News Analysis: Indonesia's palm oil zero-tariff export policy eases export, stockpile

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by Nurul Fitri Ramadhani

JAKARTA, Aug. 29 (Xinhua) — After months of high domestic cooking oil prices, Indonesia has finally seen the prices dropping. The Indonesian government on Monday decided to extend its zero-levy policy for palm oil exports until October 31, but more needs to be done to reduce crude palm oil (CPO) export barriers and bring benefits to the fresh fruit bunches (FFB) farmers.

As of Aug. 26, Indonesia’s Ministry of Trade’s Market and Basic Needs Monitoring System recorded that the government’s retail price ceiling (HET) was at 17,700 rupiahs (about 1.19 U.S. dollars) per liter for simple packaged cooking oil.

The prices have gone down quite a lot compared to the prices in April and May which reached 28,500 rupiahs (about 1.92 dollars) per liter.

Indonesia, the world’s top CPO producer and exporter, struggled with a cooking oil price crisis since earlier this year. Former Trade Minister Muhammad Lutfi said the factors included supply shortage, insufficient distribution of subsidized cooking oil to the poor, and international factors such as the conflict between Russia and Ukraine.

The Indonesian government finally could reduce domestic cooking oil prices since early August after implementing policy interventions, such as totally banning the exports of palm oil products, imposing a domestic market obligation (DMO) scheme for CPO, and launching subsidized bulk cooking oil.

EXPORT BAN CAUSING EXPORT DISRUPTION

The government’s decision in April to impose the CPO export ban as an attempt to stabilize the domestic supply of cooking oil, in fact, had made the country’s FFB stocks become excessive up to 7 million tons, according to the Indonesian Palm Oil Association (GAPKI). This happened because 70 percent of the country’s palm oil production usually went to the export market.

For Indonesia, palm oil is the top export commodity, followed by coal. Data from the country’s Central Agency of Statistics has shown that palm oil export contributes to more than 10 percent of the country’s annual export revenues. Last year, Indonesia exported no less than 28.5 billion U.S. dollars worth of palm oil.

The export ban and stockpiles thus caused falling prices of FFB to 1,200 rupiahs (0.081 dollars) per kilogram. Normally, farmers could sell the FFB at above 2,500 rupiahs (0.17 dollars) per kilogram. Yet, the ban still failed to reduce cooking oil prices.

The government then revoked the export ban in May and imposed the DMO policy in June. The DMO obliges palm oil producers to sell 30 percent of their total production to the local market at a government-set price to be able to secure permits for exports.

Executive Director for the Palm Oil Agribusiness Strategic Institute Tungkot Sipayung said that the DMO policy had disturbed palm oil export. “It has caused our exports to drop. We may not enjoy the increase of palm oil prices on the global market,” Sipayung said.

Indonesia’s CPO exports plunged in May to only 678,000 tons. The number was significantly down by 68 percent from 2 million tons in April, according to the BPS.

After the ban was lifted in May, the CPO exports significantly jumped to 1.7 million tons in June, but Sipayung said that would not be enough to touch the optimum annual export volume, which usually reached 35 million tons.

Minister Lutfi was removed from office in a June cabinet reshuffle. Then, in an attempt to boost CPO exports and reduce oversupply in FFB stocks, new Trade Minister Zulkifli Hasan waived the export tarrif for CPO to zero from 200 dollars per ton.

The policy, previously set from mid-July to the end of August, has just been extended until October, the Coordinating Ministry for Economic Affairs said on Monday.

DMO REVOCATION DEMANDED TO BOOST EXPORT

GAPKI Secretary-General Eddy Martono said that the zero levy had slowly helped raise the FFB prices to 2,000 rupiahs (0.13 dollars) per kilogram and empty the excessive CPO stocks to 6 million tons.

“The policy does not quickly raise the FFB prices. It works very slowly, but at least it is progressing. The zero export-levy is worth an extension until our CPO stock returns to normal at 4 million tons,” Martono said.

Gulat Manurung, chairman of the Indonesian Oil Palm Farmers Association, said it would take more time to return to the normal prices of FFB. “It is good that the government has extended the zero export-levy again, at least until the FFB prices reach a minimum of 3,000 rupiahs (0.20 dollars) per kilogram,” Manurung said.

Eugenia Mardanugraha, an economic researcher from the Institute for Economic and Social Research of the University of Indonesia, said that in a bid to boost CPO exports and accelerate the rising of the FFB prices, there was no other way except for revoking the DMO policy.

“The only way to raise the FFB prices is by increasing the exports of CPO and its derivative products. The faster we increase exports, the faster the FFB prices can climb. And for that to happen, we must revoke the DMO, because this regulation really burdens CPO producers. Not many of them can achieve the 30 percent mandatory local market contribution,” she said.

Trade Minister Zulkifli Hasan said several weeks ago that the government would consider revoking DMO following demands from CPO producers and FFB farmers, but until now, there has been no change with the policy.

Instead, the minister recently said that the government targeted to raise the export volume to 4 million tons in August by relying on the zero export-levy policy. Enditem