But... Brits are limeys, and Germans are krauts, because they eat limes and saurkraut respectively. Many cultures and peoples are nicknamed by the foods they eat, so it just seems odd when calling someone a limey isn't bad, but calling them a watermelon is.

Like, I get the "coconut"/"Oreo" reference being insulting, because while it's a food label, it's specifically mocking the fact they're "only their color on the outside, but white inside", denying their racial identity, there's a thread of logic to taking offense there, but for the ones that are just "they eat these foods", well, I'm sure all the kiwis in NZ would be outraged to hear us note their favorite fruit.