Erratic Policies Exacerbate Uncertainties in Palm Oil Industry

Erratic Policies Exacerbate Uncertainties in Palm Oil Industry

Palm Oil Magazine Edi Suhardi Sustainable Palm Oil Analyst

Palmoilmagazine - JAKARTA, The pronouncement by the Coordinating Minister for Maritime and Investment Affairs early last week that audits of all palm oil companies in Indonesia are to be undertaken confirms that the government thus far has not owned a complete database on the upstream and downstream palm oil industry.


The announcement comes on the back of a series of marketing intervention measures introduced between January and this month to stabilize the retail price of cooking oil   after the prices of palm oil skyrocketed due to the massive disruption in the global supply of edible oils due to the combination of poor harvests and the Russian invasion of Ukraine.


The market intervention policies ranging from the fixing of retail price ceiling, the imposition of domestic market obligation (DMO) and domestic price obligation (DPO) between January and March and the total export ban in late April failed to stabilize the cooking oil price at the fixed price ceiling of Rp 14,000 (US$1) per liter.


That seemed bizarre because the government used to flaunt Indonesia as the world’s largest palm oil producer, supplying one third of the global edible oils. Last year the industry contributed more than $35 billion in export earnings.


Latest Gapki reports show Indonesia’s production totaled 47 million tons last year, of which only about 18 million tons were used domestically for food such as cooking oil and industrial products such as oleochemicals and biodiesel. The cooking oil industry’s capacity was estimated at 16.5 million tons while the domestic need for household and industrial consumption was only about 7 million tons.      


The statement of the intention to conduct audits of all palm oil companies has added to the confusion surrounding the way President Jokowi has been addressing the skyrocketing price of palm oil.


The order for the overall audit of the industry validated the public’s suspicion that all relevant ministries and authorities have not properly performed their duties in sync with the President’s instruction. The ministries also seemed to work in silos, unwilling to exchange the data they collected in performing their respective duties as regards the various aspects of the industry.


There is simply no coordination between the central government and regional administrations. Hundreds of regents in Sumatra, Kalimantan, Papua and Sulawesi are authorized to issue oil palm plantation business licenses while the National Land Agency is in charge of issuing land title (the right to cultivate).


The decision of the minister of forests and the environment in January to cancel the forest land concessions of dozens of oil palm plantations ten years after their issuance showed how chaotic the licensing within the industry has been.             


Without good coordination, it is not possible for  the government to  design an integrated development policy for such an important industry which employs an estimated 17 million workers and involved over two million oil palm shareholders.


How poorly apprised was the government of the industry also could be seen in the difficulties faced by the Attorney General’s Office in uncovering evidence of collusion in the issuance of export licenses between January and March.


Even more than one month after AGO arrested three business executives and the director general of foreign trade on charges of corruption and bribes it has yet to announce any progress in its investigations.                     


The government has again reimposed DMO and DPO on the industry as part of the ongoing effort to stabilize the cooking oil price. But these measures are only ad hoc in nature and are doomed to fail without a single agency, preferably the State Logistics Agency (BULOG), being put in charge of managing and supervising the DMO implementation.


This single point of domestic sales from producers to BULOG would avoid the need of verifying hundreds of domestic invoices with the Ministry of Trade as a prerequisite to obtaining export license. If producers are selling only to BULOG in light of implementing their DMO then there is only one invoice to check.


Given the complex structure of the palm oil industry and its vital role in the economy, an overall audit may be necessary to build up a complete and reliable database. However, for the long-term good governance and sustainability of the industry, we think the government should learn from Malaysia, the world’s second largest palm oil producer, which has successfully managed its industry under the Malaysian Palm Oil Board {MPOB}.


Set up in 2000 under a special law, MPOB is the government agency entrusted to serve the country’s oil palm industry and to promote and develop national objectives, policies and priorities for the industry.


MPOB has been powerful and effective in managing the integrated development of the industry because right from the outset MPOB simultaneously took over the functions of the Palm Oil Research Institute of Malaysia (PORIM) and the Palm Oil Registration and Licensing Authority (PORLA).


In Indonesia, the various aspects of the upstream and downstream palm oil industries are handled separately by several ministries and government agencies which seemed unconnected to each other leading to flip-flop, overlapping and sometimes conflicting policy.


To protect the interest of both the palm oil industry and domestic consumer of palm oil products, including cooking oil, we need to have coherent policies supported with credible database, solid oversights and law enforcements performed by a strong national authoritative body to manage palm oil industry from upstream to downstream.


We do not reinvent the wheel, but instead simply adopt the MPOB’s format and establish a central government institution authorized in policy making, regulating roles to manage licensing, implementation of development programs to ensure the viability of the oil palm industry, conducting research and development and coordinating all activities related to the oil palm industry.


*) The author is sustainable palm oil analyst. These views are personal


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