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Mandatory B40 risky after cooking oil policy mishap
The government’s antimarket domestic market obligation (DMO) and low ceiling prices of cooking oil in time of skyrocketing international prices sent the wrong signals to the market, which resulted in producers holding their stock to avoid losses, causing scarcity and prices rising far beyond the ceiling prices.
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A Pertamina truck carrying BioAvtur J2.4 parks beside a CN 235-220 test plane during a ground running test in Bandung, West Java, on Sept. 6, 2021. (Courtesy of Pertamina)
A series of policy blunders by the government on palm oil trade earlier this year resulted in a scarcity of cooking oil and sent some “innocent” industry players to jail. The government is likely to make another policy misstep as it is considering advancing the mandatory 40 percent palm oil-based (B40) program when cooking oil prices remain relatively high.
Industry players, gathering in Bali last week for the International Palm Oil Conference (IPOC) 2022, discussed privately the cooking oil policy mishap that penalized the palm oil industry dearly, but the issue was not officially discussed in the IPOC 2022, which was organized back-to-back with the Group of 20 Sustainable Vegetable Oil Conference.
Some international speakers, nevertheless, highlighted Indonesia’s brief export ban of crude palm oil (CPO) and its derivatives from late April until May as a blunder as it caused Indonesia to lose its share in some markets such as India that resorted to using Malaysian CPO. Speaker Dorab E. Mistry of Godrej International Limited, for example, said he personally wrote a letter to President Joko “Jokowi” Widodo urging him to remove the market-distorting export ban.
According to India’s Solvent Extractors’ Association, Indonesia’s share in India's palm oil imports dropped from 64 percent in 2020 to 43 percent in 2021 and 41 percent in 2022. The association attributed Indonesia’s falling market share to its high export tax and levies, and stated that the ban aggravated the problem.
Meanwhile, Indonesia’s Oil Palm Plantation Fund Management Agency (BPDPKS) projected that Indonesia’s total palm oil exports would drop from 27.73 million tonnes in 2021 to 23.95 million tonnes this year.
Some industry players privately said that the government’s flip-flopping policy of the export ban and the domestic market obligation (DMO) had cost the industry dearly. In addition to falling market share, they also suffered from the aftermath, such as difficulty in finding cargo vessels to export the produce.
They also complained about what they described as the criminalization of CPO exporters, which the Attorney General’s Office (AGO) blamed for the scarcity of cooking oil. The AGO earlier this year named five suspects in the case, including then-Trade Ministry international trade director general Indrasari Wisnu Wardhana, PT Permata Hijau corporate affairs senior manager Staley Ma, PT Musim Mas general affairs general manager Togar Sitanggang, PT Wilmar Nabati Indonesia commissioner Parulian Tumanggor and trade minister advisor Lin Che Wei.
