POINTERS: New Palm Oil Export Levy (CSF) and Its Impact on Indonesian Palm Oil Market

This article analyses the impacts of the new levy imposed on CPO and its products on various players of the industry--in term who gain and who loss from this policy and Indonesian palm oil market. The levy is called CPO Supporting Fund (CSF). The new levy triggered by the continue declines of CPO prices, along with the ineffectiveness of mandatory biodiesel program implemented in Indonesia due to the lack and the uncertainty of subsidy. Thus, the objective of the levy is first to provide an adequate subsidy for biodiesel and to increase the utilization of CPO in the domestic market so that it will boost prices of CPO in international market. At the same time by increasing the blending of biodiesel up to B15 this will reduce import of fossil fuel so that it saves foreign exhanges badly needed to stabilize exchange rates. The analysis shows that this policy in short term will hurt the producer of CPO but it is neutral for the processors and benefits the producer of biodiesel. It will also hurt the competitiveness of Indonesian palm oil industry against other producer of palm oil. Its impact on price and supply-demand of CPO is still uncertain. It depends on how big is the volume of CPO absorbed by the biodiesel markets. Thus, the effectiveness of the B15 mandatory program is key factor in determining the likely impacts of the CPO Supporting Fund (CSF)

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Questions & Answers (7) :

Mohammad Jaaffar Ahmad

9 years ago

Finally, in your conclusion, you said that the objective of the levy is to boost the price of palm oil in the longer term which I fully subscribed. As you know, Indonesia and Malaysia are duopolistic producers and exporters of palm oil in the world. Do you think that the price of CPO will go up if Malaysia does not implement the same levy structure on CPO as the Indonesian? What would be the setback and what would be your advice? TQ Pak Dr.

Fadhil Hasan:
The ideal condition would be for Malaysia to have similar structure and also similar mandatory programme on biodiesel. Thus, the effect would be more immediate and significant. However, if Malaysia does not follow then we still believe that price of cpo in the longer term would increase due to the reduction in Indonesia exports. For consideration around 5.5 million tons of cpo will be used for domestic biodiesel and that is significant volumes of our exports (around 17%). Again that is with the assumption that the programme is effective and enforced......
9 years ago

Mohammad Jaaffar Ahmad

9 years ago

TQ Pak Dr., It is interesting that you commented that there was a toothless mandatory biofuel programme in Indonesia and Malaysia. At least the Indonesian is going for B15 in 2015 while in Malaysia is still at B7. What would you reckoned for both countries to adopt for an ideal blending target in the medium and long term in order to support the price of CPO?

Fadhil Hasan:
Thank you for very interesting question. In indonesia case the importaant thing is that we ned to make sure that there are guarantee of the availability of fund to subsidize the biodiesel programme. That is why the government issued the new levy. Second us that there has to be a penalty system for the unsubsidized companies who sell the diesel (for non public service obligation). Otherwise the programme will not be effective.
9 years ago

Kazmi

9 years ago

Congratulations for nice presentation. In your paper, you mentioned that the implementation policy will hurt the palm oil producers. In your opinion, what are actions taken by Indonesian Government to compensate their losses in revenue.

Fadhil Hasan:
Government will embark replanting programme in big scale thus, improving productivity for smallholder. In addition, government also will improve infrastructure and train the smallholder better agricultural practices.
9 years ago

Hazlan

9 years ago

Based on your analysis, the levy is discounted into FFB sellers price. Having to pay more, does the FFB planters got higher level of support from the government? What is Indonesia’s oil palm model to help the smallholders?

Fadhil Hasan:
Yes, government will carry out replating programme in big scale to compensate this negative effect. In addition, government also will do more to help smallholder by providing good quality of seeds, improving infrastruture, and train smallholder.
9 years ago

K H LEE

9 years ago

is there any actions or future plans to minimise the negative impacts on pure planters?

Fadhil Hasan:
For smallholders, government plan to conduct replanting programme in the big scale, so that it also manages supply of the CPO. This hopefully wil help smallholders and minimizing the negatives impacts form the new levy imposed.
9 years ago

Ahmad Redhuan

9 years ago

TQ. I understand that the Indonesia local CPO price is very much regulated. This is to ensure a competitive price for its local cooking oil sale. But when the new export tax was introduced, it generates a lot of demand for its CPO to be produced into refined products. Is this development inflationary to Indonesia’s local cooking oil price?

Fadhil Hasan:
So far we dont see any significant increase in our cooking oil prices. However, it could happen in the future if biodiesel programme run effectively and more CPO refined into biodiesel. In addition, we believe that this additional future demand for refined products such as biodiesel will be responded by an increase in the production. So, we hope that there will be significant inflatinary pressure for cooking oil pressure.
9 years ago

POINTERS SECRETARIAT:
Uploaded on behalf of Dr. Fadhil Hasan. So far we dont see any significant increase in our cooking oil prices. However, it could happen in the future if biodiesel programme run effectively and more CPO refined into biodiesel. In addition, we believe that this additional future demand for refined products such as biodiesel will be responded by an increase in the production. So, we hope that there will be significant inflatinary pressure for cooking oil pressure.
9 years ago

Zulhilmi Sidek

9 years ago

Thank you for the presentation. The effort to encourage increase in palm biodiesel from the tax incentive will certainly boost biodiesel production. It will certainly need raising capacity to meet the biodiesel demand. The question is that whether this development has created more new biodiesel plant to meet this rising demand. Is business of constructing biodiesel plant booming? Is it like Malaysia, where there is construction of some biodiesel plant to meet the rising biodiesel demand attribute to government biodiesel mandate.

Fadhil Hasan:
The installed capacity of biodiesel production in Indonesia is around 6.2 million kiloliters (kl), while its production was around 3 million kl. Thus, even without new biodiesel plant, there are still room for increasing biodiesel production using the existing plants. However, in the future when biodiesel programme increases to B20 certaintly more plants are needed. This is opportunity for investors to invest in this industry.
9 years ago

POINTERS SECRETARIAT:
Uploaded on behalf of Dr. Fadhil Hasan. The installed capacity of biodiesel production in Indonesia is around 6.2 million kiloliters (kl), while its production was around 3 million kl. Thus, even without new biodiesel plant, there are still room for increasing biodiesel production using the existing plants. However, in the future when biodiesel programme increases to B20 certaintly more plants are needed. This is opportunity for investors to invest in this industry.
9 years ago