CPO policy shows 'inconsistency'

By Johannes Simbolon

JAKARTA (JP): The government's move to ban the export of all crude palm oil (CPO) products for three months, until March, to stabilize the price of cooking oil in the domestic market has drawn criticism from observers.

The Center for Agricultural Policy Studies' executive director, H.S. Dillon, said the policy was made by the government merely as a short-term solution.

He said that the move also indicated that the government lacked a medium long-term strategy to develop the country's agroindustry.

"The banning is a setback," Dillon said Thursday at the seminar on CPO trading organized by Yayasan Indonesia Forum.

The government announced Wednesday that it had issued a ruling to ban exports of all products derived from CPO, changing the previous ruling effective since Jan. 1, which only banned the export of four products -- CPO, refined bleached deodorized palm oil, crude oil and refined bleached deodorized olein.

Observers said the latest move indicated the government's strong commitment to pushing down prices of cooking oil during the fasting month and for the Idul Fitri holiday.

However, even government officials were pessimistic that the export ban would be able to stabilize the prices because the demand for cooking oil during the fasting month and Idul Fitri holiday were traditionally much higher than other months.

"The impact of the ban on the price of cooking oil can only be expected after one or two months because the country is now in short supply of cooking oil," chairman of the National Logistics Agency (Bulog) Beddu Amang said at the seminar.

"CPO producers have exported most of their products," he explained.

Idul Fitri will fall in Jan. 30 and Jan. 31.

Bulog, which functions to stabilize the price of several basic food commodities, including cooking oil, currently sells cooking oil in its market operations at Rp 1,800 (20 U.S. cents) per kilogram compared with the market price of between Rp 3,200 and Rp 3,400.

According to Bulog data, the national consumption of cooking oil reach between 120,000 tons and 150,000 tons per month.

The government's export ban also indicated inconsistency in its palm oil policy.

Only several months before the export ban, CPO producers were encouraged to export their production.

On July 7, 1997, about two weeks before the spillover of the regional currency turmoil spread to Indonesia, the government issued a package of economic deregulation which, among others, simplified the export of CPO products and cut the export tax of the commodity to a range of 2 percent to 5 percent, from a range 10 percent to 12 percent.

The sharp depreciation of the rupiah as the impact of the monetary turmoil, in addition to the cut in the export tax, made Indonesian CPO products more competitive overseas. This further encouraged local CPO producers to export most of their products.

The price of CPO, which has averaged at about $500 per ton since July, makes exports more alluring.

Beddu said that the government started to feel the shortages of cooking oil domestically in November, as the result of the export spree.

"It was a bit too late. We held many talks throughout the month but there was no action until the end of the month," Beddu said.

The ban was imposed after the government's move to limit exports to 20 percent of total production failed to receive a good response from the market.

The export quota, which was issued in November, initially affected the country's eight largest CPO producers but two weeks later, the ruling was changed to include other CPO producers.

The 17 companies effected by the export restriction include the Salim Group, which owns 12 CPO mills, PT Bukit Kapur Reksa and Group, PT Smart Corp and Group, PT Musim Mas and Group, the Raja Garuda Mas Group, Astra Agro Lestari, and the joint- marketing division of state plantations.

The government later increased the number of companies affected by the 20 percent export quota to 20 companies due to protests.

To ensure that the export restriction would meet its target, the government then introduced in the following days an additional export tax of between 28 percent and 30 percent on top of the existing 2 percent and 5 percent export tax for companies other than the group of 20 if they exported more than 20 percent of their products.

Realizing that the export restriction did not really work in stabilizing the cooking oil trade at home, the government finally issued a ruling on January 1 to totally ban the exports of CPO and olein.

But several days after that ban, the ruling was replaced with a new one on Jan. 7 to also include all products derived from CPO.

"Our policy was changed five times in one month. I must admit that we don't have a prepared concept to cope with the current monetary crisis," Beddu said.

Meanwhile, several CPO producers complained that the enforcement of the latest ban seemed inconsistent because more than 33,000 tons of CPO and its derivatives were still exported through the Riau port of Dumai on Jan.7.

They alleged that while a similar cargo of CPO was forced to be unloaded from a vessel at the North Sumatra port of Belawan on that day, about 33,000 tons of CPO and its derivatives allegedly owned by PT BKR in Medan succeeded in slipping overseas aboard MV Fertility Lwhich left Dumai port at 23:00 hours on Jan.7.

Susanto, chief of the Riau office of the industry and trade ministry in Pekanbaru contended yesterday that the CPO cargo had been unloaded from the MV Fertility L before the ship left Dumai.

However, the cargo masterlist of the freighter, a copy of which was made available to The Jakarta Post yesterday, still stipulates around 33,000 tons of CPO and its derivatives.

Impact

Vice chairman of the Indonesian Palm Oil Producers (GAPKI), Derom Bangun, said that the government's inconsistency in making CPO policy did not only taint the image of the Indonesian government and businesspeople on the international forum but also caused major financial losses for CPO producers.

Bangun said CPO producers were ready to support the government's policies but none could prepare themselves to follow the policies if they were changed several times in a month.

"Businesspeople who have been in this business for many years suddenly lost face with their business partners abroad," Bangun said.

He said that due to the quick changes in the policies, Indonesian CPO producers had to cancel contracts which they had signed with their buyers abroad as well as with transportation companies, for which they had to pay compensation.

"GAPKI is now calculating the total losses caused by the contract cancellations," said Bangun.

Dillon said that because of the inconsistency in the country's CPO policy, international traders might label the country's CPO producers as unreliable suppliers and they would turn to the country's competitors.

"The ban on exports will only be beneficial to our competitors as well as some local conglomerates which have managed to store some of their products outside the country," Dillon said.

Data from the Oil World Annual says Indonesia is the world's second largest producer, with output projected to rise to 6 million tons this year, from 5.3 million tons last year.

Malaysia, the world's largest CPO producer, projects to produce 8.8 million tons this year, up from 8.4 million tons last year.