CPO Export Levy Increased to USD 55/Ton, Benefit or Loss?
Under the leadership of Eddy Abdurachman as the new director of BPDPKS, which was just inagurated in March 2020, BPDPKS issued a policy related to an increase in export levy tariffs for palm oil and its derivatives which effectively began on June 1, 2020. Referring to The Minister of Finance Regulation No. 57/PMK.05/2020 concerning Service Rates of the Public Service Agency and the Palm Oil Fund Management Agency (read: Badan Pengelola Dana Perkebunan Kelapa Sawit/BPDPKS), states that the amount of export levy for CPO is USD 55 per ton.
In 2019 through The Minister of Finance Regulation (PMK) No. 23/PMK/05/2019 and PMK Number 136/PMK/05/2019, BPDPKS did not charge export levy (0 percent) on each ton of CPO exports given the trend of world CPO prices continue to decline. However, when comparing PMK 57/2020 with PMK No. 152/PMK/05/2018, CPO export levy rates have increased by USD 5 per ton i.e. from USD 50 per ton (when CPO reference prices above USD 619 per ton) or have increased amounting to USD 30 per ton i.e. from USD 25 per ton (when CPO reference price of USD 570 per ton – USD 619 per ton).
The new policy shows that Indonesia carries out export trade protection, although currently the export tax for CPO has not yet been applied. In contrast to the competitor of Indonesia, Malaysia actually removes export barriers by issuing policies to abolish the CPO export tax since June 2020. The policy carried out by the two largest CPO producer countries in the world is very contradictory. In the Covid-19 pandemic which has an impact on declining global demand, the policy of increasing Indonesia’s CPO export levy is considered to further reduce the competitiveness of Indonesian CPO compared to Malaysia. This export levy policy has rolled into a “hot ball” which bring up the opinions both pros and cons of national palm oil industry.
In economic theory, the impact of the increasing export taxes policy or export levy will cause reducing welfare of producers (worse off). This is because the CPO export levy will be transmitted through Fruit Fresh Bunch (FFB) prices so the producer will accept a lower FFB prices. For palm oil corporations/companies, the policy has an impact on increasing production costs, so can reducing the competitiveness of the company’s palm oil products.
Meanwhile, losses will also be received by oil palm farmers due to lower FFB prices as a result of the of the export levy policy. Oil palm farmers also suffer more because of “bent” in Palm Oil Factories using the excuse that farmers’ FFB are considered illegal and do not have ISPO certification, so the FFB price received by farmer will be disounted around 30-40 percent. This means in that situation, the oil palm farmers will have huge losses due to very low FFB prices. And potentially cause declining the farmer’s welfare, especially in a difficult pandemic.
What about the impact of the policy on downstream industry? Palm oil-based downstream industries (oleofood, oleochemical and biodiesel) will be more benefited (better off), because they can enjoy lower domestic CPO prices. Even the biodiesel industry get double benefit because of the cheap price of raw materials and get incentives from the difference in the price of biodiesel (if the biodiesel’s Market Price Index (HIP) is above diesel’s HIP).
Currently, there is an oversupply of CPO in the global market because CPO production in Indonesia and Malaysia is increasing while the demand of importing countries has decreased as a result of the lockdown during the Covid pandemic. The excess CPO stock caused the CPO and TBS prices to decline. So that the downward trend in CPO prices does not continue, it needs policies that can increase the absorption of domestic CPO by downstream industries.
The oleofood and oleochemical industries have limitations in the absorption of palm oil as a raw material related to consumer habits, although demand has increased amid the Covid-19 pandemic. The increase in domestic CPO absorption will be more optimal as the B30 mandatory program goes on because it is able to absorb 9.59 million kiloliters of FAME or more than 10 million tons of CPO.
The problem is, the global crude oil price has fallen since the beginning of the year due to decreased demand. The price of crude oil (brent) in January 2020 was USD 63.65 per barrel decreased to USD 29.38 per barrel in May 2020. The same thing also happened to the CPO price (CIF Rotterdam) which was corrected from USD 831 per ton to USD 527 per ton. Although the CPO price decline was not as sharp as the price of crude oil and diesel, but the difference in the prices of diesel and palm oil more widen.
In May 2020, the diesel’s HIP was only Rp 3,083.14 per liter while biodiesel’s HIP reached Rp 8,494 per liter. So the difference reached Rp 5,411 per liter or an increase compared to the difference in HIP for the January 2020 which is only Rp 2,000 per liter. This large difference causes the charge of incentives (subsidies) given by the government to biodiesel producers to be even greater. Therefore, the policy to increase CPO export levy tariffs is considered as the right policy to continue the mandatory B30 policy in order to improve the prices of CPO and FFB, save foreign exchange imports so as to reduce the burden on Indonesia’s trade balance deficit and produce a greater multiplier effect that can contribute to country’s economy.
Beside to being a “weapon” for the sustainability of the B30 mandatory program in Indonesia, the additional CPO export levies are also utilized for the development of human resources for the palm oil industry, research and other developments in the oil palm plantations such as plantation infrastructure and production inputs. BPDPKS also increased the PSR (replanting programme) grant fund to Rp 30 million per hectare from Rp 25 million per hectare previously.
By considering the pros and cons felt by the palm oil industry players (such as farmers, corporations and downstream industries) and using a more comprehensive perspective, the increasing CPO export tariffs policy is policy which has needed in the current condition when CPO oversupply in global market. But when implementation of policy, timing and schedule is needed to minimize the negative impact of reducing CPO and FFB prices at producer level.
PASPI recommends optimizing palm oil down-streaming through the mandatory B30 first, so that the price of FFB and CPO can increase, then applying a new export levy policy. In addition, it is also suggested that there is a threshold price for implementing export levy with progressive export levies following a reference CPO’s price. As in PMK No. 152/PMK/05/2018, the export levy not implemented when the CPO price is below USD 570 per ton and different tariff rates in each CPO’s price range.
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