As a repercussion of Chinese companies’ decision to stop buying United States agricultural products in light of the ongoing trade war with the US, the Chinese Commerce Ministry last week removed palm oil — among other commodities — from its import tariff quota.

The move is expected to boost Indonesian palm oil exports to China, the only major export destination of the commodity that showed positive growth in the first half in comparison to other palm oil export destinations such as the European Union and India. “Their will to lower this barrier is a positive development and the effect is big because this highly relates to China’s staple needs,” said Lakshmi Sidarta, secretary-general of the Indonesian Palm Oil Association (GAPKI).

“They consume a huge amount of vegetable oils but palm oil comprises only a small part of it,” she added.

Aside from palm oil, China also plans to remove import quotas for soybean oil and rapeseed oil.

The news came amid Indonesia’s latest spat with major palm oil importer EU over biodiesel, a crude palm oil (CPO) derivative, in which the 28-member bloc had accused the Indonesian government of subsidizing biodiesel producers such as through the Indonesian Oil Palm Estate Fund (BPDP-KS) incentive as well as export financing from Indonesia Eximbank.

In consequence, the European Commission proposed imposing temporary duties on biodiesel imports produced by Indonesian companies, part of its decision earlier in March to completely phase out the use of palm oil by 2030 as it is considered a high-risk vegetable oil over deforestation concerns.

Indonesia’s exports of CPO and its derivatives to China rose 39 percent in the first half to 2.54 million tons compared with the same period last year. On the contrary, exports to the EU stagnated by a mere 0.7 percent increase to 2.41 million, followed by declines by 17 percent to India to 2.1 million tons, 12 percent to the US, 10 percent to Pakistan and 19 percent to Bangladesh.

Overall exports increased 10 percent at a total of 16.84 million tons compared to the first half of 2018.

“This export volume increase can actually be pushed to a higher figure, but several trade barriers have kept us from reaching maximum export performance,” GAPKI executive director Mukti Sardjono said in a recent statement.

Apart from the EU’s phasing out of palm oil by 2030, another trade barrier seen in India is that which favors Malaysian palm oil through the Comprehensive Economic Cooperation Agreement (CECA), which the two countries signed in 2011 and allows Malaysia to enjoy a 45 percent import tariff instead of 54 percent imposed on Indonesia and other CPO exporters.

With such challenges, Gapki said the industry would be lucky to just be able to book 32 million tons in palm oil exports this year, an 8 percent decrease from 34.71 million tons recorded in 2018.

“The [annual export] pattern should be maintained at over 30 million tons, but the EU is posing a serious disruption to this pattern [...] around 60 percent of the EU’s CPO consumption is directed to processed foods and that potential loss is just as big as our potential loss in biofuel exports [to all markets],” said Lakshmi.

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