Malaysia and Indonesia, the world's top producers of palm oil, will cooperate to set prices for the edible oil as part of a wide-ranging pact on commodities, reports said today.

The memorandum, signed by both countries on Thursday, will keep crude palm oil prices from being dictated by traders in non-producing nations such as Singapore and Europe, reported the New Straits Times .

"It is time we, the producing countries, determine the prices of palm oil and not allow prices to be dictated by another party," Indonesia's Agriculture Minister Anton Apriyantono was quoted as saying on signing the pact.

"The two countries will coordinate on a supply and demand management scheme and ensure there will be no palm oil shortage anywhere in the world," Malaysia's plantation and commodities minister Peter Chin reportedly said.

The pact will see both nations working to lobby countries such as India, which imposes high import duties on crude palm oil compared to soybean oil, it said. It could also keep Indonesia from undercutting Malaysia in pricing.

Not a cartel

However, Chin denied the partnership was a cartel to set prices, according to the state Bernama news agency.

The deal, which also includes pepper and cocoa, will develop the countries' commodities sector and see cooperation in their supply and demand, Malaysia's Plantation Industries and Commodities ministry said in a statement today.

Chin said the countries would create a joint committee to thrash out strategies under the pact, which also includes joint ventures and scientific cooperation.

Malaysia and Indonesia produce about 80 percent of the world's supply of crude palm oil.

Indonesia is expected to produce 15.2 million tonnes in 2006, marginally outstripping Malaysia's expected 15.1 million tonnes.

Malaysian companies, which are running short of plantation land, are venturing into Indonesia, with more than 20 companies currently involved in oil palm planting there.