Indonesia hikes palm oil export levy amid accusations of 'policy panic'

JAKARTA - Indonesia has significantly raised its maximum palm oil export levy, a new government regulation showed on Friday (March 18), marking a new bid to control domestic cooking oil prices after previous measures failed to tackle the problem.

The world's biggest exporter of the edible oil a day earlier announced a surprise policy U-turn to remove export volume restrictions on palm oil products and raise its export levy instead.

The new regulation, which took effect immediately, introduced higher progressive rates when the reference price for the edible oil hit at least US$1,050 (S$1,400) a tonne to a maximum levy of $375 a tonne.

Under previous rules, the maximum export levy was $175 per tonne, which kicked in when the reference price hit at least $1,000 a tonne.

Indonesia's reference crude palm oil price for March stood at $1,432.24 per tonne.

The new regulation did not change the levy structure when the reference price is below $1,000 a tonne.

(In U.S. dollars per tonne)

Industry groups welcome move

Joko Supriyono, chairman of the Indonesia Palm Oil Association (Gapki), said exports were vital to absorb surplus output the local market could not consume. Indonesia typically exports more than two-thirds of its production.

The levy was a more "civilised" policy for international buyers and gave them more predictability, said Sahat Sinaga, deputy chairperson of the Indonesia Palm Oil Board.

Indonesia uses proceeds from palm oil levies to fund programmes that include subsidising biodiesel, smallholder replanting and now subsidies for cooking oil.

The government has allocated more than $500 million for the next six months, estimating about 202 million litres of bulk cooking oil would be distributed monthly.

Indonesian exporters are required to pay an export tax on palm oil shipments on top of the export levy. The maximum export tax is currently $200 a tonne.

Authorities have been struggling to control the domestic market for cooking oil, made from refined crude palm oil, after prices surged 40 per cent at the start of the year due to high global prices.

Mafia and speculaters

Trade Minister Muhammad Lutfi announced the levy hike at parliament committee hearing on Thursday after repealing palm oil export volume restrictions.

The move to scrap the so-called Domestic Market Obligation (Dmo) came only days after it was raised to 30 per cent from 20 per cent set in late January.

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In a heated six-hour hearing, Lutfi assured lawmakers that even after the removal of the Dmo exports would continue to be restricted by the high levy.

Some lawmakers accused Lutfi of "panic policy making" after his ministry had changed regulations at least six times since January.

Lutfi defended his actions and said rising global commodity prices since last year had hit all global economies, while Russia's invasion of Ukraine had exacerbated the situation.

The minister vowed not to be defeated by what he termed "mafia and speculators" impacting the palm oil sector.

Indonesia's policy shifts have triggered big swings in Malaysian palm oil futures in a market already jittery due to weak production and after the conflict in Ukraine hit supplies of rapeseed and sunflower oil.

The parliamentary committee urged the minister to be ready to restrict exports volume again if the latest policy failed to achieve a "fair" market price for cooking oil.

The government also recently removed retail price caps for branded and packaged cooking oil after deciding the move had increased scarcity.

Cooking oil supplies were readily available again at supermarkets on Friday, according to media reports, though prices were well above the previous 14,000 rupiah (S$1.30) per litre cap.

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