Commodity ( Oil Palm) - Indonesian Oil Palm Industry

The government of Indonesia considers agriculture as a very important sector in the national economy. Therefore all agricultural activities like cultivation of rice, maize, spices, rubber, cacao and oil palm are encouraged. Agriculture provides job opportunities for majority of work forces in Indonesia.
At the same time, the government makes efforts to maintain the prices of basic needs to be affordable to low-income people. Basic needs are mainly foods and clothing. Cooking oil is included in the basic needs. Therefore the price of cooking oil should remain at an affordable level. When the price of palm oil in international market went up in 1994, the price of cooking oil in domestic market experienced similar increase. In order to lower the price of cooking oil, the government apply export tax on crude palm oil and refined products. By export tax, the local price of the crude palm oil can be brought down to a level which is considered affordable. When the price was not excessively high, the tariff of the export tax was around 15%.
However, when in 1998 the international price of palm oil reached US$ 600 per metric ton (CIF Rotterdam) and the Indonesian currency suffered a dramatic weakening of its exchange rate, the tariff of the export tax was increased to 40%. Even such a high export tax was not sufficient to bring the local price of cooking oil to the expectation of the public. So, the government further increased the tax to 60%.
As a result, the exporter of palm oil received only US$ 240 per ton after a deduction of US$ 360 as export tax.



Subsequently, the price of palm oil in international market declined and the Indonesian currency gained better exchange rate. The government agreed to reduce the export tax to 30%, then to 10%, then 5%, then to 3%.
In a new regulation issued on September 10, 2005, the export tax is called export collection which is categorized as non tax revenue by the government, The tariff of the export collection is tabulated below:

It can be easily calculated that the export of crude palm oil is subject to export collection as much as US$ 5.25 per ton, and for RBD Olein US$1.14 per ton.The reference price is to be adjusted monthly based on the actual prices in Rotterdam and Kula Lumpur.
What about subsidy? There is no subsidy given to palm oil industry. The price of fertilizers is market price. The price of energy (fuel, electricity etc) is the same as applied to other industry.
How is law and regulations? With the objective of achieving good governance, both the government and the parliament promulgated laws on forestry and law on plantation. The law on forestry no 41 was promulgated in 1999 and the law on plantation no.18 was promulgated only recently in 2004.
These two laws give a lot of restriction in converting forest into oil palm plantation. Only certain forest can be converted into plantation. With those new laws already in place, the government has been taking measures to control the protection of forest and also endangered animals.