Transparency in Determining Cooking Oil Price

KOMPAS/MACHRADIN WAHYUDI RITONGA

Traders at Cihapit Market, Bandung City, West Java, show a number of packaged cooking oil, Thursday (20/1/2022).

The government has been urged to be transparent in determining cooking oil prices following its decision to provide a subsidy for the sale of the oil to the general public using palm oil export tax revenue.

The government set a retail price ceiling of Rp 14,000 (US$1) per kilogram for all types of cooking oil on Thursday (20/1/2022), following an increase in the market price of cooking oil by some 30 percent.

The price increase began three months ago as a result of an increase in the price of crude palm oil (CPO) on the international market. The government has decided to use the funds managed by the Oil Palm Estate Fund (BPDP-KS) to subsidize the cooking oil. BPDP-KS’ funds, obtained from palm oil export revenue, have also been used to subsidize biofuels and the rejuvenation of smallholder palm oil plantations.

Besides imposing a retail price ceiling, the government also threatened to increase palm oil export tax if palm-oil related industries did not heed the government’s appeal.

This is not the first time the price of cooking oil has increased sharply. In 2007 and 2008, cooking oil prices rose quickly in response to an increase in CPO prices on the world market. At the time, the government asked the association of palm oil producers, the association of cooking oil producers and the association of vegetable oil producers to increase the cooking oil supply on the local market in order to stabilize the price (Kompas, 9/5/2007). Besides imposing a retail price ceiling, the government also threatened to increase palm oil export tax if palm-oil related industries did not heed the government’s appeal.

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President Joko “Jokowi” Widodo's recent instruction to his ministers to control the price of cooking oil cannot be separated from the status of cooking oil as a basic commodity for the general public. Presidential Regulation No. 59/2020 outlines policies related to essential needs, such as basic commodities that make up a large portion of household needs and can affect inflation. Because of cooking oil’s status as a staple good, public access to it can have a political impact.

KOMPAS/DIONISIUS REYNALDO TRIWIBOWO

Oil palm farmers in Lake Sembuluh, Seruyan Regency are harvesting their palm products in August 2018.

It is ironic that the sharp increase in the price of cooking oil has occurred in Indonesia, the largest producer of CPO in the world. With that position, Indonesia should be a price setter. Thus, the increase in domestic cooking oil prices is a largely domestic issue.

Providing a subsidy using BPDP-KS’ funds is not a sustainable solution. The government has promised to

evaluate the policy every month. We must be able to resolve price shocks in a more structured, integrated, systematic and comprehensive manner because commodity prices experience ups and downs cyclically.

When the price of CPO is low, oil palm farmers face difficulty maintaining their plantations. When the price is high, farmers’ incomes increase thanks to the increase in the price of fresh fruit bunches (FFB). Consumers have to bear the impact of the price increase. However, increases in farmers' incomes have been eroded by the rising price of fertilizer and other production factors, which have exceeded the increase in the prices of FFB.

Now is the time to fix the cooking oil trading policy. A thorough and transparent evaluation is needed, both in upstream and downstream sectors, in order to find out whether the price increase was due to inefficiency or due to unfair profits gained by companies engaged in the production and trading chain of CPO and cooking oil.

The interests of the people must come first, and fulfilling the needs of the community should be the first priority.

(This article was translated by Hendarsyah Tarmizi)