Policy Update
Asmeet Kaur
Often referred to as the liquid gold of Southeast Asia, palm oil has blossomed into one of the most important commodities globally driving the economic and diplomatic relationships between India and Malaysia. Palm oil is more than just a cooking oil: it is a marker of global interdependence, of food security and environmental stewardship. There has been, for decades, a complex relationship based on India’s growing demand for edible oil as Malaysia became an important supplier.
The economic framework incorporating this relationship developed over years, and has created a nuanced framework of trade, policies, multinational agreements, and sustainability considerations that transcended economics. Today, India and Malaysia’s relationship itself is at a crossroads, one where commerce meets climate, and diplomacy meets green development.
Background
From its early post-colonial decades, the relationship between India and Malaysia regarding palm oil trade began when India started to liberalize its edible oil imports. As domestic oilseed production fell short of demand, India looked to the global market, specifically Malaysia, which by the 1980s had established itself as a major producer and exporter of palm oil alongside Indonesia.
For Malaysia, palm oil became a national success story—a product that transformed its agricultural economy, expanded employment in rural areas, and diversified the country’s export base. For India, palm oil became a cheap, viable alternative to traditional oils like groundnut or mustard oil in satisfying the desires of a growing and rapidly urbanizing population. Over time, palm oil became both a traded commodity and a platform for bilateral cooperation that interconnected farmers, refiners, policy-makers and environmentalists across borders.
Diplomatically, palm oil trade became an anchor for India-Malaysia relations. Even during times of political tensions or policy differences, both countries saw the benefits of maintaining stable trading relations. Palm oil’s role in supporting food security for India and economic stability for Malaysia enhanced its significance to a position within “palm oil diplomacy.”
Functioning: Trade, Diplomacy, and Institutional Mechanisms
The palm oil relationship between India and Malaysia happens in three primary dimensions, namely trade flows, institutional cooperation, and sustainability diplomacy.
- Trade Flows and Economic Ties
India is the world’s largest importer of vegetable oils, and palm oil is a major component of its imports. Malaysia is one of the top two exporting countries in the world for palm oil. The trade flows consist primarily of large volumes of Malaysian crude palm oil (CPO), and refined palm oil products, shipped to India through large trading houses, refineries, and distribution outlets. Pricing, tariffs, and logistics are the main determinants of trade flows. The Malaysian Palm Oil Council (MPOC) and the Solvent Extractors’ Association of India (SEA) serve as institutional interlocutors to create stability and facilitate market intelligence in relation to trade flows.
- Technological and Diplomatic Collaboration:
Malaysia has been a long-time frontrunner in palm oil cultivation technology. Under the National Mission on Edible Oils – Oil Palm (NMEO-OP), started in 2021, Malaysia’s research institutions and seed companies have supplied high-quality planting material and agronomic knowledge to several Indian states, especially neighbouring Andhra Pradesh, Mizoram, and Kerala. This “seed diplomacy” is strengthening bilateral relationships but also is aligned with India’s broader strategy of wanting to reduce its reliance on imports and enhance rural livelihoods.
- Sustainability and Green Governance:
The global movement towards sustainable palm oil has also given new dimensions to sustainability to the India–Malaysia partnership. Malaysia’s national certification and its commitment to sustainability, explored within the Roundtable on Sustainable Palm Oil (RSPO), are being linked to Indian procurement and consumer awareness. The two countries have now started discussions about traceability, certification, and reducing carbon footprints, which has evolved their palm oil diplomacy to green diplomacy.
Performance
The recent years have been both tumultuous and momentous for the India–Malaysia palm oil relationship. A series of shocks – ranging from COVID-19 to the Ukraine war – reordered global edible oil supply chains, and both countries adjusted to the new normal.
- Trade Flows and Market Developments:
From 2022 to 2024, adjustments to India’s edible oil imports fluctuated based on price movements and changing government tariffs (e.g., it introduced tariffs on sunflower oil imports from the Black Sea, which increased imports at one point). Sunflower oil imports from Black Sea countries temporarily surged; however, palm oil volumes rebounded, as it was the cheapest option among the three major cooking oils (palm oil, sunflower oil, and soya bean) with a stable supply. Malaysia assumed the role of India’s major palm oil supplier in 2023, especially as Indonesia imposed temporary restrictions on palm oil export permits during the domestic price crisis following the Ukraine war.
- Resilience of Malaysia’s Exports to India:
Aside from its ongoing competition with Indonesia, Malaysia provides consistent export performance to India on the volume of palm oil supplied, demonstrated by its substantial trade profile with India and through its reputation for consistency in quality of palm oil and faster logistical performance to markets. By 2023, nearly 20% of Malaysia’s total agricultural commodity palm oil export volumes were attributed to India’s imports, retaining India as a primary strategic buyer of Malaysia’s palm oil exports.
- Technological and Research Cooperation:
Malaysia shipped high-yield oil-palm seeds to India to support the domestic cultivation initiative under NMEO-OP, marking a new phase of cooperation. Therefore, we moved from the basic reliance on trade, towards a broader technology relationship emphasizing long-term sustainability.
- Tariff and Policy Changes:
India’s frequent flips in import duties to balance inflation and protect domestic farmers caused short-term volatility in the market, but flexible tariff-rate quotas enabled considerable volumes to come from Malaysia. Additionally, the effectuated trade-facilitation agreements* which would further stabilize the relationship.
To sum up, while there are minor policy bumps along the way, we have observed significant resilience, flexibility, and more of a long-term, science-based sustainability and cooperation in palm oil diplomacy in the last three years.
Impact
The Indian market continues to be a significant contributor to Malaysia’s plantation economy assuring a consistent source of export revenue and rural incomes from thousands of smallholder farmers throughout Malaysia. For India, palm oil imports are an important component of combating food inflation and keeping consumer prices stable, providing some level of stability to many industries including, but not limited to, snacking, baking and personal care. The value chain, moving from Malaysian plantations to Indian supermarkets, demonstrates the mutually beneficial relationship for each player in the value chain, based on comparative advantage.
Palm oil diplomacy is becoming part of the emerging global climate discussion in new and innovative ways. Malaysia has demonstrated international and national leadership by launching the Malaysian Sustainable Palm Oil (MSPO) certification scheme which aims to curb deforestation, reduce greenhouse gas emissions, and protect biodiversity. Gradually, companies and consumers in India are beginning to understand the opportunities that certified sustainable palm oil (CSPO) can provide options for more favourable environmental changes in production practices.
- Strategic and Diplomatic Impact:
Following its economic impact, the palm oil industry has emerged as a soft-power platform for India-Malaysia relations alongside collaborative initiatives in the fields of education, tourism, and technology. It has also served as a stabilizing partner in moments of transition. Clearly the mutual recognition of green standards is broadly situated in the principles of global standards, represented by frameworks articulated through the United Nations (UN) Sustainable Development Goals (SDGs), and the Paris Climate Accord.
Emerging Issues
Despite advancements, there are a number of emerging issues affecting the sustainability and stability of palm oil diplomacy:
- Price Volatility: Frequent price volatility caused by weather events, export controls, and energy policies (especially Indonesia’s biodiesel program) affects both affordability and supply certainty for India.
- Sustainability and Compliance: Although Malaysia has made advances in the certification programs it has developed, smallholders incur compliance costs that remain excessive. Ensuring producers meet globally accepted sustainability standards is a persisting challenge.
- Domestic Political and Policy Uncertainty: India’s edible-oil policy often fluctuates between import liberalization and protectionism, and this kind of volatility can inhibit long-term contracts and market confidence.
- Socio-Environmental Risks :The growth of oil-palm cultivation—either in Malaysia or India—brings to the fore questions about deforestation and biodiversity, as well as labour exploitation. These questions need to be seriously considered if palm oil diplomacy is going to successfully maintain green credibly.
- Competition from Alternative Oils : As India diversifies its edible-oil basket, soybean oil and sunflower oil periodically displace palm oil from imports. In this circumstance, it is an ongoing struggle to maintain competitiveness without compromising sustainability.
Way Forward
The future of India Malaysia palm oil diplomacy will need to balance trade practices and sustainability. There are a variety of strategic actions that both nations can take together.
- Bilateral “Green Palm Oil Agreement”: To facilitate biodiversity trade in certified sustainable palm oil for a long-term arrangement, both nations agree to establish shared standards, traceability, and incentives for sustainable clean palm oil.
- Promoting Producers and Smallholders: Malaysia’s role will be to provide India financing to train smallholders, credential them, and establish digital monitoring frameworks. Each nation can co-invest in the sustainability compliance of smallholders and producers to ensure that they are included and benefit from their business development.
- Policies for Tariffs that are Liquid and Predictable: India should look for greater consistency in public policy on edible-oil tariffs and import duties. Liquid and predictable frameworks and policies will give Malaysian exporters the incentive to invest in longer-term contracts and infrastructure development.
- Research and Development Partnership: The two nations can create a Centre for Sustainable Palm Innovation. The focus on research will be around education, yield, waste, and looking at green technologies. All R&D will underscore that sustainable palm oil can be through collective influence and motivation for India to develop its own oil palm sector.
- Green Finance and Carbon Credits: Malaysia and India may pursue carbon trading frameworks linked to sustainable palm oil. Generating financial incentives for verified low-carbon frameworks will result in the attraction of international investors while pivoting ESG (Environmental, Social, and Governance) mandates and standards.
- Consumer Awareness and Market Education: creating awareness within India about sustainable palm oil can increase responsible consumerism. Retailers and food brands can be motivated to label sustainably sourced palm oil products in an effort to incentivize market demand for ethical sourcing behaviour.
- Regional Cooperation under ASEAN–India Framework: Through existing ASEAN–India dialogue platforms, Malaysia and India can work together to have a joint approach to regional sustainability standards, conservation of biodiversity, and climate resilient agriculture.
Conclusion
The palm oil diplomacy that has emerged between India and Malaysia is more than a trade; it is a reflection of how countries can align economic interests with ecological principles. Over the past couple of years, both countries have experienced fluctuations in the market, pursued diversification of cooperation through a technology and seed exchange, and taken steps toward green certification and environmental accountability.
As the world turns to sustainable consumption, India and Malaysia can redefine their relationship as ‘green trade diplomacy’. Sustainably sourced palm oil to trade will leave economic footprints that contribute to smallholders’ livelihoods, while also encompassing an ethos of shared prosperity and planetary well-being.
Ultimately, palm oil diplomacy is an assertion that trade can continue to exist outside of a transactional space; trade can be the cord that connects us to a healthier, more equitable future.
References
- Business Standard. (2025, March 7). MPOC and OTAI forge strategic collaboration to promote Malaysian palm oil in India. https://www.business-standard.com/content/press-releases-ani/mpoc-and-otai-forge-strategic-collaboration-to-promote-malaysian-palm-oil-in-india-125030700955_1.html
- Hanafiah, K. M., & others. (2021). Impact of Malaysian palm oil on sustainable development: A review. PMC. https://pmc.ncbi.nlm.nih.gov/articles/PMC8517301/
- IDH Sustainable Trade (in collaboration with KPMG). (2021). India and palm oil [PDF]. https://www.idhsustainabletrade.com/uploaded/2021/11/Palm-Oil-KPMG-10.6.pdf
- Malaysian Palm Oil Council. (n.d.). Fluctuating fortunes of palm oil in India. https://www.mpoc.org.my/fluctuating-fortunes-of-palm-oil-in-india/
- Malaysian Palm Oil Council. (n.d.). India’s purchases of Malaysian palm oil surge in July. https://www.mpoc.org.my/indias-purchases-of-malaysian-palm-oil-surge-in-july/
- Malaysian Palm Oil Council. (2025, May). MPOB expects palm oil exports to recover in second half of 2025. https://www.mpoc.org.my/mpob-expects-palm-oil-exports-to-recover-in-second-half-of-2025/
- Roundtable on Sustainable Palm Oil (RSPO). (2024). RSPO Impact Report 2024. https://rspo.org/wp-content/uploads/RSPO_ImpactReport_2024.pdf
About the Author
Asmeet Kaur is a researcher at IMPRI and an undergraduate student at Indraprastha College for Women, Delhi University, with a keen interest in Public policy and administration.
Acknowledgement: The author extends her sincere gratitude to the IMPRI team and Ms. Aasthaba Jadeja for her invaluable guidance throughout the process.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
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