CPO policy shows 'inconsistency'

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.