LPEM UI: CPO Exports and Smallholders’ FFB Would Potentially Increase if DMO Is Revoked

LPEM UI: CPO Exports and Smallholders’ FFB Would Potentially Increase if DMO Is Revoked

Palmoilmagazine, Pranis Fanjaya, Sawitfest 2021

Palmoilmagazine, JAKARTA – The government should immediately adjust trade policies which postpone crude palm oil (CPO) and its derivative product export to deliver the smallholders’ fresh fruit bunch (FFB) price; and the over - capacity in many companies’ mills. What the government about to accelerate palm oil exports would be realized if the distorted polices, such as, domestic market obligation, domestic price obligation, and flush-out can be revoked.

The study conclusion by Lembaga Penyelidikan Ekonomi dan Masyarakat (LPEM) Fakultas Ekonomi dan Bisnis  (FEB) Universitas Indonesia (UI), the government should carefully publish policy to control palm cooking oil price in order not to disrupt palm oil markets in this country. The good policy should minimally not distort the markets.

Chairman of LPEM FEB UI, Eugenia Mardanugraha mentioned, the policies published by government that postpone palm oil exports impacted to many over-capacity mills. This managed the mills limit purchase smallholders’ FFB.

“This made the cheap FFB and many smallholders are in misery, namely the independent ones. The limitation of CPO export, though it is temporary distorted palm oil trade from the upstream to downstream sectors. The independent smallholders got the impacts because their FFB is not adjustable with the price in international level,” she said in a virtual discussion with the theme “Dampak Kebijakan Pengendalian Harga Minyak Goreng Bagi Petani Swadaya", Monday (1/8/2022).

She also explained, the export ban should be no more because there are too many regulations and taxes (in palm oil industries), such as, Out Fee, ley, domestic market obligation (DMO), domestic price obligation (DPO), export approval, and flush out.

“Every export ban should be minimized or even no more. Export levy is no more, Out Fee should be simplified to accelerate the export until smallholders’ FFB is the same with what they hope for,” Eugenia said.

She also mentioned, it needs to escalate the numbers of CPO export to escalate smallholders’ FFB. Based on the study result, every increasing CPO export per one percent, it could escalate smallholders’ FFB up to about 0,33 percent in average. It needs much CPO export to return the smallholders’ FFB economic price.

“It needs to escalate the numbers of CPO export up to 1.740 percent or 17 times so that the smallholders’ FFB could be increasing from 861 rupiah per kilogram (the assumption per 9 July 2022) to be 2.250 rupiah per kilogram," she said.

It is possible to escalate the CPO export numbers because Indonesia once hit it reaching up to 211 percent though it spent seven years, or in April 2014 that reached 1,37 million tons to be 4,27 million tons in August 2021.

"If we start from 1.380 rupiah per kg (smallholders’ FFB), it means, by escalating 200 percent export or about two times, we could realize smallholders’ FFB just like they hope for,” she said.

But there would be costs to escalate CPO export now. She thought, the more expensive CPO is, the more costs that CPO exporters should burden. The expensive CPO should deliver incentive for the stakeholders to multiply their exports. Unfortunately, the government published levels of costs based on the expensive CPO.

LPEM UI agreed to eliminate DMO, DPO. The solution could be, the government should make levy and Out Fee as the instruments to regulate export volume.

“If the CPO supply in this country is less (than it should be), the government should escalate the tariff. In the reverse, if the exports should be multiplied, the tariff should be minimized if the tariff instrument can be running well as the export control,” Eugenia said.

In the meantime, Chairman of Indonesian Palm Oil Association (IPOA), Joko Supriyono agreed, every export ban should be minimized because as the biggest palm oil exporter in the world, Indonesia should get the surplus and advantages from the expensive CPO in the markets globally.

“I agree if palm oil export ban is minimized. The levy should be only two, such as, Out Fee and levy,” he said.

He also admitted, the government is focusing to re-accelerate the exports to be increasing. But in one side, the government concentrated to palm cooking oil (price). Many speculations mentioned, if the exports run well, palm cooking oil (supply) would be no more (again).

“What the government should publish, must be in one package. The ideal is that the export could maximally run well in the context of exchange and smallholders’ FFB price. On the other hand, palm cooking oil supply in this country should be available in certain numbers and price. It needs good policy combination,” Joko said.

He proposed, the government should only confirm that the supply should be 2,5 million tons of palm cooking oil for the people of certain groups. But the government should not sacrifice the export volume up to 35 million tons per year.

Joko thought, DMO does not run optimally because of the implementation complexity. The CPO and RBD olein export volume are not normal and this impacted to the cheap smallholders’ FFB. After CPO export ban revocation, CPO and RBD olein exports just reached 1,4 million tons in June 2022. (T2)


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