Erratic policies exacerbate uncertainty in palm oil industry: Jakarta Post contributor


Transporting freshly harvested palm fruits at a palm oil plantation in South Sumatra, Indonesia. - Reuters

JAKARTA (The Jakarta Post/Asia News Network): The recent pronouncement by the Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan that all palm oil companies in the country are to be audited confirms assumptions that the government has no complete database on the upstream and downstream palm oil industry.

The move came on the back of a series of marketing-intervention measures between January and this month to stabilise the retail price of cooking oil after the prices of palm oil skyrocketed due to the massive disruption in the global supply of edible oils, a combined result of poor harvests and the Russian invasion of Ukraine.

All the market-intervention policies, such as the fixing of retail-price ceiling, the imposition of domestic market obligation (DMO) and domestic price obligation (DPO) between January and March and the total export ban in late April, have failed to stabilise the cooking oil price at the fixed-price ceiling of Rp 14,000 (US$0.94) per litre.

That seemed bizarre because Indonesia is the world's largest palm oil producer, supplying one third of global edible oils. Last year the industry contributed more than US$35 in export earnings.

The latest news is that the Indonesian Palm Oil Association (Gapki) reports show Indonesia's production totalled 47 million tons last year, of which only about 18 million tonnes were used domestically for food, such as cooking oil, and industrial products, such as oleochemicals and biodiesel.

The cooking oil industry's capacity was estimated at 16.5 million tons while the domestic need for household and industrial consumption was only about 7 million tonnes.

The intention to audit all palm oil companies has added to the confusion surrounding the way President Joko "Jokowi" Widodo has been addressing the skyrocketing price of the commodity.

The order for the overall audit of the industry validated the public's suspicion that all relevant ministries and authorities have not properly performed their duties in sync with the President's instruction.

The ministries seemed to work in silence, unwilling to reveal the data that it was their duty to collect regarding various aspects of the palm oil industry. There is simply no coordination between the central government and regional administrations.

Hundreds of regents in Sumatra, Kalimantan, Papua and Sulawesi are authorised to issue palm oil plantation business licenses while the National Land Agency is in charge of issuing land title (the right to cultivate).

The decision of the forestry and environment minister in January to rescind the forest land concessions of dozens of oil palm plantations 10 years after their issuance shows how chaotic the licensing within the industry has been.

Without good coordination, it is impossible for the government to design an integrated development policy for such an important industry, which employs an estimated 17 million workers and involves over two million palm oil shareholders.

How poorly apprised was the government of the industry could also be seen in the difficulties faced by the Attorney General's Office in uncovering evidence of collusion in the issuance of export licenses between January and March.

More than one month after the AGO arrested three business executives and the director general of foreign trade on charges of corruption and bribery, the investigation has hardly shown significant progress.

The government has reimposed DMO and DPO on the industry as part of the ongoing effort to stabilise the cooking oil price.

But these measures are only ad hoc in nature and are doomed to fail without a single agency, preferably the State Logistics Agency (Bulog), being put in charge of managing and supervising the DMO implementation.

This single point of domestic sales from producers to Bulog would avoid the need of verifying hundreds of domestic invoices with the Trade Ministry as a prerequisite to obtaining export licence.

If producers are selling only to Bulog in light of implementing their DMO then there is only one invoice to check. Given the complex structures of the palm oil industry and its vital role in the economy, an overall audit may be necessary to build up a complete and reliable database.

However, for the long-term good governance and sustainability of the industry, we think the government should learn from Malaysia, the world's second-largest palm oil producer, which has successfully managed its industry under the Malaysian Palm Oil Board (MPOB).

Set up in 2000 under a special law, MPOB is the government agency entrusted to serve Malaysia's palm oil industry and to promote and develop national objectives, policies and priorities for the industry.

MPOB has been powerful and effective in managing the integrated development of the industry because right from the outset MPOB simultaneously took over the functions of the Palm Oil Research Institute of Malaysia (PORIM) and the Palm Oil Registration and Licensing Authority (PORLA).

In Indonesia, the various aspects of the upstream and downstream palm oil industries are handled separately by several ministries and government agencies which appear unconnected to each other, leading to flip-flop, overlapping and sometimes conflicting policies. protect the interest of both the palm oil industry and domestic consumers, we badly need coherent policies supported with a credible database, solid oversights and strict law enforcement performed by a strong national authority to manage the palm oil industry from upstream to downstream.

We do not reinvent the wheel, but instead simply adopt the MPOB's format and establish a central-government institution, authorized in policymaking, to regulate roles to manage licensing; implement development programs ensuring the viability of the palm oil industry; conduct research and development; and coordinate all activities related to the palm oil industry.

*** The writer is a sustainable palm oil analyst

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