It has not been a year yet since the government decided to revise the crude palm oil (CPO) export duty.

Progressive scheme was considered to have burdened the upstream palm oil sector as the industries have to bear the export duties and export tax. What will be the revision?

The plan to revise the CPO export duty has been voiced since the last fasting month of Ramadhan.

Slowly but surely, the price of palm oil has been continually rising since early 2021. The price of CPO reached the highest record at

RM 4,758 per ton on 07 May 2021. It was the highest level during the last decade.

But the high price was not fully enjoyed by the palm oil industrial players, especially in the upstream sector. It is due to the government’s decision to apply the policy of palm oil export tax and progressive export duty. The structure of palm oil export duty depends on the price fluctuation of CPO as stipulated in the finance ministry regulation (PMK) No. 191/2020 on the service tariff of the oil palm plantation fund management board (BPDPKS) under the finance ministry. Applied since 10 December 2020, PMK 191/2020 has been effective in increasing the export of the downstream palm oil products. The regulation sets the amount of the CPO export duty at US$ 55/ton as lowest limit and US$ 255/ton as highest limit if the price exceeds US$995/ton.

For midstream and downstream products, the tariff is set at minimum US$25/ton, and maximum at US$192.5/ton if the price over US$995/ton.

Besides the palm oil export duty, the exporters are also obliged to pay export tax which is monthly set by the trade ministry. In June 2021, the CPO export tax was set at US$183 per ton. It means, the total palm oil export duty and export tax that should be paid is US$438/ton.

But unlike Indonesia, the export tax in Malaysia is not progressive. The export duty structure in Malaysia is started from 3% for CPO at the price of MR2,250-2,400/mt, while the maximum is set at 8% when the price exceeds MR3,450/mt. Currently, the reference tariff in Malaysia for June 2021 is set at MR4,627.40/mt ($1,116.10), which means the export tariff is at MR370/mt ($89.20/mt).

Joko Supriyono, the chairman of Indonesian Palm Oil Association (Gapki) admitted that the high price of CPO was cut by the palm oil export duty and export tax.

To make it more clear, the price of CPO at global market has averaged at US$1,200 per ton. At that level, the CPO price is cut by palm oil export duty at US$255/ton and export tax at US$183/ton based on the prevailing government regulation. That means, companies that export CPO will only get US$762 per ton.

“With that export duty, there is an opportunity lost when the CPO price is high. Ideally, in such a condition companies can invest as they got higher margin,” the graduate of Gajah Mada University’s Agriculture Faculty said.

Joko said that the duty should not be made too high. The amount of the export duty should be made in line with the need of palm oil programs. It is aimed to allow companies in the sector able to invest and should not lose the opportunity to absorb more workers.

Reportedly, discussions on the revision of the CPO export duty have been started since 21 May 2021. Majalah Sawit Indonesia had tried to clarify the plan to Musdhalifah Machmud, deputy in charge of foods and agribusiness coordination at the economic coordinating ministry, but so far there has been no clarification.

Then, Majalah Sawit Indonesia contacted Abdul Rochim, director general of agro industry at the industry ministry. But he was reluctant to give any comments. ”You can ask the discussions to Bu Mus (Musdhalifah Machmud),” he said.

Reportedly, the maximum limit of export duty will be cut by US$100/ton to US$155/ton. But the government has not yet made formal announcement.

Joko admitted that Gapki had asked for the adjustment of the CPO export duty set in PMK 191/2020. “The export duty is aimed to balance the development of upstream and downstream sectors. It’s not aimed at benefitting only certain sectors while burdening others,” he said.

According to him, the export duty should be able to maintain the balance between the upstream and downstream sectors. The sustainability of upstream and downstream will increase the welfare of six million oil palm smallholders.

He said that the weakness of the export duty system is its too reliance on the export benchmark prices of CPO. Actually, the export duty is aimed at supporting the biodiesel. The fund from the export duty is used to compensate the spread between the price of crude oil and biodiesel under the national program of biodiesel 30 percent (B30) being implemented by the government. “Currently, the export duty is not ideal as it is based on the high price of CPO. As a result, there has been a huge amount of fund. The collected fund is not in line with the need of financing the biodiesel program. The financing need of biodiesel and other programs is not that much,” he said.

Joko noted that now the surplus of fund is too big. The financing need for the palm oil programs under the BPDKS can be still fulfilled.

“The adjustment of export duty is still based on the financing need of mandatory biodiesel program, replanting program (PSR), and other palm oil programs. We also don’t agree to annihilate the palm oil export duty as it is needed to support the government’s downstream policy, oil palm replanting program for smallholders (PSR) and positive campaigns on palm oil,” Joko said.

But he asserted that the export duty should be made dynamic and flexible according to the condition of palm oil industry at home and abroad. It should be flexible to meet the need for increase and decrease at certain times to allow all sectors in the palm oil industry growing well side by side in sustainable manner.

Joko is optimistic that the revision of the export duty will not affect the price of fresh fruit bunches (FFB) from smallholders. The fluctuations of the FFB prices are influenced by many factors, including the global CPO price as the main factor. Now, the high CPO price is not only influenced by the Indonesian mandatory program of biodiesel. It is also affected by the supplies of other vegetable oils, such as soybean and sunflower.

Gulat ME Manurung, chairman of the Indonesian Oil Palm Smallholders Association (Apkasindo), said that the revision of the export duty should be based on the interest of smallholders. Now, the smallholders are enjoying the high price of FFB in 22 palm oil producing provinces. Their income and spending have driven the local economies in their respective regions.

“Riau, North Sumatra and West Kalimantan are the examples of the good exchange rate of smallholders. As a result, the local economies are surging,” said the candidate of environment PhD.

With the export duty, the CPO producers are encouraged to develop their downstream industries as the export duty for downstream palm oil products is much lower.

“It means, domestic downstream industries will grow and absorption of workers will  increase. The price increase of CPO at global market also raises the price of FFB,” Gulat said.

He noted that the absorption of CPO at home stands as the key factor to stabilize the price of FFB. The instrument to absorb the CPO is the government’s mandatory program of biodiesel. There is no denying that the export duty has also burdened the smallholders. But, the collected fund from the export duty has also assisted the programs for smallholders, such as the replanting program, human resource trainings and supporting infrastructure and facilities.

CERTAINTY ASKED

As of June 2021, there has been no final decision on the revision of the palm oil export duty. As a result, the palm oil industrial players take a stance of wait and see and speculative actions amid the uncertainty of the policy.

“GIMNI welcomes whatever decision to be taken, as the government has certainly considered all inputs from our palm oil industrial players in the upstream and downstream sectors,“ said Bernard Riedo, chairman of the Indonesian Vegetable Oil Industries Association (GIMNI).

Bernard added that the revision should be soon realized to ensure a certainty to the market players.

It is necessary to prevent the market players to take specualtive actions and other positions of transactions that could  negatively affect the prices.

Since the reports of planned revision, prices have seen a tendency to decrease as demand for CPO, especially for exports, had decreased. One of the factors causing such condition is the decision of market players to wait for the revision that will result in lower export duty. “The uncertainty caused a stance of wait and see in the market. It is regrettable as it could negatively affect the price,” he said.

Already, the price of FFB in North Sumatera decreased by Rp96/kilogram to Rp2,399/kilogram. In Malaysia Derivative Exchange, CPO price for August 2021 delivery decreased 5% to RM 4,029/ton.

“If the revision decided soon, then it will create a certainty in transactions that will keep price stability,” he added.

Sahat Sinaga, executive director of GIMNI, cited that based on the information he got, a number of revisions will be taken regarding the palm oil export duty. First, the number of columns will be streamlined from 15 to 7 columns.

Second, maximum tariff of CPO at USD255/ton when export benchmark price (HPE) above USD955/ton will be reduced to a certain level.

“With the revision, the government will be consistent in encouraging to increase the diversion CPO export into the downstream industry to produce products with higher added value as directed by President Jokowi,” he said.

“We hope that the government will soon decide on the revision of the palm oil export duty,” said Sahat. (Qayuum Amri)

Source: Majalah Sawit Indonesia | Featured image via bisnis.com | Sawitindonesia.com