Govt urged to liberalize palm oil business

Govt urged to liberalize palm oil business

JAKARTA (JP): The government should liberalize the palm oil
industry to prepare it to compete on the world market, analysts
said yesterday.

"Oligopsony, oligopoly and uncertain policy are hampering the
development of our palm oil industries. The government should
liberalize it to create efficiency," Faisal H. Basri, an
economist of University of Indonesia, told a seminar on crude
palm oil business regulations.

The meeting, which was organized by the Institute for
Development of Economics and Finance, and Intipesan Pariwara, was
also addressed by economists and agronomists M. Nawir Messi,
Bustanul Arifin, Didik J. Rachbini and Bungaran Saragih.

Faisal, the chairman of the Department of Economics and
Development Studies at the university, noted that more than 70
percent of Indonesia's crude palm oil production is used by the
cooking oil industry, which is controlled by the Salim Group and
Sinar Mas Group.

The two groups have managed to control the prices. "They can
keep the prices lower than those on the world market, while at
the same time they can get a bigger margin from the increasing
prices of cooking oil," he said.

He criticized the poor government policies on farm
commodities, including on crude palm oil. "There is no uniform
policy on our commodities. Every commodity is subject to separate
regulations. But it is only the policy on rice that has a strong
economic foundation," he said.

Bustanul Arifin, a researcher of the Institute for Development
of Economics and Finance, noted that there has not been any
integration between the upstream and downstream industries of
crude palm oil.

Faisal suggested that the crude palm oil industry be
liberalized by abolishing the export tax of between 40 percent
and 60 percent on crude palm oil as it is not effective. "To make
our crude palm oil products competitive, the government should
abolish the export tax," he said.

He added that the government should also scrap the import
tariff of about 20 percent on cooking oil to help create
efficiency in local industries.

The Indonesian government imposes export taxes to guarantee
the supply of crude palm oil to cooking oil industries and import
tariffs to protect the cooking oil industries.

According to M. Nawir Messi, the program director of the
Institute for Development of Economics and Finance, in 1995 alone
the export tax caused the loss of US$173 million in foreign
exchange which could have been gained from exports.

The export tax has also caused a transfer of welfare worth
$102 million from crude palm oil producers, including farmers, to
the cooking oil producers because the local price control forced
the producers to sell their crude palm oil below the normal
market prices.

Bungaran Saragih, a noted agricultural expert of Bogor
Agricultural University shared the analysts' view, saying that
despite the bleak condition, the crude palm oil business is very
promising on the world market.

"The crude palm oil business is very promising as the
international demand for crude palm oil-based products has been
increasing steadily," he said.

The demand for crude palm oil in Indonesia has increased an
average of 16.4 percent per year, due mainly to the expanding
downstream industries such as those which produce cooking oil,
margarine, soap and other crude palm oil-based goods.

He noted that Indonesia is the second largest producer of
crude palm oil after Malaysia with a total output of 4.5 million
tons last year. (13)