also, India's 1.3 billion population means an increase in the need for plant-based oils. Based on the calculation, India imports nine million tons of CPO ,mostly from Indonesia and Malaysia.

Refinitiv research showed that Indonesia produced 46.3 million tons of CPO for the period of 2018/2019, followed by Malaysia(20.9 million tons) and Thailand (3.1 million tons). In 2018, Indonesia's CPO export to India reached$ 3.6 billion.