Indonesia’s farmers yet to benefit from crude palm oil levy waiver

Previously, the government had announced a slashing of export levies for all palm oil derivative products until Aug 31 to boost exports and ease high domestic inventories.

Divya Karyza

Divya Karyza

The Jakarta Post


Fruitful business: Trucks line up to unload oil palm fresh fruit bunches at a palm oil-processing facility belonging to PT Karya Tanah Subur in Padang Sikabu village in West Aceh on May 17, 2022.(Antara/Syifa Yulinnas)

September 5, 2022

JAKARTA – The extension of the crude palm oil (CPO) export levy waiver, despite being successful in stabilizing CPO prices, has proved to be less effective in resolving the chronic issue of falling fresh fruit bunch (FFB) prices, which the government has been trying to tackle for the past few months.

In this regard, farmers’ associations have expressed the hope that the price of FFBs will start to rise significantly on the back of the extended CPO export levy waiver, but they claim that the policy may be in vain if weak regulatory enforcement is not addressed.

The CPO export levy waiver has been extended to Oct. 31. Previously, the government had announced a slashing of export levies for all palm oil derivative products until Aug. 31 to boost exports and ease high domestic inventories.

Palm Oil Smallholders Union (SPKS) secretary-general Mansuetus Darto suggested the government improve palm oil management policy in the country, for example, by renewing the moratorium on oil palm plantations.

Palm oil reform was left in limbo after the moratorium, which required government agencies to stop granting new licenses for palm oil concessions and to review existing ones every three years, lapsed on Sept. 19 last year, exactly three years after its inception through Presidential Instruction (Inpres) No. 8/2018.

“[The SPKS] appreciates the government’s move to extend the CPO export levy waiver policy, but a thorough evaluation on the use of export levy funds and their role in farmers’ prosperity is also critical,” he told The Jakarta Post earlier this week.

After over a month of the CPO levy waiver implementation, he claimed, FFB prices, while they had risen, remained relatively low, adding that the government “would need to fix the regulations on the CPO supply chain as a whole to address the problem.”

The Agriculture Ministry did not immediately respond to a request for comment regarding the matter.

As of Aug. 27, FFB prices for independent farmers averaged Rp 1,781 (12 US cents) per kilogram and Rp 1,927 per kg for smallholders in a formal partnership with palm oil companies, Indonesian Oil Palm Farmers Association (Apkasindo) data show, marking a slight increase of Rp 981 and Rp 727, respectively, from July 14, a day before the export levy waiver policy was implemented.

Apkasindo chairman Gulat Manurung said that while scrapping export levies for CPO and its derivative products was necessary to control the supply-and-demand balance, the scheme still needed to be complemented with proper enforcement of Agriculture Ministry Regulation No. 1/2018 on FFB pricing to ensure fair prices for palm farmers.

Nevertheless, he remains optimistic that the FFB price will gradually surpass Rp 3,500 per kg before the CPO levy waiver ends on Oct. 31, given the uptrend in global CPO prices.

“We hope FFB prices will [significantly] increase soon so the export levy can be imposed again,” Gulat told the Post, citing the importance of the export levy in funding palm oil farmers’ capacity-building programs.

Biodiesel allocation

Coordinating Minister for Economic Affairs Airlangga Hartarto, during a meeting with the Oil Palm Plantation Support Fund Management Agency (BPDPKS) steering committee last Sunday, said that the extension of the CPO levy waiver was intended to maintain the stability of the CPO price,
reduce the price of cooking oil and boost FFB prices.

The meeting also agreed to increase the allocation of biodiesel to 11.02 million kiloliters, up 8.6 percent from the 10.15 million kl initially allocated, to anticipate soaring diesel fuel consumption in the fourth quarter this year amid an ongoing economic recovery.

Paulus Tjakrawan, chairman of the Indonesian Biodiesel Producers Association (APROBI), said he was confident that the government had carefully considered its decisions on extending the CPO export levy waiver and increasing the biodiesel allocation for this year.

Nonetheless, he admitted the association could not give exact estimates on the impact of both rulings on the domestic biodiesel industry just yet.

CPO exports in June reached 2.33 million tonnes, 3.4 times higher than the previous month after the government lifted the commodity’s export ban on May 23, Indonesia Palm Oil Association (GAPKI) data show.

CPO consumption, on the other hand, increased by 225,000 tonnes month-to-month (mtm) to 1.83 million tonnes in June.

GAPKI secretary-general Eddy Martono told the Post that the CPO export waiver is expected to stabilize domestic CPO and FFB prices but that “it all depends” on domestic supply and demand as well as the global CPO price.

“If there is no significant improvement [in CPO and FFB prices], the government may consider extending the policy [beyond Oct. 31],” he said.

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