Minister mulls raising export tax on CPO

Minister mulls raising export tax on CPO

JAKARTA (JP): The government is considering hiking the export
tax on crude palm oil (CPO) amid worries that increasing exports
of the commodity could push higher the already skyrocketing price
of cooking oil on the domestic market.

Minister of Industry and Trade Luhut B Panjaitan said on
Wednesday that the higher export taxes were expected to curb CPO
exports, provide a larger amount of CPO on the domestic market
and as a result lower the price of cooking oil.

Luhut said prices of domestic cooking oil had been steadily
rising over the last two months, reaching about Rp 5,000 (44 U.S.
cents) a kiloliter on July 17 from Rp 3,400 last month.

"For this month especially, the increase in the price of
cooking oil has been quite unexpected, but still under control,"
he said in a media conference here.

However, the government would need to further monitor the
direction of the commodity's price before imposing a higher duty,
Luhut said.

"We don't want to impose a higher tax only to lower it again a
short time later," he said, adding that the current export duty
for CPO was set at 3 percent.

Luhut said CPO producers had been compelled to boost their
exports following the commodity's price increase on the
international market due to joint efforts by Indonesian and
Malaysian governments to prop up the price's declining trend.

Indonesia is the world's largest CPO producer after Malaysia,
and both countries control about 90 percent of the world's CPO
production.

"The result (of the efforts) has been tremendous and resulted
in the increase of CPO prices," he said.

The efforts by the two countries included negotiations with
China and India -- the world's two largest CPO buyers -- to raise
their palm oil import quota and to lower import tariffs
respectively.

The Chinese government has agreed to increase its import quota
by 400,000 tons to 1.5 million tons this year, Luhut said.

Demands for CPO in India have also increased ahead of a Hindu
holiday in August, he said, adding that the Indian government had
also agreed to lower its import tariff. He did not specify on the
tariffs.

In addition, prices for CPO in the world's market were also
propped up by issues of a decline in United States' soybean
production, Luhut said.

Competition from substitute soybean oil had been one of the
factors pressuring the price of CPO, but a decline in soybean
production would bring back a demand for palm oil.

The price for CPO on the world market reached US$345 per ton
as of July 17, compared to $200 per ton at the beginning of the
year.

Last year, CPO prices averaged $260 per ton against a hefty
$700 per ton in 1998.

"If CPO prices keep rising that's good news for farmers, but
not for consumers of cooking oil as it will result in a rise of
the price of oil. If it's low it's good for consumers but not for
farmers," Luhut said.

Cooking oil is a basic commodity in the country, and a
shortage of it or a price hike could trigger social unrest.

Luhut said it was important to achieve a balance between the
two needs, but that it was too early at this stage to make a
countermove.

"We think it's just a case of market shock. We need to see
just how far the decrease in soybean production and the increase
in demand from India and China will really last," Luhut said.

Indonesia expects to produce about 7.2 million tons of CPO
this year, compared to 6.5 million tons produced last year.

"We need to be very careful about how we manage exports so
that it won't affect the prices of domestic cooking oil," he
said. (tnt)