CPO local market obligation unlikely

Andi Haswidi, The Jakarta Post, Jakarta

Despite the high price of cooking oil, the government has no plans to apply a domestic market obligation (DMO) to crude palm oil producers -- which would force them to set aside part of their output for the domestic market -- to help stabilize the price, a minister said Tuesday.

Trade Minister Mari Elka Pangestu said Tuesday that there were other options to be considered, in addition to the government's recent decision to hike the export duty for crude palm oil (CPO), to help bring down the price of cooking oil at home.

"We are considering an annual Pasar Murah (cheap market) program, where staple goods, including cooking oil, will be sold at a lower price than the market price during the holy month," Mari said, referring to the Muslim fasting month Ramadhan, which starts next month.

Mari's remarks should dampen circulating rumors that the government will impose the DMO scheme during the fasting month, when the prices of staple foods traditionally raise because of high demand.

The rumors were in part triggered by a statement last week by Industry Ministry Fahmi Idris saying the DMO was among the possibilities being considered by the government to help contain the high cooking oil price, despite its decision in July to hike the CPO export duty from $558 per metric ton to $622.

In the first week of July, just prior to the hike -- which was aimed at discouraging CPO exports and thus secure a domestic supply of CPO for cooking oil needs -- the national cooking oil price averaged Rp 8,574 per kilogram.

However, the move failed to significantly cut the price. In fact, on Aug. 9, exactly a month later, the price rose to Rp 8,910.

"The effect (of the duty hike) varies. I just went to Riau province a few days back. The cooking oil price there was still below Rp 9,000. I think the variety of prices in the regions has more to do with the proximity to processing facilities," Mari said.

Derom Bangun, executive chairman of the Indonesian Palm Oil Producers Association, told The Jakarta Post on Tuesday that the export duty hike had done little to curb the cooking oil price, while also hurting Indonesia's CPO exports.

"It lessens the competitiveness of our products compared to our Malaysian counterparts," Derom said.

Malaysia is the world's largest CPO exporter, followed by Indonesia.

Derom also suggested the government should not impose the DMO as it would create further problems for the industry.

"The DMO will not solve the problem. The government does not have sufficient resources to monitor the whole DMO process."

According to the Central Statistics Agency, CPO has been the biggest contributor to Indonesia's non-oil and gas exports for the past three months.
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