RI Seeking to Become ‘Raja Hilir Sawit’ in 2045

JAKARTA – The Indonesian government has been driving up the development of downstream palm oil industries through its national strategic program of downstream palm oil since 2011. Currently, the palm oil is one of Indonesia’s top commodities and plays a very important role in the national economy.

The economic coordinating ministry’s Deputy II in charge of foods and agribusiness, Musdhalifah Machmud said that the government is seeking to transform Indonesia, the world’s largest producer of palm oil, from what she calls “Raja Hulu Sawit” (King of Upstream Palm Oil) to “Raja Hilir Sawit” (King of Downstream Palm Oil) in 2045.

She noted that since the last few years, the government has issued a number of policies to accelerate the development of downstream palm oil industries in the country. “The policies include tax incentives, palm oil export tariff and duty, development of special zones for downstream palm oil industries that are integrated with seaport and supporting facilities, and the biodiesel mandatory policy,” she said in a press release issued on Monday, 28 June 2021.

According to her, every year the downstream program has managed to increase the contribution of palm oil to the national economy. So far, Indonesia’s exports of downstream palm oil products are higher than its exports of upstream palm oil products.

“In 2006, our exports of upstream palm oil products accounted for around 60 – 70 percent. But now our exports of downstream palm oil products have reached 60 – 70 percent and exports of upstream palm oil products are only around 30 – 40 percent,” she said.

She said that the downstreaming process of Indonesian palm oil industries can be categorized into three areas of development, namely oleo-foods complex, oleo-chemicals complex, and  biofuel complex. “In the oleo-foods complex, it will be the process of further downstreaming the refinery products into intermediate oleo-food products and to finished food products. Now, our downstream oleo-food products include cooking oil, margarine, vitamin A, Vitamin E, shortening, ice cream, creamer, cocoa butter/specialty-fat and others.”

“In the oleo-chemical complex, it will be further development of refinery products to produce intermediate oleo-chemical products and various finished products, such as detergents, soap, shampoo, bio-lubricants and biomaterial (such as bio-plastics).”

“In the biofuel complex, it will be further development of refinery products into biofuel and other finished products, such as biogas, biopremium, and bioavtur,” she said.

The three areas of downstream palm oil development stand as an important part of Indonesian industrialization strategy, which is a combination of export promotion strategy and import substitution. “That way, our downstream palm oil program will continually create a multiplier effect to our national economy and society,” she asserted.

She added that the downstream program had also increased a variety of downstream products, from just 70 kinds of products in 2011 to 126 kinds of products in 2017, and to 170 kinds of products in 2020, which are dominated by foods and oleo-chemical products.

Palm oil duty

The Indonesian Vegetable Oil Industries Association (GIMNI) Chairman Bernard Riedo said the government policy of palm oil export tariff and duty has spurred the development of Indonesia’s downstream palm oil industries. “Investments for development of the downstream palm oil industries in Indonesia have been steadily increasing. The downstream palm oil development will create much higher economic benefits, which include new job opportunities, higher tax income and foreign exchange income for the state,” he said.

“The palm oil export duty scheme, which charges higher duty for the upstream products than the downstream products, has significantly increased the competitiveness of Indonesia’s downstream palm oil products at the global market and maintains the price stability of palm oil for foods at domestic market,” he said.

Based on data from GIMNI, during the period of January – April 2021, Indonesia’s palm oil exports consisted of downstream products (high value added) at  80% – 90%, while its upstream products (low value added), crude palm oil (CPO) and crude palm kernel oil (CPKO), were around 10%-20%. In January 2021, the export of CPO and derivatives reached 2.861 million tons (24% Crude Oils/CO and Palm Processed Oils/PPO at 76%).

In February 2021,  the palm oil export volume amounted to 1.994 million tons (crude oils 20% and PPO at 80%). In March 2021, the palm oil export volume rose to 2.63 million tons (crude oils 12% and PPO 88%). In April 2021, the export volume increased again to 3.078 million tons (crude oils 10.6% and PPO 89.4 %). (*)

Source: Liputan6.com/investor daily

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