INDONESIAN PALM OIL EXPORT DUTY - THE EFFECTS ON DOWNSTREAM INDUSTRIES
Irfan Sungkar & Wiko Saputra
PT. Pavillion Capital
According to the plan of the Ministry of Agriculture of Indonesia of reducing the area under palm oil so as to have a stable price, export tax policy is an effective policy. An increase in the export tax would be of importance as it will lead to voluntary reduction in production area under palm oil as it would result into reduction of export to other countries. In this scenario, with implementation of progressive export tax policy on CPO, the export volume will reduce, hence increasing the quantity of CPO available for Indonesian domestic market.
The domestic consumers of CPO and cooking oil will be the greatest beneficiaries. The cost of cooking oil will be expected to reduce as a result of the reduction in CPO price since it is the main source of raw materials for the cooking oil industry in Indonesia. However, oligopolistic nature of cooking oil industry may distort price so consumers may not gain as much as possible.
The main losers with the implementation of the progressive export tax on CPO will be local CPO plantations and mills. Thgis is the main reason why GAPKI (Gabungan Pengusaha Kelapa Sawit Indonesia) increasingly vocal against this policy. Total area declined, total output reduced, limiting export growth. This effect of the export tax is great on the producers than on traders because the exporters always shift the tax bundle to the producers hence offering reduced prices for their products.
With this export tax policy, the government can successful to keep the cooking oil price down when the world CPO price increased or when rupiah was substantially depreciated. The impact of export tax led to depression of production resulting to reduced quantity produced. Producers, mainly smallholders, have suffered a great deal due to the policy. As the domestic price of CPO is depressed by this policy, the farm gate price of the farmers’ product (fresh fruit bunch or FFB), declines substantially.
By Presentation
POINTERS PRICE TRENDS MALAYSIA PALM OIL COUNCIL (MPOC)
8-14 August 2011
Kuala Lumpur Malaysia
see http://www.pointers.org.my
