Compensation for Smallholder Farmers as The Impact of Latest Export Levy Tarriff (PMK 191/2020)
In the previous Palm O’Article was analyzed the impact borne by four groups of palm oil industry actors on the implementation of the latest export CPO’s levy tariff as stipulated in The Minister of Finance Regulation 191/2020.
Oil palm plantation companies with mill such as state-owned and private middle-class companies as CPO’s producers, as well as smallholder farmers and middle-class plantation companies without mills as producers of Fresh Fruit Bunches (FFB) are actors who are disadvantaged by the implementation of The Minister of Finance Regulation 191/2020 (PMK 191/2020). This is because the burden of palm oil export levies imposed at customs will be transmitted and borne by these actors. CPO producers will bear export levy of IDR 750 to IDR 1890/kg CPO and FFB producers will bear IDR 154 to IDR 378/kg FFB for each CPO price range of USD 500 per ton to USD 800 per ton.
Even the potential losses incurred by smallholder farmers could be greater depending on the bargaining power that the they have to deal with local CPO mill. Facts also show that farmers especially independent farmers often facing discounted purchase prices in CPO mill. There are cases of “unscrupulous” CPO mill who use the excuse that independent farmer’s FFB is considered illegal and do not have ISPO certification, so their price was discounted by around 30-40 percent. This shows that independent smallholder farmers must facing double losses.
In economic theory, the CPO and FFB producer’s surplus will decrease as a result of the implementation of the PMK 191/2020. This is because the burden of CPO’s levy is reflected lower CPO and FFB prices received by producers. In various empirical studies, if this condition continues, it will become a disincentive for producers to optimize technical culture and technology adoption, so it causes a decrease in productivity and production. The further implications are the declining in income and welfare of CPO and FFB producers, and will also have an impact on regional economic growth, given the contribution of oil palm plantations as the locomotive of the regional economy.
Therefore, to reduce the losses that are borne by CPO and FFB producers, especially smallholder farmers, compensation is needed to cover part or all losses due to implementation of levy. Based on the proportion of smallholder farmers area of oil palm plantation reaches 41 percent of the total national area, then around 41 percent of the palm oil funds collected from export levy should be returned to be used by smallholders in accordance with the mandate of Plantation Law No. 39/2014 articles 93.
In this article was mentioned about palm oil funds (collected from export levy) are used as a source of funding for replanting, human resource development, research, promotion, and provision of plantation infrastructure. And the rest of funds about 60 percent can be reused for plantation companies and downstream industries, either in the form of incentives or marketing financing for biodiesel (B30) or other allocations.
Palm Oil Fund Management Agency (BPDPKS) as Public Service Agency at the Ministry of Finance which is tasked for collecting and managing palm oil funds and the Ministry of Agriculture needs to ensure that budget alocation in according to the constitution for the fulfillment of the rights of farmers.
Regarding of the Replanting program on smallholder farmers’s plantatiaon (PSR) which is funded by palm oil funds, BPDPKS also reports the progress of the realization of the program based on technical recommendations from the Directorate General of Plantation, Ministry of Agriculture of the Republic of Indonesia until December 6, 2020, which has distributing funds of IDR 1.98 trillion with an area of oil palm plantations that have replanted are around 71,270 hectares for than 30.6 thousand farmers.
Even though the realization in this year is lower than in 2019, there has been an increase in the service of the PSR program in order to increase the realization of replanting, such as increasing grant funds to IDR 30 million/hectare and simplifying requirements. These efforts made by BPDPKS reflected fully committment to realize PSR’s target of 180 thousand hectares per year. Apart from the implementation of the PSR, BPDPKS also reported that the allocation of palm oil funds for the development of smallholder human resources has also been carried out well, for example by providing technical culture training according to Good Agricultural Practices (GAP) for farmers and providing educational scholarships for farmer’s children.
In addition to carrying out the mandate of the Plantation Law, the other compensation for oil palm farmers is the development of institutional development of oil palm farmers in the area equipped with IVO mill (Industrial Vegetable Oil). This mill owned by a grup of farmers will supply raw materials for producing of biohydrocarbon products (green diesel, green gasoline, and green avtur). It is expected, this compensation instrument will not only cover the losses suffered by farmers as impact of the implementation of PMK 191/2020, but also become an instrument in order to strengthen the position of smallholder farmers in the national palm oil industry while improving their welfare.
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