Crude palm oil producers come under fire

Crude palm oil producers come under fire

JAKARTA (JP): President Soeharto, while hinting that the
government will maintain export tax on crude palm oil (CPO), said
yesterday that producers must put high priority on the domestic
market and people's best interests.

"CPO producers must not think only about foreign currency
earnings," Soeharto was quoted as saying by Beddu Amang, the
recently installed chairman of the National Logistics Agency
(Bulog), after their meeting at the Bina Graha presidential
office.

"They (CPO producers) must also show concern for the needs of
the people and their welfare," Beddu, whose office controls the
distribution of cooking oil and other strategic food stuffs,
quoted the President as saying.

Cooking oil and CPO are considered as strategic commodities in
Indonesia, whose population is the fourth largest in the world.

Soeharto also said yesterday that CPO exporters are obligated
to "assist" state-owned palm oil plantation companies in
"satisfying the domestic market".

The government, however, will not limit CPO exports, he said.

The President's remarks came amid recent debates started by an
appeal last week by the Federation of Edible Oil and Fats
Association (FAMNI), which called for the cancellation of export
tax on CPO, which had affected Indonesia's stakes in overseas
markets.

The government significantly raised the rates of export tax on
CPO last year in order to stabilize domestic prices, encourage
investments in palm oil plantations and protect local producers
of cooking oils, which are mostly controlled by the Salim and
Sinar Mas conglomerates.

FAMNI claimed that the export tax was imposed when CPO prices
on the world market reached their highest level since 1984 to
US$700 per ton. Analysts and officials expect CPO prices to go
down to $460 per ton this year.

Interestingly, the increase in export tax for CPO took place
last year, when the country's CPO production exceeded domestic
demand.

Bulog figures show that the domestic demand for CPO reached
2.5 million tons last year, while production was 4.5 million
tons.

Beddu said that the figures will most likely stay the same
this year.

Prices

The recent debates on CPO policies also came amid growing
concern about the escalating prices of cooking oils throughout
the country over the last two months despite Bulog's market
interventions and the export tax.

Although the precise cause of the price rises is yet to be
determined, analysts generally blame the rise in demand prior to
the Idul Fitri holiday early next month.

Various local news reports said that up to last Saturday,
retail prices of the Salim-produced Bimoli cooking oil reached Rp
2,400 per kilogram at Jakarta market places, far higher than
Bulog's target price of Rp 1,300.

Beddu reminded the press yesterday that Bulog, assisted by the
Salim Group -- this group controls about 60 percent of the
domestic market -- began an operation last week by selling
cooking oil directly to consumers at 17 different markets in
Jakarta.

He also said that this operation is being carried out without
involving distributors, who have been blamed by both the
government and CPO producers as the culprits of the price
increases.

"Past interventions failed because we still involved
distributors," Beddu said.

Production

In the meantime, Bisnis Indonesia daily yesterday quoted Wayan
R. Susila and Bachtiar Abbas, two leading agricultural experts,
as saying that, contrary to the objective, the CPO export tax
policy will not encourage greater domestic production in the long
run.

The two experts said that, based on their joint research,
domestic CPO production will reach 8.64 million tons per year by
2005 if the export tax is abolished.

In contrast, if the policy is maintained, domestic production
by 2005 will only reach 8.48 million tons, 1.8 percent less than
what could be achieved under a different scenario.

In comparison, figures from the Ministry of Agriculture show
that by 2005, Indonesia's annual production of CPO will reach
9.89 million tons, about the same level as that of Malaysia,
currently the biggest CPO producer in the world.

It is unclear whether the official figures take the export tax
into account.

Wayan and Bachtiar also said that the export tax policy will
hurt smallholders.

"Without the tax, smallholders can make about Rp 174 per
kilogram of fresh fruit. In contrast, the export tax will lower
their earnings to only Rp 159 kilogram of fresh fruit," they
said. (hdj)