Indonesia’s Policy to Increase Palm Oil Export Tariffs in the midst of Global Food Oil Crisis

It is too early to state that Indonesia will not increase the tariff for palm oil because in Indonesia, food oil or palm oil are still in the short supply. Many Indonesian people complained to the government because the price of palm oil or food oil has increased from December 2021 to January 2022. In March 2022, the price of Indonesian palm oil decreased, but from a procurement perspective, there was a shortage. The following table is the increasing price of food oil in Indonesia.

The problems faced by Indonesia are not only fulfilling domestic demand, but also the pressure from abroad, especially India, which has pushed Indonesia to loosen restrictions on palm oil exports. Global food oil scarcity continues to occur due to the conflict in Ukraine which caused a stagnation in the export and import of sunflower seeds. In connection with that, sunflower seed oil could not be produced and the world depends on palm oil.

Sunflower seed oil is a food oil produced in Europe and one of them is in Ukraine. In other words, the Ukrainian conflict has given major impact to the scarcity of sunflower seed oil. Based on the statement delivered by the UN General Secretary, Antonio Gutteres on 14 March 2022, Ukraine and Russia are countries which have contributed 30% of global sunflower oil providers and contributed to food security in developing countries, Africa and the Middle East. Thus, the unresolved conflict has led to a scarcity of sunflower seed oil even though the market demand for edible oil is very high. It is very possible that if the conflict continues, it will cause not only food oil but also other food crises. This happens because Ukraine is the largest wheat producing country in Europe. Ukraine could be said as “European Bread Basket” which means that Europe’s food dependence on Ukrainian wheat is quite high. Therefore, if the conflict continues, it will not only cause the scarcity and the increase in the price of sunflower seed oil, but it will also trigger another food crisis. The following figure is the data of sunflower seed oil prices which have continued to increase since February 2022.

The conflict issues have impacted the scarcity of sunflower seed oil. The continuing of global food oil scarcity is also caused by global climate change that triggers drought. One of them is that soybean oil is limited in production so that the demand for Indonesian palm oil is very high. Soybean oil could not cover the scarcity of sunflower seed oil because Argentina and Paraguay as the world’s largest soybean producers are also experiencing a drought so that soybean crops fail.

In addition, soybean oil could not cover the scarcity of sunflower seed oil because Argentina and Paraguay as the world’s largest soybean producers are experiencing drought so that soybean crops fail to harvest. Soybean oil prices reached 58.500 IDR per litre on 19 March 2022. Indonesia as the “world bag of palm oil” experienced fluctuations in oil prices, which was also experienced by Indonesian people. The price of food oil in the future market has increased in order to anticipate that sunflower seed oil could not be produced in the long term and the sunflower seed oil market is in danger of disappearing if the Ukrainian conflict does not end soon.

Global food oil crisis is not only a nightmare for the global community buat also the Indonesian people. Indonesia as a palm oil producing country has a good opportunity to produce palm oil for export and fulfil the demand for oil in the global market. On the contrary, Indonesia must be fully aware of the need for food oil in the country in order to not experience a shortage. One of the ways is by increasing the export tariff of palm oil in order to be able to achieve a balance in the existence of palm oil in the country and in the global market because food oil or palm oil must be able to be controlled. If the price of food oil or palm oil could be controlled, food oil crisis could be avoided in the long term.

If the conflict in the European region continues, the global food crisis will not only occur in the scarcity of sunflower seed oil and soybean oil but also will place a sufficient burden on palm oil production to fulfil the demand for food oil in the future global market. There will be a number of other problems that will arise if the conflict continues and the food crises in other sectors will also experience will also experience shortages over time. The following table is the price of palm oil and soybean oil.

The Indonesian government’s policy is based on a statement from the Ministry of Finance of the Republic of Indonesia that the regulation increases tariffs in order to reach US$375 per ton of crude palm oil (CPO) when the international market price increases above US$1,500 per ton. Besides, Indonesia’s government through the Ministry of Trade of the Republic Indonesia stated that the government would increase the upper limit on the overall export tax on palm oil combined with an increase in import duties of 80% to reach US$675 per ton. The reason for doubling the upper limit on palm oil export tariffs is in order to prevent companies from overdoing it without thinking about the scarcity of domestic oil. Therefore, there must be a balance between exports and imports so that crude oil is distributed properly.

The increase in global oil prices is caused by conflicts in sunflower seed oil producing countries which support 30% of the world’s food oil demand; and global climate change which has caused two oil-producing countries to experience drought so that production could not be maximised. In addition, the only thing that supports the world’s food oil demand is Indonesian palm oil. Therefore, Indonesian economic policy makers take a firm stance in responding to the global food oil demand. One of them is by adding palm oil export tariffs.

The addition of the export tariff limit is stated in the Minister of Finance Regulation No. 23/PMK.05/2022 regarding changes to the current Minister of Finance Regulation No. 57/PMK.05/2020 which concerns Service Tariffs for the Public Service Agency of the Palm Oil Plantation Management Agency at Ministry of Finance. The policy of increasing palm oil export tariffs becomes the part of Indonesia’s economic policy in responding to the global food oil crisis. In accordance with the opinion of K. J. Hostli, it is stated that foreign policy is an idea in forming a formulation with the aim of solving problems that occur in a country. It becomes the reason for Indonesia to increase palm oil exports tariffs. In the midst of the global food oil crisis, increasing export tariffs is an economic policy step that will certainly be carried out by not only Indonesia but also other countries. Increasing tariffs is also due to Indonesia following fluctuations in the global market prices.

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Tags: price, Indonesia, soybean, palm oil, tariff, food oil, sunflower seed oil, demand