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Cooking oil debacle is palm oil conundrum
The government needs to come up with an appropriate policy measure based on big data to tackle the skyrocketing prices of domestic cooking oil.
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A supermaket display shelf stands almost empty of cooking oil on Jan. 27, 2022 in Bekasi, West Java. The government has imposed a single price policy of Rp 14,000 per liter to calm consumers amid the skyrocketing prices of staple goods in the market. (JP/Niken Prathivi)
T
he government’s hasty decision to impose on palm oil producers domestic market obligation (DMO) that amounts to 20 percent of their export volumes for crude palm oil (CPO) and olein seems to have been prompted more by frustration over its inability to understand why cooking oil prices have risen more than 40 percent over the past year.
When the government launched the DMO policy for palm oil producers on Jan. 28, it did not elaborate on the technical details on how the policy would be implemented or which institution would manage and supervise the DMO.
We even doubt that the government is apprised of the whole structure of the palm oil industry, as evidenced by the spate of four different decrees Trade Minister Muhammad Lutfi issued between Jan. 11 and 28 to cope with the debacle over cooking oil prices.
After his three earlier decrees failed miserably to stabilize cooking oil prices and instead caused chaos in the market, the minister ruled on Jan. 28 that starting the very next day, palm oil companies must sell 20 percent of their respective CPO and olein export volumes to local cooking oil producers at the domestic price obligation, set at a maximum Rp 9,300 (64 US cents) per kilogram for CPO and Rp 10,300 per kg for olein.
International CPO prices have hovered above $1,000 per ton over the past few months.
The government seems to be confused by the steady and steep rise in cooking oil prices, arguing that domestic prices should not have followed the international CPO prices because Indonesia is the world's largest palm oil producer. Local production costs are not heavily influenced by global CPO prices.
According to industry association Gapki [Indonesian Palm Oil Association], only 10 percent of Indonesia's CPO production of around 46 million tons is processed into cooking oil, as the estimated domestic consumption of cooking oils among households and industries is only 5.7 million tons. The estimated cooking oil export for 2021 was 16 million tons.
