Malaysia's help sought for CPO price hike

JAKARTA (JP): Indonesia is seeking the possibility of establishing joint forces with Malaysia in a bid to prop up prices of crude palm oil (CPO) on international markets.

Minister of Forestry and Plantations Muslimin Nasution said on Tuesday initial talks with the Malaysian government for the possible cooperation were progressing.

The plan has won the Cabinet's support, the minister said, adding that the planned cooperation would be focused on ways to promote the use of CPO on the world market amid the increasingly popular use of other edible oil such as soybean.

"The cooperation then will be expanded to all CPO producing countries. We feel that all CPO producing countries should get together to establish certain efforts to lift the prices," he told reporters.

Muslimin said the cooperation between the countries could be directed to form a joint marketing agreement to control supply and demand in order to make prices stable.

Malaysia, the world's number one CPO producer and Indonesia, the world's second, were expected to pioneer the cooperation.

Muslimin said the joint marketing agreement would not operate as a cartel since it would not set prices.

"All soybean producing countries, led by the United States, established such a marketing agreement in the early 1990s after seeing that the price of soybean oil kept falling. Why don't we, as CPO producers, get together and create such an agreement, too," he said.

He added such an agreement was established among coffee producing countries, grouped in the Association of Coffee Producing Countries, the Organization of Petroleum Exporting Countries (OPEC), the International Rubber Organizations (INRO) and others.

CPO prices, he said, plummeted to a current US$255 per ton from over $700 in the fourth quarter of last year.

The director general of plantations, Agus Pakpahan, said the drop in prices was due to the use of cheaper soybean and canola oil to substitute CPO, which then caused an oversupply and pulled down prices.

He predicted that prices would continue to fall due to the expected good harvest of oil palm plantations in Malaysia and Indonesia in the coming months.

Muslimin said the government would now focus on an all-out effort to boost exports of CPO and its by-products, which were hit by high export taxes.

"I had asked the government to remove the CPO export tax. The current 10 percent export tax no longer encourages CPO producers to export the oil," he said.

"The proposal will be discussed at the next Cabinet meeting."

Muslimin said many Indonesian CPO buyers had turned to other CPO producing countries, especially Malaysia, due to the high export tax imposed on its products.

Muslimin also said the government would also ask the Malaysian government to help Indonesia curb smuggling of CPO.

He said many Indonesian oil palm kernels and CPO were smuggled into Malaysia following the implementation of the high export tax. The oil palm kernels and CPO were then processed into olein in Malaysia and exported to other countries.

Meanwhile, Director General of Chemical, Agriculture and Forest Products Industries Gatot Ibnu Santoso said separately on Tuesday that the current plunge in prices should be used as an opportunity to develop the country's oleochemical industry and other downstream industries using CPO and its by-products.

"The domestic market is still wide open for investors who want to develop the oleochemical industry," he said.

He said domestic cooking oil and the oleochemical industry were expected to absorb 3.9 million tons of CPO out of six million to be produced this year. (gis/prb)