Sat, 16 Sep 2000

Govt's policy on CPO gets cool response

JAKARTA (JP): The government's recent move to cut the export tax on crude palm oil (CPO) has received a cool response from producers.

Chairman of the Indonesian Palm Oil Producers Association (Gapki) Derom Bangun said here on Friday the cut in the export tax was meaningless because the government had raised the reference price of the commodity.

He said if the government wanted to raise the reference price of CPO -- the price level used to calculate tax payments --, the tax export should be totally removed.

"With the higher price reference, the cut in the export tax brings no help at all in improving the competitiveness of the country's CPO in the world market," he told The Jakarta Post.

He said Gapki would send a letter to the government next week demanding a review of its export tax policy. "We want the government to scrap the export tax of CPO," he said.

The government cut on Tuesday the export tax of CPO to 5 percent and its by-products to 2 percent. The export tax of CPO was previously set at 10 percent while that for by-products such as refined bleached deodorized (RBD) palm oil and RBD palm olein was set at 8 percent and 6 percent respectively.

The reference price of CPO was, however, raised to US$190 from $120. The new reference price of oil palm kernel is $40, RBD palm oil $200, crude palm olein $195 and RBD palm olein $215.

The government's announcement of the reduction in the export taxes of CPO and its by-products was made amid plans by Malaysia to increase palm oil exports by about one million tons over the next six months in a bid reduce its stock pile and boost prices which are at a 13-year low.

Derom said in order to support the local CPO producers in coping with the current volatile market, the Malaysian government had offered tax incentives to its producers and a credit facility for foreign buyers.

Malaysia has given special treatment to six local CPO producers to ship their products overseas without any export tax charges. Four other local companies were earlier given the same treatment.

The Malaysian government has also offered a credit facility totaling $135 million to five countries, namely Russia, Myanmar, Bangladesh, Egypt and South Korea, so that those countries could import more CPO from Malaysia. The country expects the credit facility will boost its CPO exports by about 500,000 tons.

Derom said it would be difficult for Indonesia to compete with Malaysia if the government maintained the current tax and reference price level.

"Unfortunately, in Indonesia, not only is the will of the government missing, but it also doesn't seem to have any understanding," Derom said.

He acknowledged that it would be difficult for the Indonesian government to introduce similar incentives like those provided by Malaysia but he said that the total removal of the export tax would be quite feasible.

Indonesia's total CPO production is predicted to increase this year to 6.5 million tons and to over seven million next year.

The country, which is the world's second largest CPO producer, produced 5.9 million tons of CPO last year, up 6 percent from 1998's output of five million tons.

Derom predicted about three million tons of this year's total CPO production would be shipped to overseas markets.

Local producers were now facing difficulties in selling the commodity in the domestic market as demand had fallen behind the available supply, he said.

He said the recently slow domestic trading of CPO had resulted in higher stock of more than 700,000 tons, all of which must immediately be exported to avoid bigger losses on the producers' side. (cst)