CPO exports to India to fall by 50% due to higher duty

JAKARTA (JP): Indonesia's exports of crude palm oil (CPO) products to India might fall by 50 percent to merely 500,000 tons this year from one million tons last year due to the impact of India's decision to raise import duty on CPO products, the association of Indonesian palm oil producers said on Friday.

The association's chairman Derom Bangun said that with a higher import duty, it would be more difficult for Indonesia to compete with other major CPO producer Malaysia in the Indian CPO market.

"Reports of a higher import duty will make Indonesian CPO even more expensive," he told The Jakarta Post in a telephone interview from his office in Medan.

In order to protect local vegetable oilseed farmers, India's government decided on Tuesday to curb the import of CPO by instructing local vanaspati cooking oil producers to import no more than 75 percent of its total demand and raise the import duties to 16.5 percent if imported by cooking oil factories and 44 percent if imported by traders and refineries.

According to Derom, even without the high import duty, the Indonesian CPO products are no longer competitive due to the government's policy of imposing export tax on the commodity.

The government has imposed export tax on CPO exports since early 1998 to protect the local cooking oil market.

The export tax rates have been gradually lowered to as low as 10 percent from above 60 percent due to an increase in the CPO supply in the domestic market.

But Derom said that the existing export tax rate was still too high for Indonesian CPO producers to compete with its main rival Malaysia in the international market.

For an example, Derom said Indonesia at present offers its CPO at US$270 per ton and refined bleached deodorized (RBD) olein at $315 per ton, while Malaysia sells its products at about $20 less than Indonesia's prices.

He said the government agreed in May to scrap the export tax on RBD olein to zero from 6 percent, but it maintained the 10 percent export tax on CPO.

Derom said the government had rejected the CPO producers' demands to further cut the export tax to make the CPO products' price more competitive.

Indonesia exports most of its CPO products to the Netherlands, India and several other Asian countries including Malaysia which reexports the products for its own markets.

Derom said that Indonesia was unlikely to reach its export target of three million tons this year on the impact of the Indonesian government's export duty measure.

He estimated Indonesia's total CPO production would increase to 6.5 million tons this year and over seven million tons next year. The country produced 5.9 million tons of CPO last year, up by 6 percent from the 1998 output of five million tons.

Derom warned of the possible over supply in the domestic market because Indonesia's CPO traders lately have found difficulty in selling their products overseas due to the price problems. (cst)