Indonesian Palm Growers Ask Government to Cancel Domestic Matching Sales Policy

Indonesian farmers want the government to cancel the palm oil ancillary sales policy implemented since May 23 in order to expand exports and raise domestic purchase prices for fresh fruit bunches, Indonesian officials said.

The ban on palm oil exports was implemented by the world’s top palm oil exporter between April 28 and May 23 this year, with the aim of boosting domestic supply and smoothing out edible oil prices during peak holiday demand. The move caused domestic palm oil stocks in Indonesia to swell significantly and processors to stop buying fresh fruit bunches (FFB) from smaller growers, sending prices plummeting by about 70%.

Indonesia then lifted the export ban in the last week of May, but at the same time implemented a domestic ancillary sales policy, known as Domestic Market Obligation (DMO), which requires exporters to sell edible oil domestically before they can apply for an export permit. Indonesia then introduced an accelerated export program in order to speed up the digestion of domestic stocks, and exporters who did not participate in the domestic sales program could also obtain an export permit, provided they paid an additional $200/ton export tax. Even so, Indonesian growers complained that domestic FFB prices remained low.

Gurat Manurajan, head of Indonesia’s small growers’ organization APKASINDO, said the government must act quickly to remove regulations that have led to heavy pressure on prices in order to increase the price at which farmers can sell FFB.

Gurat said the DMO policy has resulted in mills being unable to sell the large stocks that built up during the export ban. Fifty-eight of Indonesia’s 1,118 palm oil processors have stopped buying FFB and 114 have restricted their purchases, resulting in current FFB prices of only Rp 1,150 to Rp 2,010 per kilogram (about $0.0775-$0.1354), well below the ideal selling price of Rp 4,500. Manurajan said the target price he gave was based on a global gross palm oil price of US$1,450 per tonne. Goulart suggested that the government should subsidize edible oil so that people can afford it, farmers can sell it at a fairer price, companies can export it successfully and the country can get foreign exchange and tax revenue.

However, a government spokesman said in response that the current policy will be maintained as the government has already initiated a policy to accelerate exports. The spokesman estimated that it may take two to three weeks to return to normal. In addition FFB prices are also affected by the decline in global gross palm oil prices. Malaysian palm oil futures have plunged 15% over the past week, with the benchmark contract September 2022 gross palm oil closing at RM4,656 per tonne, equivalent to US$1,058, on Friday.

Since the export ban was lifted, Indonesia has issued 1.7 million tons of palm oil export licenses. But exports are still not growing as expected, with the Indonesian Palm Oil Association (GAPKI) saying exports are constrained by a shortage of vessels. The association’s secretary general, Eddie Martono, said exporters believe palm oil exports may not start advancing smoothly until July.

Source: BoE Guru

Post time: Jul-01-2022