T

he Trade Ministry is reconsidering its plan to lift import duty on cocoa beans, as its effectiveness remains under question.

Trade Minister Muhammad Lutfi said Thursday that the removal of the 5 percent duty may not help the domestic processing industry, as the amount was small compared to the commodity'€™s price.

The price of cocoa beans, which in Indonesia are largely sourced from Sulawesi and Sumatra, is around US$3,000 per ton.

'€œWithout eliminating the tariff, imports will continue, and they are necessary for our local industry,'€ Lutfi told reporters after a hearing at the House of Representatives.

Indonesia, the world'€™s third-largest cocoa bean producer, has imported high-quality beans for more than a decade, primarily because the local industry uses the beans for blending.

Lutfi added that a crucial issue to address was how to increase supplies in the most cost-effective way to prevent problems for the processing industry, whose annual capacity was due to surpass 1 million tons in the next few years.

The ministry would continue to discuss with relevant ministries the plan to scrap the import duty along with other options, such as sealing an agreement for the provision of cocoa beans with other producing nations under a government-to-government arrangement, and raising export tax to maintain domestic supplies, he said.

The plan to lift the import duty emerged at the end of last year, when the government predicted a shortfall in cocoa beans that risked domestic demand not being met. The lack of import duty would slash the overall cost of imports, which would benefit grinders.

The domestic processing industry has expanded rapidly in recent years, thanks to major investments from food giant Cargill and prominent chocolate maker Barry Callebaut, triggered by a cocoa bean export tax and ample raw materials.

The Industry Ministry recently backed the plan, while the Agriculture Ministry also gave the green light to remove the import duty as long as it did not have a negative effect on local farmers.

Indonesia is expected to import up to 150,000 tons of cocoa beans this year, a more than 300 percent increase from the 40,000 tons imported last year, as production is estimated to plunge by 6 percent to 425,000 tons '€” its lowest level in eight years '€” due to inclement weather, according to the Indonesia Cocoa Association (Askindo).

Local grinding capacity was set to hit 600,000 tons next year and without a significant increase in productivity, annual imports would surpass 100,000 tons by 2015, the association said.

Askindo chairman Zulhefi Sikumbang said that in order to determine the best solution for the domestic industry, the government should first carry out a thorough study of the available options.

'€œScrapping import duties will certainly meet opposition from local farmers, while increasing export tax is unlikely to be effective as several key industry players have a presence locally,'€ he said.

Figure 1: Jakarta Retail (Rental Shopping Mall) Supply Growth

Note: Between 2011 and 2013, almost 100% of new supply came from projects launched prior to moratorium period

In 2014, more than 90% of new supply will be contributed by projects launched prior to moratorium period