Those Who Should be Bear The CPO Export Levy as The Impact Implementation of PMK 191/2020?
Law no. 39/2014 concerning Plantations, Article 93 revealed that one of the funding sources for plantation development from levy from the actors. This law has been followed up by the issuance of Government Regulations, Presidential Regulations and Minister of Finance Regulations related to the collection and use of palm oil levy as a source of funding for the development of the national palm oil industry related to the replanting of smallholder plantations, development of plantation infrastructure, human resource (farmers) development, research inovation, promotion (positive campaign) and development palm oil-based biofuels.
The implementation of export levy for CPO for the first time was carried out in 2015 based on Minister of Finance Regulations (PMK) No. 133/2015, with a tariff of USD 50 per ton for each level of world CPO prices. The amount of palm oil export levy continues to change. On May 29 this year, based on PMK 57/2020 there was an increase in the export levy tariff to USD 55 per ton at any CPO’s world price level.
In line with the increasing trend of world CPO prices (CIF Rotterdam) since June 2020, it even reached of USD 975 per ton in early December 2020 and also in order to maintaining the sustainability of the national palm oil industry development program such as palm oil replanting (PSR) and mandatory biodiesel (B3) become the background for the Indonesian Government for readjusting the export levy tariff as stipulated in PMK 191/2020 and has been implemented since December 10.
If we compared with the previous regulation (PMK 57/2020) with PMK 191/2020, there was a change from the fixed rate to a progressive rate with a levy tariff starting from USD 55 per ton (if the reference CPO price set by the Ministry of Trade is below or equal to USD 670 per ton) and this levy tariff continues to increase by USD 5 per ton each incrasing of CPO’s reference price by 25 per ton. The maximum export levy tariff is USD 255 per ton for a CPO reference price of more than USD 995 per ton. Meanwhile, the export levy tariff for palm oil derivative products is lower than the CPO’s export levy tariff.
In PMK 191/2020, assuming an exchange rate of IDR 14 000/USD, so the burden of the impact implementation of export levy in the average CPO price range of USD 670 per ton to USD 800 per ton are IDR 750-IDR 1890/kg CPO or equivalent to IDR 154 – IDR 378/kg FFB. The question is who and how much of CPO’s export levy should be borne by the palm oil industry players?
In economic theory, the export levy is indirect taxes (based on volume or value) that will affect the market equilibrium and the burden of levy will be transmitted pass through both in upstream and downstream along the palm oil supply chain. This means that although export levy imposed on CPO’s exporter, however the burden of export levy will be transmitted to the domestic CPO and FFB market at the farmer level. This is because it cannot be separated between CPO/FFB that will be exported or will be used by the domestic downstream industry.
Based on the impact of palm oil export levy on palm oil industry players, it can be divided into four groups, namely: (a) downstream actors; (b) integration actors of plantation – CPO/RPO (mill) – downstream industries; (c) CPO’s producers; and (d) FFB’s producers including farmers. First, for the palm oil-based downstream industry players such as cooking oil industry, oleochemical industry, and biodiesel industry, get the benefit from the progressive of palm oil export levy. They can obtain CPO as raw material with cheaper prices.
Biodiesel industry actually get double benefits from the implementation of PMK 191/2020. Apart from obtaining cheaper raw material, biodiesel producers also receive a guaranteed selling price from Pertamina with financing incentive from the palm oil fund (the result from export levies). This is confirmed by the Indonesian Biofuels Producers Association (APROBI) supporting this latest regulation about export levy because it’s as effort to strengthen the palm oil downstreaming program and continuing the mandatory biodiesel program so that it will absorb the use of domestic palm oil and smallholder.
In addition, the PMK 191/2020 also provides benefits to palm oil- based downstream/derivatives products exporter, because it’s levy tarif lower than CPO. This was also stated by GIMNI in response to this policy, if higher tariff adjustments on upstream products and lower on downstream products will have an impact on increasing the competitiveness of downstream products as well as high added value in the global market and the growth of domestic consumption will also be wider.
Second, the industry integration of oil palm plantation company – CPO/RPO (mill) – the downstream industry, where business actors implementing this integration system are the top six palm oil industries in Indonesia. The impact of these export levy on the CPO chain is indeed detrimental to IDR 750-IDR 1,890 per kg of CPO (for a price range of USD 500-800 per tonne of CPO). Considering that about 40 percent of the FFB required by CPO mill) is fulfill from outside from their plantation itself, so the levy can be partially transferred to the FFB producer (their supplier).
The amount transferred depends on the PKS bargaining power in the local FFB market. Then, because the integrator also has a downstream industry (cooking oil industry, oleochemical industry, biodiesel industry), they also enjoy benefits such as lower raw material price and “incentives” for biodiesel producers. So, overall this integrator enjoys an advantage.
Third, oil palm plantation actors with CPO mill such as state-owned companies and middle-class private companies. The impact of CPO’s export levy will make them losses of IDR 750-IDR 1,890 per Kg of CPO (in the price range of USD 500-800 per ton of CPO). Generally, for actors who have their own plantations with CPO mill, some of FFB (30-40 percent) are supplied from outside their plantations, so that some burden of can be transferred to the FFB supplier. But overall, these actors suffered losses.
Fourth, actors who only have oil palm plantations with production in the form of FFB, including 2.67 million of farmers and also middle-class oil palm plantation companies without CPO mill. The impact of export levies on this group is losses around IDR 154-378 per kg of FFB (in the price range of USD 500-800 per ton of CPO). The magnitude of the loss could be greater in the condition of the weak bargaining power of oil palm farmers and palm oil mill at the local level.
Thus, the impact of palm oil export levy (PMK 191/2020) is make a loss for FFB and CPO producers. On the other hand, the integrator of oil palm plantation company – CPO/RPO (CPO mill) – the downstream industry and downstream industry players actually enjoy the benefits (gain). However, in total it can be ascertained that the losses suffered by the FFB and CPO producers is greater than the profits enjoyed by the integrator industry and the downstream industry.
Therefore, the objections of this regulation also raised by the FFB and CPO producers. They have a strong base and the Government needs to find a solution. The same thing was said by Agam Fatturochman from Indonesian Palm Oil Association (GAPKI), who considered that the policy needed to be reviewed so it will not burden industrial players, especially CPO producers and farmers because the new CPO’s export levy tariff was too high.
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