Malaysia is set to outpace Indonesia in palm oil exports to India unless Jakarta can strike a deal that would help it stay competitive with Kuala Lumpur in the world’s largest edible oils market.

Malaysia exported 2.14 million tons of palm oil to India in the first half of the year, according to data from the Indian Department of Commerce.

It surpassed all of last year’s exports of 2.08 million tons to India on the back of favorable import duties, experts have said.

In comparison, Indonesia’s total palm oil exports to India from January to June stood at 2.13 million tons, just over a third of its entire 2018 export shipment of 5.92 million tons.

The Indonesian government is currently looking at other export destinations for palm oil amid tensions with the European Union over biodiesel — a crude palm oil (CPO) derivative — with Brussels threatening to impose import duties on Indonesian biodiesel products. The move is part of the EU’s earlier decision to phase out palm oil use by 2030 over deforestation concerns.

With annual consumption of palm oil hovering above 9.5 million tons, India’s massive market represents a potential alternative to Europe, if not for the existing trade barrier that favors Malaysian palm oil over its Indonesian brethren.

Under the Comprehensive Economic Cooperation Agreement that India and Malaysia signed in 2011, Kuala Lumpur has been enjoying lower tariffs compared to Indonesia and other CPO exporters.

“Both India and Indonesia are struggling because of that [duty structure],” said Dipanker Gyan, a senior commodities analyst at the New Delhi-based Agriwatch research and consultancy group, on Tuesday.

The increase in Malaysia’s exports, particularly of refined palm oil, has led India to initiate a probe into whether it hurts domestic production, Reuters reported.

Gyan said India would be open to more palm oil exports from Indonesia, so long as its pricing would not pose a risk to domestic oil production.

“Despite the lower price of [refined palm oil] imports sourced from Indonesia, the price of the taxation is much higher in India. And in that case we are incurring a higher cost of dollars also. There’s a $10 gap between refined palm oil sourced from Indonesia and refined oil sourced from Malaysia,” he said.

According to data from the Indonesian Oil Palm Association (GAPKI), Indonesia’s palm oil export volume increased slightly to 32 million tons in 2018 from 31 million tons in 2017, while palm oil exports to India fell 13 percent to 6.7 million tons in 2018 from 7.6 million tons in 2017.

Earlier this year, India slashed the import duty on refined palm oil shipments to 50 percent from 54 percent, while duties on CPO were cut to 40 percent from 44 percent.

Indonesian Ambassador to India Sidharto Reza Suryodipuro told reporters recently the tariff adjustment was still underway.

“Just the other day I met with India’s secretary of commerce [...] to request the tariff adjustment process be sped up,” he said on the sideline of the Indonesian Independence Day celebrations in New Delhi, on Saturday.

Sidharto also said the trade ministers of Indonesia and India were in talks over a possible preferential trade agreement.

GAPKI previously urged the government to find short- and long-term solutions to protect its market in India as it imports some 20 percent of Indonesia’s palm oil.

Gyan said one suggestion Indonesia could consider was to open up its market to Indian cotton and sugar, even though the latter is a commodity protected by the state.

CP Ratra, the managing director of New Delhi-based commodities importer CPR Enterprises Pvt. Ltd., also encouraged Indonesia to allow for the import of Indian sugar. He also encouraged the import of rice — another protected basic commodity.

”India is an opportunity country [...] Indonesia should sit down with the Indian government and Indian businesses, and [seize this opportunity],” he told reporters at the Delhi Gymkana Club on Monday.

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