Economists urge govt to liberalize CPO trading

JAKARTA (JP): Economists have again urged the government to liberalize trade in crude palm oil (CPO) and cooking oil to boost the country's foreign exchange earnings.

Bungaran Saragih, an economist at Bogor Institute of Agriculture, said yesterday the government would earn at least US$2 billion from CPO exports in this financial year if it liberalized the trade.

"The government should promote the export of commodities which have the potential to be large foreign exchange earners to help the country out of the economic crisis. The CPO industry falls into that category and any increase in exports would also be of benefit to smallholder farmers," Bungaran said in a discussion on oil palm plantation management and the CPO and cooking oil industries.

Bungaran said government intervention to stabilize cooking oil prices had not only been ineffective but had also caused trading in the commodity to become a very uncertain business.

"Inconsistency in government regulations covering trade in CPO and cooking oil will kill the business in the long term because the international market will come to view involvement with Indonesian palm oil producers as fraught with risk and uncertainty," he said.

Nawir Messi from the Institute for Development Economics and Finance (INDEF) said the government policy of imposing a high tax on the export of CPO had cost the country $384 million in lost revenue this year.

Speaking at the same discussion, Nawir said the export tax had cost the CPO processing industry $99 million and oil palm plantation owners $400 million in lost revenue, $200 million of which would have found its way to smallholder oil palm farmers.

In contrast, the increase in the export tax from 40 percent to 60 percent would earn the government a mere $126 million per annum in extra revenue.

He argued that funding for the government subsidy to maintain a reference price for cooking oil would increase to about $123 million this year as a result of the increase in the export tax.

The government plans to use the funds raised through the export tax to subsidize cooking oil prices on the domestic market.

Nawir said it was the middle and upper classes of society that were reaping the benefits of the subsidy, not the poor at whom it was supposed to be targeted.

"The high export tax has adversely affected the welfare of smallholder oil palm farmers and helped those who are already rich," he said.

Both Bungaran and Nawir shared the view that if the government really wanted to help the poor then it should abolish the price subsidy on cooking oil and instead use the money to provide the needy with an income subsidy.

The two economists said the money would be better spent in a program designed specifically to improve the welfare of the country's poor. (gis)