Indonesia, the world's largest producer and exporter of crude palm oil (CPO), set the export tax for its CPO shipments at USD $18 per metric ton for February 2017, significantly higher than the USD $3 per metric ton export tax in the preceding month. Indonesia's benchmark February CPO price was set at USD $815.5 per ton, rising further above the USD $750 per ton threshold that the Indonesian government uses to separate a zero export tax policy from the setting of an export tax.
When Indonesia's benchmark palm oil price - a price that is adjusted every month - is set between USD $750 and $800, then a USD $3 per ton export tax is applied. However, when the benchmark price is set between USD $800 and $850, then the export tax rises to USD $18 per metric ton. Meanwhile, the Indonesian government had also imposed a USD $50 per ton levy two years ago (when palm oil prices remained low for a sustained period of time implying that the government failed to generate enough revenue from this sector). This levy still applies as well and therefore the competitiveness of Indonesia's palm oil shipments are somewhat undermined now.
Read more: Overview of Indonesia's Palm Oil Industry
Fadhil Hasan, Executive Director at the Indonesian Palm Oil Producers Association (Gapki), said the higher export tax may encourage local producers to sell more of their palm oil output on the domestic market, specifically to the domestic biodiesel industry. Reduced palm oil exports from Indonesia would also imply that global palm oil prices should rise.
Indonesia's Reference Crude Palm Oil Price:
Source: Trade Ministry of Indonesia
Indonesian Palm Oil Production and Export Statistics:
(in USD billion)
¹ indicates forecast
Sources: Indonesian Palm Oil Producers Association (Gapki) & Indonesian Ministry of Agriculture