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)