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)