Govt may cut palm oil export tax by half amid global supply crisis

 

The government has proposed cutting the export tax on palm oil by as much as half to help fill a global edible oil shortage and grow the market share of the world's second-largest palm oil producer.

Plantation Industries and Commodities Minister Zuraida Kamaruddin said in an interview with Reuters today her ministry has proposed the cut to the Finance Ministry, which has set up a committee to look into the details.

Malaysia could cut the tax, likely a temporary measure, to 4 percent-6 percent from the current 8 percent, Zuraida said.

A decision could be made as early as June, she added.

The country is looking to boost its share of the edible oil market after Russia's invasion of Ukraine disrupted sunflower oil shipments and Indonesia's move to ban palm oil exports further tightened global supplies.

"During these times of crisis, probably we can relax a little bit so that more palm oil can be exported," Zuraida said.

‘Food for the world first’

The proposal also asked the Finance Ministry to expedite the tax cut for state-linked palm oil producer FGV Holdings - Malaysia's largest - and companies with overseas oleochemical production, she added.

The government will as well slow the implementation of its B30 biodiesel mandate, which requires a portion of the nation's biodiesel to be mixed with 30 percent of palm oil, to prioritise supply to global and domestic food industries, she said.

"We have to prioritise giving food to the world first," Zuraida said.

Zuraida Kamaruddin

Palm oil - used in everything from cakes to detergent - accounts for nearly 60 percent of global vegetable oil shipments and the absence of top producer Indonesia has roiled the market.

The benchmark palm oil contract fell as much as 2.3 percent in the morning session today, paring some losses after the Reuters report on a possible cut to the export tax.

Zuraida told Reuters importing countries have asked Malaysia to reduce its export taxes.

"They feel it is too high because of the high costs across the supply chain, because of the price of edible oil," she said.

Crude palm oil futures have surged about 35 percent so far this year to all-time highs, further worsening global food inflation.

The Food and Agriculture Organization has warned that food prices, which hit a record high in March, could rise by up to 20 percent as a result of the Russia-Ukraine war, raising the risk of increased malnutrition.

Zuraida said buyers India, Iran and Bangladesh are proposing to barter agriculture products like rice, wheat, fruits and potatoes for Malaysian palm oil.

US import bans

The country’s production has been strained for more than two years due to a severe labour crunch following coronavirus border curbs that halted the entry of migrant workers.

With travel curbs now being eased, foreign workers will start arriving in mid-May, Zuraida told Reuters ahead of her visit to the United States later this week.

The US Customs and Border Protection has imposed import bans on two Malaysian palm oil producers - FGV and Sime Darby Plantation - over allegations that they use forced labour in the production process.

Both companies have commissioned independent audits to look into the allegations and have said they will work with US authorities.

Zuraida said that during her visit she will request US Customs to detail their findings of alleged labour abuses and give Malaysian firms time to fix the issue before imposing sanctions.

"We are not discounting the possibility of this happening, but you should give us time to rectify it," she added.

- Reuters