Tue, 09 Feb 2010

From: The Jakarta Globe

By Irvan Tisnabudi & Ardian Wibisono
The government plans to cap crude palm oil exports at 50 percent of output by 2015 and 30 percent by 2020 in a bid to boost the downstream processing sector, Industry Minister MS Hidayat said on Monday.

“We want Indonesian industry to focus on providing finished material out of CPO,” Hidayat said, adding that by 2020 the total domestic output of crude palm oil is expected to reach 40 million tons.

Indonesia is the world’s biggest producer of crude palm oil, producing 20.3 millions tons last year. Sixty percent was exported, bringing in $10 billion.

Hidayat said expanding the downstream industry would create jobs and attract capital for investment. But it would also require government incentives and strong funding support from banks, he said.

“We are working with the relevant departments to figure out ways to attract investors and what kind of incentives will be given to the industry, such as lower interest rates and lower taxes.”

However, Joko Supriyono, secretary general of the Indonesian Palm Oil Association (Gapki), said the government was exaggerating demand for processed palm oil products.

Palm oil is widely used to produce three types of products: food, oleochemicals and biodiesel.

“The markets for oleochemicals and cooking oil are very small, so why would we even bother to increase production if no one wants to buy,” Joko said.

Expanding the downstream industry would create fewer jobs than investing in the upstream industry, he said. A crude palm oil refinery with a capacity of 400,000 tons per year only requires 75 workers, while it takes more than 20,000 workers to produce the same amount of crude palm oil, Joko said.

He said the only realistic way to expand the downstream industry would be to develop the biodiesel industry because demand for energy remains high. “But I don’t see the government taking this seriously. We have 12 biodiesel factories but only one is currently operating,” he said.

The government has set up palm oil industry clusters in Riau, North Sumatra and East Kalimantan, with plans to establish more.