Govt cooking oil policy criticized

JAKARTA (JP): The current uncertainty in cooking oil prices is the result of misdirected government market interventions and has not been caused by the poor distribution system for the commodity, a senior agriculture analyst has said.

Bungaran Saragih, an economist from Bogor Institute of Agriculture, said yesterday that government intervention in the domestic and export markets for crude palm oil (CPO), which is used to manufacture cooking oil, has caused great uncertainty in the industry.

"Government intervention has distorted the cooking oil market and caused price and supply uncertainty," he told The Jakarta Post.

Cooking oil prices in the country increased sharply in early January as a result of a scarcity which came about when the rupiah fell in value against the U.S. dollar, thereby providing domestic producers with an opportunity to make large profits through the export of CPO and its derivatives.

To counter this phenomenon the government imposed a 40 export tax on CPO and its derivatives in April, which was subsequently raised to 60 percent. However this has failed to discourage exports and the price of cooking oil has remained high. It is currently hovering at between Rp 5,000 and Rp 6,000 per kilogram, despite a government reference price of Rp 4,000 per kilogram.

The government has also on a number of occasions attempted to alter the commodity's cumbersome distribution system to attain a more reliable supply, but this too has failed to have the desired impact on domestic market prices.

Bungaran said the way to stabilize cooking oil prices was to end government market interventions and allow prices to be determined by the market.

"It might make domestic cooking oil prices even more expensive but the government would not have to spend money subsidizing cooking oil sales," he said.

Customers would then have to decide whether to continue consuming cooking oil or seek other alternatives, he added.

"Cooking oil should be excluded from the list of essential commodities because people do not die without it. They can use other edible oils as a substitute or they can prepare their food by boiling it or steaming it," Bungaran said.

Bungaran defended private CPO producers who have been exporting their produce.

"The companies are only doing business, they want to export. The government's intervention in the cooking oil market helps consumers, but it is killing CPO producers" he said.

Traders said that cooking oil was selling for between Rp 5,100 and Rp 5,200 per kilogram in Jakarta yesterday. (gis)