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Introducing Three FFB Price References: What to Choose?

Foto by Jefri Tarigan_SawitFest 2021
Introducing Three FFB Price References: What to Choose?

InfoSAWIT, JAKARTA – The publication of Regulation of Minister of Finance (RMF) Number 155/2022, Asosiasi Petani Kelapa Sawit Indonesia (Apkasindo) did appreciate Minister of Finance for vanishing export citation until the determined period as what the government regulated. But for a record, the cheap fresh fruit bunch (FFB) price produced by the smallholders happens not for one factor only (export citation). There are other factors that pressed more, namely crude palm oil (CPO) price reference in Indonesia. the deletion of export citation is one rally outcome of Apkasindo, from the meeting in Batam - Chairman of Apkasindo Advisory Board, General Army (Ret.) Dr Moeldoko; then the meeting in President’s Staff Office where many stakeholders and related ministries joined; then the meeting in Ministry of Trade; the meeting with Ministry of Agriculture; the meeting with Palm Oil Plantation Fund Management Agency (PFMA) and the final was the meeting with Coordinator Ministry in Maritime and Investment. Of course, this was not easy thing to do in smallholders’ organization level.


What are DMO, DPO FO, OF, and EC?

DMO is domestic market obligation which means, every palm oil producer is obliged to fulfill the stocks in the domestic as what the government regulated (1:7). DPO is domestic price obligation which means the price from DMO should be the same with what the government also regulated (Rp 10.700/kg). Flush Out (FO) is CPO and its derivative export acceleration program. If FO (US$ 200/ton) is the option if not fulfilling DMO and DPO. Out Fee (OF) is the tax to the country (US$ 288/ton). Export Citation (EC) is the citation that is taken from CPO and its derivative before exporting (US$ 200/tons). PFMA manages this citation and it is not the income for the country or non-tax revenue.

DMO and DPO are one operational pack with the principle, to make sure that CPO supply is enough in this country namely to produce palm cooking oil or minyak goreng sawit (MGS) for the people. For information, CPO stock in Indonesia in the early of July 2022 after minus domestic consumption reached 10,9 million tons. The normal should be 3-4 million tons/month. It means, 300% were not normal. Based on the philosophy, DMO and DPO would automatically not be available. In addition, CPO price in this country is much less than DPO. But the fact, DMO and DPO, even though they are not available, are taken as CPO price subtractor when it is in tender process at PT Kharisma Pemasaran Bersama Nusantara (KPBN).

FO, according to the RMF Number 102/2022, would be available until the end of June 2022. There should be no more FO. In July (1 - 31 July) the export would be for those that have paid FO. But the fact showed the same with DMO and DPO, FO is still available as CPO price subtractor at KPBN until 15 July 2022. The worse was that the price (tender) at KPBN becomes FFB price reference for the smallholders based on Regulation of Minister of Agriculture (RMA) Number 1/2018. This is normal why the smallholders’ FFB gets cheaper.


What about the Impact of Export Citation Deletion (US$ 200) to FFB Price?

CPO price in Indonesia has three references; the first is the reference price delivered by Ministry of Trade; the second, the reference price from Rotterdam; and the third is the reference price at KPBN. The simulation of the three options is (1) if smallholders’ FFB refers to Ministry of Trade, ($ 1.615 (in July)?, minus the citations (FO and BK = US$ 488/tons CPO) CPO Indonesia is Rp 16.900 and FFB is Rp 3.380/kg. Before export citation was vanished, smallholders’ FFB should be Rp 2.750.

(2) If smallholders’ FFB refers to Rotterdam price, known on 13 July 2022 was US$ 1.205/tons and minus the burdens US$ 488 (FO + OF) = $ 717, it means, CPO Indonesia should be Rp 10.755/kg which if conversed to smallholders’ FFB, should be Rp 2.150/kg. FFB before Export Citation was vanished, was Rp 1.500/kg. (3) if smallholders’ FFB refers to KPBN? It is known that deletion of citation export made CPO get better in this country reaching Rp 3.000/kg. If CPO refers to KPBN it is Rp 8.000/kg. If Export Citation deletion (US$ 200) is calculated, CPO would be Rp 11.000/kg. It means, smallholders’ FFB at least Rp 2.200/kg. before Export Citation deletion, we should actually get Rp 1.600/kg.


How Much is Smallholders’ FFB if DMO, DPO and FO Are Deleted?

For there is no more DMO, DPO and FO, if it is referred to Ministry of Trade, smallholders’ FFB on 1 July – 16 July should be Rp3.380/kg (within the currency 1 US$ is Rp 15.000). On 18 July, since the Regulation of Minister of Finance (RMF) Number 115 / 2022 was available, smallholders’ FFB should be Rp 3.980/kg. but many smallholders should sell theirs less than it in Malaysia.

For the price disparity, if it referred to Ministry of Trade’s price (as regulated in the Regulation of Minister of Trade (RMT) Number 55 / 2015), it is concluded that for all these years, there was ‘intension’ to blur CPO reference price basic in Indonesia. The blur started from the Regulation of Minister of Agriculture (RMA) Number 1 / 2018 which obliged smallholders’ FFB reference price to refer to KPBN price.

The government (through Ministry of Finance) did not use tender price at KPBN to decide the numbers of Out Fee and Export Citation for all these years but why the smallholders should be ordered to use the price at KPBN as it is regulated in the Regulation of Minister of Agriculture Number 1 / 2018? This is weird. But the answer is that to purchase our FFB cheaper.


What should be the CPO reference in Indonesia? Is it published by Ministry of Trade based on RMT Number 55 / 2015? Or from Rotterdam Price? Or KPBN Tender?

The answer is: as the country law and the biggest CPO producer, everyone should obey RMT which delivered reference price. Do not depend on ‘what the goals are’. The reference price according to RMT is fair enough because it accommodates 20% of Malaysian exchange price and 60% of Indonesian exchange price. It is representative.


Indonesia Should Select CPO Reference Price

Export reference price (ERP) should not refer to KLCE (Kuala Lumpur Commodity Exchange) and Rotterdam. It should refer to RMT Number 55 / 2015) as price setter for palm oil in Indonesia and the world should look at it. Whatever the regulations were or would be that block(ed) to ‘one reference price’ should be evaluated.

The reference would save 17 million smallholders, workers, and palm oil industries in Indonesia. By having the certain reference, the mills would not purchase smallholders’ FFB as what they like. The mills that have no downstream industries would be getting certainty and be transparent in CPO selling price to the refinery and exporters would get their rights. That is why smallholders really hoped, President Joko Widodo can confirm CPO reference price is from RMT Number 55 / 2015 and every institution would be improved within the note, the ideal reference price in RMT should be for one or two weeks in a month, to get more update.

Indonesia, as the time goes by, struggles for saving the upstream and downstream palm oil industries as the biggest exchange provider for this country. To realize the idea, it is urgent to establish Badan Sawit Indonesia (BADASI) which the president directly manages. Every regulation that would be published about palm oil, including the availability, the affordability of palm cooking oil for the people, should be decided by BADASI within the concept – one door, one window, and one data.

This means, every interest both from the government, corporate, and the smallholder would be accommodated through BADASI. In fact, data production is helped by Indonesian Palm Oil Association and the data exports were much better for the establishment of Palm Oil Plantation Fund Management Agency. Actually, not everything is directly solved but ‘some are much better than the plan’. Which price references would you choose?

By: Dr. Gulat ME Manurung, MP.,C.IMA / Chairman of Apkasindo)