POINTERS: Indonesian Palm Oil Export Duty - The Effects on Downstream Industries

By: Dr. Irfan Sungkar

Irfan Sungkar is the Vice President, Regional Agribusiness Research & Investment Advisory (RARIA) in PT Pavillion Capital, Jakarta, Indonesia. Irfan is an Indonesian national and reside in Malaysia since 1998 (13 years).His main interest and expertise is on economic, agribusiness/ agro-industry and investment advisory. Mr. Sungkar was the Secretariat and Advisor for World Halal Forum (WHF) and International Halal Integrity (IHI) Alliance. Currently, he served as the Director of Bela Enterprise, Malaysia; Vice President, Regional Agribusiness Research & investment Advisory (RARIA) of PT. Pavillion Capital, Indonesia. Irfan is a member of Expert Group of Food Security in Islamic Countries at Islamic Development Bank (IDB), Saudi Arabia; Resource Person for Asian Productivity Organization (APO), Japan. He has a Bachelor degree in Banking and Finance from STEKPI Business School, Indonesia; Master’ degree in International Economics from University of Malaya, Malaysia, Doctorate degree in International studies from Canterbury University, United Kingdom, and currently finishing a PhD degree in University of Malaya, Malaysia. He has finance-based professional qualifications, which is Registered Financial Consultant (RFC), US; Chartered Financial Analyst (CFA)- level 1 , Virginia, US and Certified Islamic Finance Professional (CIFP) – level 1, INCEIF, Malaysia. he also attended several graduate courses, workshop and research in Berkeley, the Haque, in the Haas School of Business, University of California at Berkeley; Institute of Social Studies, Netherlands, Oxford Said Business School, Institute of Bankers Indonesia, etc. Irfan is well-known as one of the exsperts in Halal food movement aimed to increase awareness level towards Halal food products. For more than 12 years in Malaysia, Irfan involved in numerous research and studies pertaining to agribusiness/ agro industry, market analysis, supply chain management and value chain analysis in developing the whole aspects of agribusiness/ agriculture and agro-based industry including research projects for: (1) local & international companies; (2) Government agencies in Malaysia, Taiwab, UAE, Indonesia such as Economic Planning Unit (EPU) of PM Office; Malaysian Industrial Development Agency (MIDA), MATRADE, HDC, Bureau of Foreign Trade Taiwan, Chinese Productivity Organization, Bengkalis regency, Riau, Makassar city, Barru and Takalar regency in South Sulawesi, Indonesia; (3) multinational institutions such as Islamic Development Bank (IDB), Japan International Cooperation Agency (JICA) and few others. Irfan has written many research papers, books and articles and has been invited to speak at some of the major institutions in the world such as the World Bank Conference, National Bureau of Foreign Trade of Taiwan; Chinese Productivity Organization, Securities Commission of Indonesia as well as invited to give speech/ presentation in numerous conferences, forums and workshops in Brunei Darussalam, Bosnia & Herzegovina, Germany, Indonesia, Turkey, Japan, Kuwait, Netherlands, Saudi Arabia, Singapore, South Africa, Taiwan, Thailand, Turkey and few others.

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According to the plan of the Ministry of Agriculture of Indonesia of reducing the area under palm oil so as to have a stable price, export tax policy is an effective policy. An increase in the export tax would be of importance as it will lead to voluntary reduction in production area under palm oil as it would result into reduction of export to other countries. In this scenario, with implementation of progressive export tax policy on CPO, the export volume will reduce, hence increasing the quantity of CPO available for Indonesian domestic market.

The domestic consumers of CPO and cooking oil will be the greatest beneficiaries. The cost of cooking oil will be expected to reduce as a result of the reduction in CPO price since it is the main source of raw materials for the cooking oil industry in Indonesia. However, oligopolistic nature of cooking oil industry may distort price so consumers may not gain as much as possible.

The main losers with the implementation of the progressive export tax on CPO will be local CPO plantations and mills. Thgis is the main reason why GAPKI (Gabungan Pengusaha Kelapa Sawit Indonesia) increasingly vocal against this policy. Total area declined, total output reduced, limiting export growth. This effect of the export tax is great on the producers than on traders because the exporters always shift the tax bundle to the producers hence offering reduced prices for their products.

With this export tax policy, the government can successful to keep the cooking oil price down when the world CPO price increased or when rupiah was substantially depreciated. The impact of export tax led to depression of production resulting to reduced quantity produced. Producers, mainly smallholders, have suffered a great deal due to the policy. As the domestic price of CPO is depressed by this policy, the farm gate price of the farmers’ product (fresh fruit bunch or FFB), declines substantially.