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)