The crude palm oil business received a blow when France announced it plans to impose progressive tax on imports of crude palm oil and its derivatives. French authorities approved a bill on 21 January 2016 that will raise the import tax on palm oil from around 100 euro per ton currently to 300 euro per ton in 2017. This tariff will then be raised to 700 euro per ton in 2019, and to 900 euro per ton in 2020. Through this tax hike France aims to discourage the palm oil industry, hence curtailing global deforestation as well as to protect its citizens from the negative health effects caused by the consumption of palm oil.
After 2020 the import tax may rise each year depending on the decision of the French Ministry of Finance. Regarding palm oil used in the production of food items, the so-called 'biodiversity bill' sets an additional import tax of 3.8 percent, while a 4.6 percent hike is set for palm kernels used for food products.
Bayu Krisnamurthi, General Director of the Indonesia Estate Crop Fund (within Indonesia's Finance Ministry), said the tax policy of France is highly discriminatory and seems an attempt by the nation to protect its own vegetable-based oils.
The Indonesian government has already discussed the matter Malaysia, the world's second-largest palm oil producer (after Indonesia). The countries now request France to cancel the new tax policy. If this lobby fails, then Indonesia may turn to the World Trade Organization (WTO). The new import tax is also considered to clash with the earlier commitment of France to support sustainable palm oil. France, Denmark, Britain, the Netherlands and Germany have all signed the Amsterdam agreement stating that these countries support sustainable palm oil production practices. Indonesia recently adopted the Indonesia Sustainable Palm Oil (ISPO) standard to encourage sustainable and environmental-friendly palm oil production practices.
It is not the first time palm oil meets resistance in the European Union. Earlier the region tried to discourage palm oil imports. The palm oil industry has been a major cause of deforestation in the world. Last year, man-made forest fires (to clear land for palm oil and pulp & paper plantations) destroyed 2.6 million hectares of land on parts of Kalimantan and Sumatra. These fires also caused the toxic haze that spread to other parts of Southeast Asia. This disaster cost Indonesia an estimated IDR 221 trillion (USD $16 billion or 1.9 percent of the country's gross domestic product) in five months.
Derom Bangun, Chairman of the Indonesian Palm Oil Board (DMSI), said Indonesian palm oil products will not be competitive in case France implements the higher import tax. Other vegetable oils (such as sunflower oil, soybean oil and rapeseed oil) will become more competitive.
Further Reading: Overview & Analysis of Indonesia's Palm Oil Industry
Currently, France imports between 50,000 and 150,000 tons of palm oil per year, mostly imported from Malaysia, Indonesia and South Africa. Although France is not a key export destination for Indonesian palm oil exports, the new tax policy of France causes more negative views of the palm oil industry, Bayu Krisnamurthi said.
Indonesian Palm Oil Production and Export Statistics:
(in USD billion)
¹ indicates forecast
Sources: Indonesian Palm Oil Producers Association (Gapki) & Indonesian Ministry of Agriculture