It have not been great times for palm oil farmers and traders. Malaysia’s benchmark palm oil price is currently hovering near a three-year low of 1,949 ringgit (approx. USD $464.8) per ton amid high inventories, rising production and sluggish global demand.
Not only is the low palm oil price a problem for Indonesian palm oil exporters but they are also burdened by a levy that was imposed by the Indonesian government in mid-2015 in an effort to squeeze revenue from the palm oil industry. The Indonesian government normally generates revenue through the country’s palm oil export tax. However, when the government’s benchmark crude palm oil (CPO) price (which is determined by using international and local palm oil prices) falls below the USD $750 per metric ton threshold, then a zero export tariff kicks in (in order to boost global demand and prices), implying state revenue from the palm oil industry decreases.
Proceeds from Indonesia’s palm oil export levy are used to contribute to the financing of the central government’s palm oil-based biofuel program (a program that aims at raising domestic consumption of palm oil and curtail imports of costly crude oil and fuel), as well as funding other points on the country’s palm oil agenda, such as replanting and research.
On Monday 26 November 2018 the Indonesian government announced that it plans to remove the palm oil export levy temporarily in an effort to support the domestic palm oil industry. Darmin Nasution, Indonesian Coordinating Minister for Economic Affairs, said global palm prices have been falling rapidly and therefore the situation has become quite urgent, especially for farmers as well as the whole national palm industry.
The text above is the introduction to the article that is included in the November 2018 edition of our research report.
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