CPO producers may be forced to sell part of output at home

The Jakarta Post, Jakarta

In addition to increasing the export duty on cooking oil, the government is also considering requiring CPO producers to sell a certain portion of their output on the domestic market to help bring down the price of cooking oil, which uses CPO as its main raw material.

The export duty will likely rise from 1.5 percent currently to 6.5 percent for CPO exporters who meet their commitments to supplying part of their production to the domestic market, or to 11.5 percent for exporters who fail to do so.

Speaking Tuesday after opening a cooking-oil market operation in Sawah Besar, West Jakarta, Industry Minister Fahmi Idris said that the imposition of a domestic market obligation would require producers to sell a certain amount of their CPO output on the domestic market at a set price.

However, he refused to reveal the possible allocation as between the domestic and global markets, saying that the ministry was still working out the details of the price stabilization scheme.

The international price of CPO has risen by 30 percent this year amid surging demand from China and India, and is currently hovering at between US$650 and $700 per metric ton.

The increase in the price of CPO has boosted the price of cooking oil derived from CPO from Rp 6,500 (72 U.S. cents) per liter to Rp 9,000 in Jakarta, and even as much as Rp 10,000 outside Java, such as in Samarinda in East Kalimantan.

To help stabilize the price, the government has been conducting market operations, selling cheap cooking oil in Jakarta and other places since April.

Fahmi said the government was hoping the price would fall back to its normal range after the market operations. However, if prices remained high up to the end of the month, the government would raise the export duty and introduce a domestic market obligation ruling to reduce CPO exports.

Franky O. Widjaja, chairman of the Indonesian CPO council and CEO of the Sinar Mas Group, said that currently many producers of CPO derivatives were reluctant to distribute cooking oil through market operations.

He estimated that only 10 percent of them had conduct such market operations.

"It will be hard for the price to come down again if only a small number of producers carry out market operations. We need every producer to participate or the price will not stabilize," said Franky.

Sinar Mas has held a number of such operations in Jakarta and Surabaya, East Java, since April, selling around 17,000 tons of cooking oil at Rp 6,500 per liter. This amounts to around 25 percent of the total target of 67,310 tons as agreed on by the government and CPO producers. (12)
Jawawa.net: Indonesian Business and Investment News Aggregator