Malaysia lockdown could spell disaster for key palm oil industry

A worker collecting oil palm fruit at a plantation in Bahau, Malaysia, on Jan 30, 2019. PHOTO: REUTERS

KUALA LUMPUR (BLOOMBERG) - Malaysia's decision to restrict movement nationwide in an effort to stop the spread of the coronavirus is raising fears it could imperil the country's vital palm oil industry.

Prime Minister Muhyiddin Yassin said late on Monday (March 16) that the country will be limiting non-essential businesses operations as well as banning all visitors from entering the country and residents from travelling overseas from March 18 for two weeks.

There is a lack of clarity on the sectors and parts of the supply chain this new directive will cover, and palm oil growers are worried that it will hamper harvesting as well as mill and refinery operations.

"Closing operations for two weeks will have dire consequences on the industry and the livelihoods of our 650,000 smallholders," said Mr Nageeb Wahab, chief executive of the Malaysian Palm Oil Association.

Malaysia is the second-largest producer of palm oil, the world's most-used edible oil that can be found in everything from shampoos to chocolate.

Not only could restrictions to the sector disrupt orders and deliveries, it could also potentially damage a key part of Malaysia's economy as buyers choose to switch to other suppliers, including rival Indonesia.

An industry shutdown will interrupt harvesting, leading to overripe fruits that'll affect oil quality, Mr Nageeb said.

If that happens, it may take about two months for the situation to return to normalcy, he said on Tuesday. The palm oil association is seeking permission to allow the industry to operate as usual.

Industry regulator the Malaysian Palm Oil Board is waiting for clarity from the National Security Council on how to manage the industry, according to director-general Ahmad Parveez Ghulam Kadir.

Meanwhile, FGV Holdings, one of the world's top palm oil producers, said it will abide by all government regulations pertaining to the Covid-19 outbreak at all its operations and supply chain.

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