Indonesia: Export Duty Must Be Reduced to Save the Palm Oil Industry

There is an immediate need for the Indonesia's Government to review downwards the crude palm oil (CPO) export tax structure, which has been unchanged since the 1970s, says Palm Oil Refiners Association (Poram) chief executive officer Mohamad Jaaffar Ahmad.

This is in light of the intense competition brought on by Indonesia which has slashed more than half of its export duty on CPO refined products on September 15, 2011.

Jaaffar said the Government must address the uncompetitive environment following the supply of "cheaper incoming" CPO and "competitive outgoing" refined palm products such as RBD (refined, bleached and deodorised) palm olein from Indonesia.

Indonesia has reduced its export duty on RBD palm olein in bulk to 7% from 15% while the export duty on CPO was unchanged at 15%.

Jaaffar told StarBiz that the lower export duty meant that the Indonesian exporters were able to offer refined palm products at "very" competitive prices compared with the local exporters.

The price of Indonesian RBD palm olein FOB based on the 15% export tax was US$1,159 per tonne compared with US$1,162 per tonne from Malaysia.

However, the reduced tax at 7% would allow Indonesia's RBD palm olein to be sold at US$1,091 per tonne or at least US$71 cheaper than local RBD palm olein, added Jaaffar.

The total cost of processing/refining CPO into RBD palm olein among Indonesian refiners would also be lower by at least US$100 or at an estimated US$988 per tonne compared with local refiners.

CPO is the main feedstock for the production of refined palm products.

While local refiners acknowledged the Indonesian government's rationale to cut the CPO export duty in the interest of its palm oil downstream sector, Jaaffar pointed out that the local refiners were feeling the brunt of the impact from the lower export duty.

"Local refiners want to see a win-win situation but Malaysian refiners cannot just wait and see the impact of the change in the Indonesian CPO export duty on our refining industry.

"It will be difficult to sustain the industry when there is no margin to make and policy to rely on," explained Jaaffar.

Therefore, the Government should ensure a level playing field for the local refiners.

"Any disagreement with Indonesia will be detrimental to both countries as we are the two largest producers and exporters of palm oil in the world. Personally, I believe we can resolve this issue based on common interest and solidarity but it should be on higher representation such as at the Prime Minister level as this is a national policy matter.

"The Government must make a quick decision to save our palm oil industry," he added.

There are more than 51 palm oil refineries in operation in Malaysia, and most of them are Poram members. A majority of the refineries are integrated with the oil palm plantations and the palm oil milling industry, or both.

Jaaffar claimed that the palm-based biodiesel industry was at standstill and the oleochemical industry was not expanding while the packed products were shrinking.

Jaaffar said the three sectors of the industry had long been bearing the brunt of the higher cost of CPO and palm kernel oil, which were compounded by lower export duty.