Spotlighting African Market Potential for Palm Oil Export
As the largest palm oil exporter country that also dominates the global vegetable oil market, Indonesia faces many trade barriers. Protectionism is undertaken by developed countries such as the European Union, Britain, and the United States on their vegetable oils, causing these countries implement trade policies that inhibit and discriminate against palm oil.
These trade dynamics will threaten the existence of palm oil in the global market and will also cause a deficit in Indonesia’s trade balance, given that palm oil products have been proven as one of the main contributor to net trade surplus. Therefore, the Indonesian government and palm oil industry players must mitigate trade policies that hinder palm oil products, which are predicted more intensive in the future.
Diversification of the export market for palm oil (and its derivative products) to non-traditional markets is the right strategy to reduce the dependence of Indonesian exporters on traditional markets that apply trade barriers to palm oil products. The African market is one of the potential markets as export destination for Indonesian palm oil products.
Africa’s fast-growing population and estimated will reach 1.34 billion people in 2020 and with the growth of vegetable oil consumption per capita are signals that show the huge potential market for palm oil. Even though the palm oil plant originates from Africa, but to fulfill their high demand, it;s mainly sourced from imports, one of which is from Indonesia.
The Trademap data shows that during the last five years, exports of Indonesian palm oil (CPO and RPO) to African showed positive growth with an average volume of 3.35 million tons with export value of USD 2.15 billion per year. The main export destinations in this region are Egypt (3.9%), Tanzania (1.3%), and South Africa (1.1%), while the share of other African countries is below 1 percent.
Among the three main destination countries, only South Africa has shown an increase in the export performance of Indonesian palm oil both in terms of export volume and value during the pandemic. The BPS data shows that the export volume for Indonesian Refined Palm Oil (RPO) products to South Africa for the January-November 2020 period is 308.63 thousand tons with export value reaching USD 200.7 million. When compared to the same period in 2019, the export volume of RPO was slightly lower around 306 thousand tons with a value of USD 158.75 million.
Meanwhile, the export volume of Indonesian RPO to Egypt has decreased by 12.6 percent, but in line with the increase in palm oil prices, the export value also has increased by 10.8 percent. In contrast to Tanzania, there was a decrease in the volume and value of Indonesia’s RPO exports by 24.7 percent and 9.84 percent, respectively. Although the performance of Indonesia’s palm oil exports to these countries has decreased due to the Covid-19 pandemic, the difference is not too large and it is hoped recovery will soon be possible.
Founder/Chief Strategist of 3XG UK Consulting Ltd., Aban Ofon, in the Virtual Indonesia Palm Oil Conferences 2020 webinar held by GAPKI in December last year, said that Indonesia has opportunistic potential to export to several countries, i.e Alajzair, Sudan, Liberia, Cameroon, and Sierra Leone. Meanwhile, the constructive export potential is in Egypt, Kenya, South Africa, Tanzania, Ethiopia, Djibouti, Mozambique, Mauritania, the Democratic Republic of the Congo, and Rwanda.
Joko Supriyono, chairman of GAPKI, also agreed with Ofon’s statement. He also stated that the export growth to African countries is quite good every year, even though the trade volume is in small packs of 200 tons or 500 tons. This correlates with one of the obstacles that they dont have large tanks at ports to store palm oil stocks. This condition can be used by Indonesia to export processed palm oil in liquid form with packaging measuring 25 kilograms.
However, until now, the market potential for packaging products has not been utilized by Indonesia. Currently, Indonesian palm oil exports to Africa are still in bulk form with container tanks or not yet in the form of packaged palm oil or jerry cans. The challenge of their need for packaged palm oil as a solution to the lack of tanks in African countries is actually answered by Middle Eastern countries through their packaging industries which then they export packaged cooking oil to the African market.
Another strategy that must be taken by Indonesian palm oil players to more “stick our claws” in the African market is to diversify products, especially palm oil-based food products according to consumer preferences. Just like Indonesia, African people also have an eating habit that prefers deep-fried food, which causes palm cooking oil consumption in this region is continuing to increase. However, their taste not match with palm cooking oil which is widely sold in Indonesia, they prefer natural palm oil that has minimal processing.
With these market characteristics, a strategic approach is needed to engage the African market. Aban Ofon again advised that Indonesia needs to take a value chain approach and build partnerships through technology development. The role of the Indonesian government is also needed in building trade cooperation, for example in the framework of the Joint Trade Committee (JTC) or PTA agreements with African countries in the African region to facilitate trade in palm oil commodities and other products. Regarding trade agreements, currently, Indonesia has just had the first trade agreement with a country in the African region, namely Mozambique, namely the Indonesia-Mozambique Preferential Trade Agreement (IM-PTA).
In addition, the Indonesian government must also make a serious effort to reduce domestic export constraints, such as the quality of export port infrastructure, so that it can reduce logistics costs which have implications for increasing its competitiveness. Related to this, the Executive Director of GIMNI, Sahat Sinaga, suggested that Indonesia should take advantage of the geographical conditions by using ports on the coast of West Sumatra to be developed as points of palm export to the African market. This will save around USD 8-10 per ton in logistics costs when compared to exporting from Riau ports.
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