April 28, 2023
JAKARTA – Crude palm oil (CPO) producers will be required to supply more of their output to the domestic market next month, if they want to maintain their export volumes.
The Trade Ministry said on Thursday that the ratio between output sold at home under the domestic market obligation (DMO) and that shipped overseas would change to 1:4 from the previous 1:6, meaning CPO producers will only be allowed to export four times as much as they sell in the domestic market, rather than six times as much.
This marks the second cut to the share available for the global market this year, as the ratio was 1:9 for February.
“Why were the export rights cut? It’s not that we want to restrict exports, but we want to sustain the DMO policy, so as to maintain our domestic supplies,” the Trade Ministry’s Policy Agency head, Kasan Muhri, told reporters on Thursday.
Read also: Indonesia seeks to set its own CPO benchmark price by this year-end
Also on Thursday, the ministry cut its target for the nationwide cooking oil DMO to 300,000 tonnes per month from 450,000 tonnes.
That is the same figure that had been in effect in January, before it was hiked to ensure sufficient domestic supplies of subsidized cooking oil under the Minyak Kita program over Ramadan and the Idul Fitri holiday.
The ministry said prices of domestic cooking oil had proven stable during the past months, including before and after the festive period.
The ministry’s domestic trade director general, Isy Karim, told reporters on Thursday that the government was also aware of the fact that some regions had yet to see the subsidized cooking oil price fall below the cap of Rp 14,000 (US$0.94) per liter, especially in eastern regions of the country.
He said the ministry was preparing incentives to ensure more producers were willing to supply to Eastern Indonesia, but that it might not be in the form of export quota rights.
“We worry that, if we grant more [shipment permits], that would lead to a flood of export quota rights,” Isy said.
Read also: Analyst sees minimal impact on CPO price after Indonesia tightens exports
As the world’s largest palm oil producer, Indonesia accounts for more than a third of global supply. Prior to its DMO policy, the country had pursued various policies aimed at stabilizing cooking oil prices for domestic consumers, often causing ripple effects in the global market.
While Indonesia sought to keep a larger portion of its CPO output at home, its closest neighbor Malaysia, the second-largest palm oil producer, stood to benefit by filling the global supply gap caused by Indonesia’s inward-looking policy.
Eddy Martono, secretary-general of the Indonesian Palm Oil Association (Gapki), told Kontan on April 5 that the government should review its DMO policy after Idul Fitri, especially if the domestic supply turned out to be sufficient.
He argued that a review may be necessary to prevent a CPO supply glut in the domestic market.