Exclusive: Malaysia May Halve Palm Oil Export Tax Amid Global Supply Crisis, Reuters Reports

By Mei Mei Chu and A. Ananthalakshmi

KUALA LUMPUR – Malaysia’s commodities ministry has proposed a significant reduction in the export tax on palm oil, aiming to cut it by as much as half to alleviate a global edible oil shortage and enhance the market share of the world’s second-largest palm oil producer.

Plantation Industries and Commodities Minister Zuraida Kamaruddin shared in an interview that her ministry has put forward the proposal to the finance ministry, which has established a committee to examine the details. The potential tax reduction could bring the rate down to between 4% and 6%, from the current 8%, as Zuraida noted.

A decision regarding this proposal may be made as soon as June. Malaysia is endeavoring to increase its share of the edible oil market following the disruption of sunflower oil shipments caused by Russia’s invasion of Ukraine and Indonesia’s palm oil export ban, which has intensified global supply issues.

"During these challenging times, we may consider relaxing restrictions to facilitate more palm oil exports," Zuraida remarked. The proposal also seeks expedited tax reductions for FGV Holdings, Malaysia’s largest palm oil producer, and companies engaged in overseas oleochemical production.

Additionally, Malaysia plans to slow the implementation of its B30 biodiesel mandate, which requires a mixture of 30% palm oil in the nation’s biodiesel, to prioritize supply for global and domestic food industries. "We must prioritize providing food to the world first," Zuraida emphasized.

Palm oil, which is integral to various products from baked goods to detergents, constitutes nearly 60% of global vegetable oil shipments. The absence of top producer Indonesia has significantly impacted the market, leading to a notable decline in palm oil contract prices.

Zuraida mentioned that importing countries have expressed concerns about Malaysia’s export tax rates. "They believe the rates are too high due to elevated costs throughout the supply chain, impacted by edible oil prices," she explained. Crude palm oil futures have surged approximately 35% this year, contributing to escalating global food inflation.

The Food and Agriculture Organization has warned that food prices, which peaked in March, could climb by as much as 20% due to the ongoing Russia-Ukraine conflict, increasing the risk of malnutrition.

Countries such as India, Iran, and Bangladesh have proposed bartering agricultural products, including rice and wheat, in exchange for Malaysian palm oil. Meanwhile, Malaysia’s production has been under pressure for over two years due to a significant labor shortage following COVID-19 border restrictions.

As travel restrictions are being lifted, foreign workers are expected to start arriving in mid-May, according to Zuraida. However, the U.S. Customs and Border Protection has imposed import bans on two Malaysian palm oil producers due to allegations of forced labor in their production processes. Both companies are conducting independent audits to address these claims and are cooperating with U.S. authorities.

Zuraida plans to request details on the alleged labor abuses during her upcoming visit to the United States and seeks additional time for Malaysian firms to resolve these issues before any sanctions are enforced. "While we recognize this possibility, we ask for time to rectify the concern," she stated.