InfoSAWIT, JAKARTA – Prior many questioned if President Joko Widodo understands about palm oil business and trade in Indonesia. But now he is the key of sustainable palm oil business in the future because crude palm oil (CPO) and its derivative export ban really negatively impacts to the smallholders.
After the ban, many comments were written in mass media. The comments come and go and become the rhythm and dynamics to what President Joko Widodo instructed to stop and revoke the ban. News about the arrest of illegal palm oil export criminals are often broadcasted in mass media nationally.
Why did they happen? CPO and its derivative products are the ‘primadona’ commodities in the world. For having efficient areas to cultivate within the harvest more than what other vegetable oil produced, palm oil becomes the main factor as ‘the most wanted’ vegetable oil in the world, including in Indonesia.
The fast and increasing markets in the globe on CPO and its derivative made vegetable oils as the main needs on food oil, just the same with the people of Indonesia who need of food oil. That is why CPO and its derivative need heterogenous markets which derive from domestic market needs and export needs.
The exports themselves are facing lots of challenges – from the government which published different system, the regulations, different currency, distance, restriction and protection of trade and conflict of interest from the exports. That is why the exports are the needs of one commodity from what a country produced, including Indonesia.
If one of the market needs is not fulfilled, palm cooking oil would make hunger and lack of nutrient. The markets really depend on Indonesia to supply palm cooking oil and Oil World predicted palm cooking oil needs reached 80 million tons per year globally (2021).
Important to Escalate CPO and Its Derivative Exports
According to Indonesian Palm Oil Association (IPOA) in 2021, CPO production reached 47,2 million tons. While the consumption in the world, including in Indonesia that reached 80 million tons, it means, Indonesia is able to supply 60% of the needs globally. From the production, almost 35% were consumed by the people of Indonesia.
The increasing production also made palm oil industries in Indonesia increase. The increasing medium industries (the mills) in many regions in Indonesia, the people’s needs would be able to get. Many big cities in Indonesia now have the mills.
This success is part of the government’s policy to get export tax and CPO Supporting Fund (CSF) by Palm Oil Plantation Fund Management Agency (PFMA) within progressive numbers according to export reference price (ERP) that the government regulated. ERP would be the reference to decide fresh fruit bunch (FFB) price that many smallholders produced in this country.
To get clearer, the exports are the main option from CPO and its derivative products in Indonesia. It is normal if palm oil business gets wider and delivers much profits. It is not questioned if many rich men in Indonesia do palm oil businesses – from the upstream to downstream sectors. Here are the impacts of what Government of Indonesia published about export tax and CSF to CPO and its derivative.
According to Amir (2004), commodity exports are needed to get payment in the form of foreign currency. As a matter of fact, the export could increase profits of (a) companies by expanding the markets and getting more expensive selling price. The new market opportunity in other countries is needed to expand the selling in domestic markets. Besides, commodity exports can be the way to distribute over-production that the company(ies) produced and would be able to compete in the markets globally and get technology and science knowledge transfer.
The regulations about Out Fee and Export Citation really support palm oil industrial development, such as, the mills and oleo-chemical factories. But in the same time the regulations also help oligarchy in palm oil which is full of business interests which keep getting bigger and influencing every trade business line (see the table).
On the other hand, CPO production in Indonesia keeps increasing. In every single month, it gets more and more and needs markets to buy it. Without any new markets in the domestic and other countries, CPO and its derivative demands would escalate CPO stocks in the storage tanks. That is why the domestic consumption is needed to CPO and its derivative consumption for they are escalating in numbers.
Unfortunately, the business started to fulfill the export needs or often said as based - export oriented industry. As the result, it faces issues namely if there is increasing demands in the domestic. If CPO and its derivative products get escalating demands in the domestic markets, the private’s trade supply chain would not easily fulfill the demands.
This is the main reason from the rare palm cooking oil supply in this country. Besides, if CPO and its derivative products got escalating demands in many countries, the exporters would take part to get profits. It is the same in the domestic, many stakeholders took part to sell palm cooking oil for the increasing demands, just like in fasting days and Lebaran, some time ago.
Palm Cooking Oil Needs Increased but the Supply was Not Enough
What is interesting is that export and domestic trade supply chain in Indonesia relate one to the other tightly. If the domestic supply is cheap, the needs would be easily absorbed to be exported. In the reverse, if import products are many and cheaper, the traders in many regions in Indonesia would sell them. That is why many cheap and import fruits are sold by the street vendors.
Because of the regulation, palm cooking should be sold at Rp 14.000/liter, while in many countries it is at Rp 25.000/liter. This is one reason why palm cooking oil is never enough in this country.
According to law of market balance by Kotler (2014), the supply and demand would hit the new equilibrium point that cheap palm cooking oil would be for those who get much capital to be re-sold more expensive in the local or export markets.
As the result, President Joko Widodo banned CPO and its derivative export. The people’s needs are disrupted on palm cooking oil. The irony is that CPO and its derivative products are abundant in Indonesia. This is also the reason President Indonesia urged the consciousness of the stakeholders to supply palm cooking oil needs for the people in economic price (27/4).
President Joko Widodo did it by scarifying the potential exchange from Out Fee and Export Citation. In general, the policy negatively runs for many sides including the government itself.
Though President Joko Widodo never mentioned when it would be revoked, but explicitly it can be meant, if palm cooking oil is sold at Rp 14.000/liter, CPO and its derivative export ban would be revoked.
The point is that palm cooking oil should be sold at Rp 14.000/liter in the society!