The government has announced that crude palm oil (CPO) will now be used to pay part of the purchase price for foreign weapons, a move hailed by plantation owners Wednesday.

Defense Minister Najib Razak said Tuesday that countries intending to supply arms to Malaysia, the world's biggest palm oil producer, must now accept oil in part payment as the government tries to help farmers boost exports and maintain prices.

"In short, they must buy our palm oil if any arms deal is to be successfully negotiated," Najib was quoted by the New Straits Times daily as saying.

He said the percentage of palm oil purchase would vary with each agreement.

"This concept will work very well and the sale of palm oil is constantly assured. It also checks the outflow of Malaysian currency and the inflow of foreign exchange," Najib said.

Edge over rivals

M R Chandran, president of the Malaysian Palm Oil Association, said the move would give the industry a much needed edge over rival CPO producer, Indonesia.

"This is something we have been advocating both in terms of increasing bilateral trade a well as to capture new markets for our palm oil.

"We cannot depend on traditional markets anymore, which are also being tapped by our major competitor, Indonesia," he told AFP .

Chandran said many of the countries supplying arms to Malaysia were not major consumers of palm oil.

"Our main CPO buyers such as India, Pakistan, China and the European Union, which account for 70 percent of total exports, are also major markets for Indonesia, so with this new agreement, we can tap into markets that are beyond our competitor," he said.

Chandran said the new agreement would help maintain total export volumes at between 900,000 to one million tonnes of CPO a month.

Primary Industries Minister Lim Keng Yaik and Indonesian Industry and Trade Minister Rini Suwandi on Tuesday signed a document to form a consultative group to boost CPO exports through the exchange of input and advice by private companies in efforts to overcome various trade obstacles.

Lim had said that the country was facing difficulties in defending its position as the world's largest palm oil producer due to a drop in plantation land and problems of obtaining workers. AFP