Why Hasn’t Indonesia’s Prohibition On Palm Oil Exports Lowered Cooking Oil Prices?

Indonesia, the world’s largest supplier of palm oil, has banned shipments of the edible oil since April 28 in an attempt to flood the domestic market with supply in order to control rising cooking oil prices.

Despite these strict rules, which have shook the edible oil markets and cost hundreds of millions of dollars in lost revenue, the price of cooking oil, a staple for Indonesian families, has not decreased, lowering President Joko Widodo’s support rating.

Authorities have implemented a baffling assortment of policy measures since November, including subsidies, export licences, a palm oil charge, and export prohibitions.

Despite this, the cost of the household need made from palm oil, which is used by the majority of people in the world’s fourth most populous country, has failed to meet a government objective.

Indonesian officials have promised to lift the export prohibition whenever bulk cooking oil prices in the country reach 14,000 rupiah ($0.9560) per litre. The price of cooking oil has dropped from its highs, but according to commerce ministry data, it cost 17,300 rupiah per litre on Friday, down from 18,000 rupiah in April but up from 13,300 rupiah in July.

On March 18, Trade Minister Muhammad Lutfi blamed the issue on a “palm oil mafia”. The attorney general initiated a corruption inquiry into palm oil export permits, detaining a senior commerce ministry official and three palm oil executives, sending shivers through one of Indonesia’s biggest export sectors.

To reduce prices, the government has asked the state food procurement agency, Bulog, to supply additional cooking oil. However, Bulog stated last week that a regulatory framework had not yet been established, implying that a plan to deliver subsidised cooking oil at the 14,000 rupiah price had not yet begun.

The regulations, according to Bulog, were necessary to minimise any implementation errors and to assure clarity on how costs would be covered.

A convoluted government bureaucracy, according to Gulat Manurung, chairman of the smallholder farmers association APKASINDO, is slowing efforts to subsidise palm oil.

The government has set aside a subsidy to compensate manufacturers for any price differences between their production costs and their selling prices.

However, in order for Indonesia’s palm oil fund agency BPDPKS to pay palm refiners, a full list of distributors and retailers must be submitted, which will be subject to a governmental audit and any inaccuracies could result in jail time.

“The factories have the cooking oil, but they are not selling to consumers,” said Gulat, who believes the system should be streamlined.

On Tuesday, the commerce ministry unveiled a scheme to ensure that low-cost cooking oil reaches low-income people in thousands of places. Retailers will be able to sell bulk cooking oil at 14,000 rupiah per litre to those who furnish them with identification cards, according to the statement.

When asked about distribution concerns, Merrijantij Punguan Pintaria of the Industry Ministry stated there were many factors to consider, but logistical and transportation constraints were the most significant.

The president, known as Jokowi, has stated that the need for affordable food takes precedence over income concerns and that the export prohibition will be reversed only if domestic demands are addressed. Palm oil dealers have anticipated that the prohibition could be removed in part shortly, especially if storage tanks fill up.

The date is likely to be influenced by politics. The president’s approval rating is at a six-year low, according to a poll conducted this week by pollster Indikator Politik Indonesia, which is mostly due to rising cooking oil prices and inflationary impacts.

(Adapted from Reuters.com)  

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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