Lowers Tariff May Spur Indonesian CPO Export

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JAKARTA (TheInsiderStories) – The Indonesian Government has projected the production of some 42 million tons of CPO by 2020. Thus, the government is pushing domestic downstream industries through innovative and high-value products, including oleo-chemicals.

To support downstream industry, the government will secure raw material through providing export tariffs and CPO funds that are more pro-industry, as well as giving fiscal/ non-fiscal incentives to maintain a good business climate.

After introducing such fiscal incentives, including a Tax Allowance and Tax Holiday, compound annual growth rate (CAGR) of CPO downstream industry during 2011 t0 2014 reached 46 percent. One of the companies taking advantage of the tax holiday (income tax exemption for seven years) was Singapore’s Sinar Mas Cepsa Ltd. The downstream industry is expected to create both forward and backward linkage for both regional and national economy activity.

According to data from the Ministry of Industry, CPO is one of primary commodities that absorbs more than 21 million laborers, as well as contributing to national exports worth Rp20 billion, as of the end of 2016. Indonesia supplied 48 percent of global CPO production and extended its global market penetration to about 52 percent. With increasing production volume, Indonesia can be a key player in the vegetable oil processing industry.

In addition, the government aims to defend CPO export value to India as the biggest CPO market in the world. During the recent Indonesia-India Business Forum on Palm Oil meeting in Mumbai, India, government expressed its interest in strengthening bilateral trade relationships, especially in CPO commodity.

In 2016, Indonesia’s exports to India recorded US$11.5 billion, or 8 percent of total export worth $144.43 billion. Of this, 34 percent or $S3.4 billion was CPO (with volume reaching 5.3 million tons), compared to 2012, which marked $4.8 billion, Indonesian CPO exports to India decreased by 29 percent.

Joko Supriyono, Indonesian Palm Oil Producers Association Chairman, sees Indonesia as a country with a big surplus of palm oil-based biodiesel, and yet it is losing its major export markets, one by one. After being challenged by EU, the second-largest market, for the issue of sustainability, currently India plans to double import duties on CPO from 7.5 percent to 15 percent, or about $699/ ton.

“This can crimp our export activity. Hence, there will be a meeting on the ministerial level between the two countries to discuss this issue further to find best solution. Indonesia currently has an installed capacity of around 11.36 million tons of biodiesel per annum, and yet the market both domestic and export absorbs far less than half that amount,” he said.

Meanwhile, B.V. Mehta, Executive Director at Solvent Extractor Association of India, said the export tax policy levied by the Indonesian government affects palm oil imports to India slightly. Hence, the Indonesian government is free to lower the tariff. The potential of vegetable oil consumption growth in India is still wide open. Currently it reaches almost 45 percent of total edible oil consumption.

Under current regulations Finance Minister Decree or PMK 136/ 2016, export tariff for CPO ranges between $3 to $200 per metric ton. The tariff is also only effective if CPO price on the market reaches $750 per ton, with a range between 7.5 percent for $750 to $800 per ton and 22.5 percent for $1,250 per ton.

Indonesian Trade Minister Enggartiasto Lukita previously said, the government will take the appropriate actions to avert a negative impact of India’s higher import duties on Indonesian palm oil shipments. However, he did not specify what kind of action, because these still need to be discussed by the government, only adding that the government needs to be careful because it does not want to jeopardize good trade relations.

Data from CPO producer association showed that Indonesian exports of CPO (and derivative products) surged 43 percent to 3.8 million tons in first half 2017 on a yearly basis. Indonesia has remained the world’s top producer of palm oil since 2006, accounting for over 52 percent of production.

Meanwhile, Indonesia is also the world’s largest palm oil exporter in 2016: it exported over $14.4 billion worth to the global market, representing over 51.6 percent of the world’s total exports for that year.

Indonesia’s Trade Ministry reveals that total India-Indonesia trade in the first five months of 2017 reached $7.68 billion, up significantly from $4.82 billion in the same period one year earlier. Indonesia has the “upper hand” in trade relations, shipping $5.95 billion worth of goods to India, while Indonesia imports $1.73 billion worth of goods from India.

Writing by Yosi Winosa, Email: yosi.winosa@theinsiderstories.com