Edible oil producers agree to lower prices

Edible oil producers agree to lower prices

JAKARTA (JP): Local producers of crude palm oil (CPO) and
cooking oil have agreed to reduce domestic prices of their
products in exchange for the lifting of the export ban.

M. Nafis Daulay, an executive of the Forum for CPO and Cooking
Oil, said Saturday that producers had agreed to cut their ex-
factory price of cooking oil to Rp 2,750 (34 U.S cents) per
kilogram in Java.

Nafis said producers had also agreed to set the ex-factory
price of crude palm oil at Rp 2,680 per kilogram for consumers in
Java, Rp 2,640 in Belawan, North Sumatra and Rp 2,630 in Dumai,
Riau.

"This shows that we, CPO producers and processors, are also
concerned about the situation in Indonesia and committed to
guaranteeing a sufficient supply to the local market," Nafis told
The Jakarta Post from Medan, North Sumatra.

He said the new prices would come into effect today.

"I hope that this move will proceed smoothly," Nafis said,
adding that it should not breach the agreement between the
government and the International Monetary Fund.

He said he had urged leading cooking oil distributors in
Surabaya, Semarang, Tegal and Jakarta to follow suit by cutting
their prices to retailers.

Cooking oil was trading at Rp 3,300 to Rp 3,400 in Jakarta
last week.

Nafis, also chairman of the Federation of Edible Oil and Fats
Associations, said that four Indonesian leading cooking oil
producers would pioneer the program by cutting their ex-factory
prices.

The four pioneers are those of the Salim Group, Sinar Mas
Group, Musi Mas/Pina Karya Prima (PKP Jakarta) and Karya
Perojonal Nelayan/Bukit Kapur Reksa (KPN).

Last December, the government banned the export of CPO, olein
and its other derivatives for three months in order to stabilize
the price and ensure the domestic supply of cooking oil.

However, the ban artificially restricted domestic cooking oil
prices and prompted people to hoard the product in anticipation
of an inevitable price rise. It consequently resulted in a
shortage of supplies.

Under the new agreement with the IMF, the government promised
to lift the export ban on CPO and its derivatives -- such as
olein, stearin, and fatty acid -- by April 22 and replace it with
an export tax of not more than 40 percent as part of a new
agreement with IMF.

The government said the level of the export tax would be
reviewed regularly for possible reduction, based on market prices
and the exchange rate, and cut to 10 percent by the end of
December 1999.

Nafis said that the new prices would remain effective even
after the export ban was lifted.

He said such lower prices would not encourage CPO producers to
export their products because the export tax would reduce the gap
between CPO prices in the world market and those in the domestic
market.

"CPO in the world market currently sells for US$650 per ton.
With an export tax of 40 percent, plus transportation and other
costs, its price will be equal to Rp 3,300 (per kilogram). And
what's more, the world price will be lower after the export ban
is lifted," he said.

Indonesia is the world's second largest CPO producer after
Malaysia. The country's total production is projected to reach
5.9 million tons this year, only 3.2 million tons of which can be
absorbed by the domestic market. (gis)