Palm oil industry buffeted by inconsistent regulations
By Devi M. Asmarani
JAKARTA (JP): Over the past three months the government has issued numerous new regulations on the country's palm oil industry to stabilize cooking oil prices but none has yet shown any effectiveness.
It started with the establishment of a 20 percent quota on Dec. 17 on the exports of palm oil and olein. The government imposed a 28 percent to 30 percent surcharge tax on exports which exceeded the quota.
Within a week -- as this measure failed to discourage exports -- the government moved to forbid for three months until March any kind of exports of palm oil and olein, and later added crude palm oil (CPO) derivatives, including stearin and palm oil kernel, to the list.
The three-month ban was aimed at guaranteeing domestic supply to stabilize the prices of cooking oil during the Ramadhan fasting month, when the prices of food essentials are commonly inflated.
But no measure seemed able to stop the skyrocketing of prices of cooking oil, one of the most essential staples in Indonesian kitchens.
Prices escalated as much as 100 percent and scarcity of cooking oil forced many grocery stores and food markets to limit customer purchases to one or two bottles.
Minister of Industry and Trade Tunky Ariwibowo admitted last Friday that the scarcity was caused by irregularities in the flow of distribution from materials to end products.
"There is an obstacle between the upstream and the downstream of the palm oil industry," Tunky said after a meeting with representatives from 90 palm oil, food and packaging companies.
He said many CPO companies were withholding their products until the ban expired in March, rather than continuing to supply domestic demand, to benefit from higher prices overseas.
The scarcity of CPO had caused many cooking oil companies to stop producing, he said.
Distribution
The Indonesian Association of Palm Oil Producers (GAPKI) has urged the government several times to lift the export ban immediately.
A commissioner of the association, Nafis Daulay, said the export ban had contributed to disruptions in the flow of palm oil distribution.
"Many companies are waiting for March and preparing to export because of the low price in the domestic market," he said.
"Because exports must be sent in large amounts, the companies must accumulate their products first," he said.
Nafis, who is also chairman of the Association of Edible Oil Industries, attributed the palm oil price hike to a steep rise in the price of oil palm fruit.
"Oil palm fruit now costs Rp 600 (6 U.S. cents) per kilogram, up from about Rp 225 normally," he said.
Five kilograms of oil palm fruit are needed to make one kilogram of palm oil.
Plantations were forced to raise the price of the fruit because the cost of fertilizers has gone up and bank interest rates have soared.
Worse still, demands for the oil were higher while the supply was lower last month, he said.
The association predicts a total supply of 6.9 million tons of CPO this year, while domestic demand will only amount to 3.5 million tons.
The commodity's yield in January would only account for 3.91 percent of the total output this year, Nafis said, adding that the CPO output this month would only make up 4.12 percent of the total production.
Last month's production amounted to about 230,000 tons, while a month's demand for cooking oil in Java alone was about 160,000 tons, he said.
At the same time, inter-island transporting had become more challenging, Nafis said.
For a while at the beginning of last month, the government required all companies transporting palm oil products between islands to obtain a bank guarantee.
The companies had to provide a bank guarantee worth 35 percent of the total value of the CPO and other related products being transported.
If the companies defied the export ban, the government could cash in the bank guarantee as state receipts.
Although the system was abolished within a week, Nafis said it presented the industry with yet another challenge.
Before the monetary crisis revealed the frailty of the local banking sector, which ended in a closure of 16 ailing private banks, companies were easily able to obtain a bank guarantee.
"Previously, all we had to do was pick up the phone," he said.
But since the liquidation of the 16 banks companies must deposit the amount of money they want guaranteed.
"So if we need a bank guarantee for a billion rupiah, we have to deposit the same amount at the bank," he said.
At Friday's meeting, Tunky urged the companies again to ensure a domestic supply of CPO and palm oil.
He said he had asked the companies to submit reports on their stocks and the supply of their products, to monitor the product distribution.
He said the state-owned surveying company, PT Sucofindo, would conduct checks on CPO and palm oil product factories to look for any irregularities.
Sucofindo will also check on factories that produce stearin and palm kernel oil (PKO), to see whether many were overstocked with products.
Tunky said the government was firm in its decision to ban exports of CPO and olein until March. But it would consider lifting the ban earlier only on stearin and PKO depending on the results of Sucofindo's checks.
About 74 percent of a kilogram of palm oil can be made into cooking oil, 22 percent into stearin, and the remaining 4 percent into fatty acid.
Stearin is consumed very little in the country, and was mostly exported prior to the ban.
Asked why the exports of coconut oil, an equally common edible oil for Indonesians, were not banned, Tunky said the market share of coconut oil was still relatively low.
"The share of coconut oil is only about 19 percent," he said.
Table: Indonesian Cooking Oil Production
Companies Capacity* Locations Market Share**
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1. Hasil Karsa Group 961.675 20.98
PT Singa Mas Jaya 325,000 North Sumatra
PT Asap Abadi 400,000 Jakarta
PT Hasil Kesatuan 147,875 Jakarta
PT Hasil Abadi P 88,800 East Java
2. Musim Mas Group 877,000 19.13
PT Musim Mas 380,000 North Sumatra
PT Siringo-Ringo 90,000 North Sumatra
PT Mega Surya Mas 152,000 East Java
PT Bina Karya Prima 255,000 West Java
3. Sinar Mas Group 631,800 13.78
PT Ivo Mas Tunggal 212,000 North Sumatra
PT Sinar Meadow 30,000 Jakarta
PT Mulyo Rejo 118,800 East Java
PT Smart Corporation 271,000 East Java
4. Salim Group 270,000 5.89
PT Sawit Malinda 22,000 North Sumatra
PT Sayang Heulang 118,000 Jakarta
PT Inti Boga Sejahtera 130,000 East Java
5. Bukit Kapur Group 250,000 5.45
PT Bukit Kapur Reksa 180,000 Riau
PT Sinar Alam Permai 70,000 North Sumatra
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Group's Total 2,990,475 65.24
Others 1,593,125 34.76
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Total 4,583,600 100.00
*in tons
**percent
Source: Ministry of Industry and Trade