Indonesia makes U-turn to replace palm oil export curbs with levy
Indonesia will remove export volume restrictions on palm oil products and raise its export levy instead, its trade minister said on Thursday, in a surprise policy U-turn just a week after it shocked markets by further tightening its curbs.
The world's biggest exporter of the edible oil has required companies to sell 30% of their planned export volume of palm oil products, up from 20% imposed in January, under a so-called domestic market obligation (DMO) aimed at ensuring local supply amid soaring cooking oil prices.
In a parliamentary hearing, Trade Minister Muhammad Lutfi said that policy had resulted in supply scarcity and the DMO would be withdrawn. The regulations were agreed and approved on Thursday.
Instead, the ceiling of palm export tax and levy would be raised, he said, from a combined maximum of $375 per ton to between $575 to $675 per ton. For every $50 increase in the palm oil reference price, the levy will be raised by $20, Lutfi added.
The maximum CPO levy would be applied when prices reach $1,500 per ton. Indonesia's reference CPO price for March stood at $1,432.24 per ton.
"This is the market mechanism, and hopefully this can maintain supply stability for the people," Lutfi said.
Global prices of crude palm oil, which Indonesia uses for cooking oil, have surged to historic highs this year amid rising demand and weak output from top producers Indonesia and Malaysia, plus Indonesia's export limits.
Indonesia first restricted exports after prices of cooking oil — made from refined crude palm oil — rose more than 40% at the start of the year amid a surge in global prices.
Despite export curbs, consumers complained that cooking oil was not available at many retailers across the country.
Indonesia Palm Oil Association said removal of the curbs was welcomed but the group was still awaiting details of the export levy increases, secretary general Eddy Martono said.
Some lawmakers at the hearing on Thursday criticized the Trade Ministry for haphazard policymaking, and said the frequent changes to its palm oil policies resulted in market volatility.
"Since January up to today, there were already at least six ministerial regulations being issued regarding cooking oil and not one of them had positive impact on the welfare of the people," parliament member Mufti Aiman Nurul Anam said.
The government this week removed price caps on packaged cooking oil while providing subsidy for bulk cooking oil.
More than $500 MM had been allocated to subsidize the bulk cooking oil for the next six months, the Coordinating Ministry of Economic Affairs said on Thursday, estimating about 202 MM liters of distributions per month.
Explaining the decision to remove the export volume curbs, Lutfi said there was a price disparity between the DMO and market price that was being exploited. He did not elaborate.
He also told the hearing Indonesia had issued export permits for 3.5 MMt of palm oil and its refined products in the past 30 days.
(Editing by Martin Petty; Editing by Kirsten Donovan)
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