Malaysia to double palm oil exports to China in effort to dodge EU restrictions

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Malaysia has said it will double palm oil exports to China to half a million tonnes annually as the south-east Asian nation moves against European restrictions on a commodity used in everything from cookies to cosmetics.

The plan was made public on September 17 at the 20th China-Asean Expo in the southern Chinese city of Nanning, where representatives of the countries signed investment deals worth 19.8bn ringgits ($4.2bn) to develop warehousing, logistics and waste-to-energy power plants in Malaysia.

Among the deals is a 2.5bn-ringgit memorandum of understanding between Malaysia’s state-owned Sime Darby Oils International and Guangxi Beibu Gulf International Port Group, which will build a trading and distribution centre for refined palm oil in the Chinese city of Qinzhou. The facility will have an annual transaction volume of 500,000 tonnes to meet growing demand across the country.

China is among the top importers of palm oil from Malaysia — the world’s second-biggest producer — alongside India, Turkey, Kenya and Japan.

Since 2009 China has been Malaysia’s top trading partner. Last year the south-east Asian nation’s exports to China grew 9.4 per cent to 210.6bn ringgits.

The two have built joint industrial parks in both countries to boost ties. China has moved to increase trade with south-east Asia in the face of soaring tensions with the US and other developed economies.

“Malaysia is confident that our trade and economic relations with China will only grow stronger through various strategic initiatives,” Malaysian prime minister Anwar Ibrahim said at the expo.

Anwar was quoted by Malaysian state news agency Bernama as saying his country would double palm oil exports to China from the current 250,000 tonnes annually.

The palm oil deal will help protect the sector, including small farmers, Anwar added, as Malaysia and top producer Indonesia fight stricter European Union regulations.

In May the neighbours sent a joint mission to Brussels to express their opposition to deforestation regulations adopted last year. The rules bar companies from selling or exporting certain commodities within the European bloc — including palm oil, soy, coffee, cacao and rubber — that were grown on land deforested after 2020.

The palm oil sector has been widely criticised by environmentalists who say vast plantations aggravate deforestation and threaten wildlife habitats.

Florika Fink-Hooijer, the European Commission’s director-general for the environment, told Nikkei Asia in June that the EU established a joint task force with Malaysia and Indonesia to address concerns over the new regulations and is expected to meet in Kuala Lumpur in December.

In the first half of the year, profits at Malaysian palm oil companies took a hit, with plantation earnings at state-owned FGV Holdings plunging 97 per cent to 13.8mn ringgits.

Domestic production from January to June fell 2.3 per cent to 8.1mn tonnes, according to data from the Malaysian Palm Oil Board.

A version of this article was first published by Nikkei Asia on September 18. ©2023 Nikkei Inc. All rights reserved.

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