The palm oil puzzle<\/p>\n
The persistent volatility of the price of cooking oil above
\nthe official level should have awakened the government to the
\nblunt reality that market-control measures without the support of
\nsubsidy spending are not an effective way to either ensure supply
\nor control prices. However, the government seems unwilling to
\nlearn from the failure of the series of antimarket measures it
\nhas imposed since earlier this year. It is now running the great
\nrisk of making another big mistake, namely destroying the
\nnationwide cooking-oil distribution system.<\/p>\n
It was most puzzling to note how the domestic market remained
\nshort of stock during the first four months of this year even
\nthough the blanket export ban was still in effect. Seen from the
\nsupply-demand perspective, this did not make any sense at all. As
\nthe world's second largest producer after Malaysia, with an
\nannual output of more than six million metric tons and domestic
\ndemand of only about 3.5 million tons, the country actually has
\nan exportable surplus of more than two million tons.<\/p>\n
The government stubbornly ignored the warnings from
\nbusinesspeople and analysts that the export ban would never be
\neffective for a country like Indonesia with so vast a coastline
\nand a government notorious for its corruption. Moreover, given
\nIndonesia's role as the second largest producer, the export ban
\nfurther increased the differential between international and
\ndomestic prices.<\/p>\n
The potential profit had become so big, as a result of the 80
\npercent depreciation of the rupiah, that the temptation to
\nsmuggle, through collusion with local officials, was hard to
\nresist. Smugglers had a powerful leverage to make local officials
\nturn their eyes away from contraband trade.<\/p>\n
The imposition of export taxes of as high as 40 percent in
\nApril and up to 60 percent as of early July in lieu of the export
\nban should be more successful in discouraging exports because
\nexporters would get only 40 percent of the international prices
\nwith the other 60 percent going to the state coffers.<\/p>\n
But this measure may also meet a similar fate because the
\ngovernment is about to commit another big mistake. By assigning
\ncooperatives, irrespective of their experience, to be the main
\ndistributors for wholesale and retail chains, the government
\nrisks destroying the distribution system developed over decades
\nby the 12 major cooking oil producers.<\/p>\n
True, the price of cooking oil, as one of the basic staples,
\nshould be kept at a level affordable for the general public. But
\nthe root problem is not so much the \"profiteering\" attitude on
\nthe part of old distributors, as the government seems to see it,
\nbut the rupiah's exchange rate. As long as the rupiah remains
\nbelow 13,000 against the dollar, the market dictates that
\nexports, let alone smuggling overseas, are still more profitable
\nthan domestic sales even with a 60 percent export tax.<\/p>\n
But building from scratch a completely new distribution system
\ninvolving cooperatives almost to the complete exclusion of
\nnoncooperative distributors may neither ensure adequate domestic
\nsupply nor stabilize the cooking oil price in the long term.
\nDeveloping a distribution system takes a lot of time and involves
\nbig investments.<\/p>\n
It would be much better for the government to periodically
\nraise the buying price, Bulog, as the monopoly holder, pays to
\nproducers an amount that gives them a reasonable margin and at
\nthe same time removes the big differential between domestic and
\ninternational prices. The government can simply use the huge
\nrevenue already accrued from the export tax to subsidize Bulog's
\nsales prices to wholesale traders.<\/p>\n
Of most importance, though, is that Bulog should always
\nprocure cooking oil through a competitive bidding procedure and
\nallow all trading firms, not only cooperatives, to distribute the
\nsubsidized cooking oil. But even this measure would not be
\neffective unless Bulog is tightly audited and the government is
\nserious about preventing smuggling.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/the-palm-oil-puzzle-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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