DMO Removed Due to High Price Disparity

KOMPAS/NIKSON SINAGA

A trader shows the bulk cooking oil that buyers are currently looking for after the price of packaged cooking oil rose to Rp 22,450 per liter at Petisah Market, Medan, North Sumatra, Thursday (17/3/2022)..

JAKARTA, KOMPAS – In addition to removing the retail price ceiling, the government has also decided to remove the obligation to supply the domestic market needs for crude palm oil and olein due the high disparity between export and domestic prices.

The decision was unveiled during a working meeting between the Commission VI of the House of Representatives, which oversees trade, industry, investment, cooperatives, small and medium enterprises and state-owned companies, with the Trade Ministry in Jakarta, Thursday (17/3/2022). The meeting was attended by Trade Minister Muhammad Lutfi and Deputy Trade Minister Jerry Sambuaga.

According to Lutfi, the domestic market obligation (DMO) policy had been implemented successfully because it was able to accumulate as many as 720,612 tons of crude palm oil (CPO) and olein for the domestic market. Of that amount, 76.4 percent, or 551,069 tons of CPO and olein, the equivalent of 570 million liters of cooking oil, had been distributed to the market. It enabled the country to push down the average price of packaged cooking oil by 18.9 percent from Rp 20,797 (US$1.45) per liter in January to Rp 6,965 per liter in March, and the bulk cooking oil by 10.1 percent from Rp 17,726 per liter to Rp 15,583 per liter.

Also read:

> DMO Quota Raised to Ensure Raw Material Availability

> Cooking Oil Shortage Mocks Palm Oil-Rich Island

“The government revoked the policy because there was a high disparity between world and domestic CPO prices due to the impact of the Russia-Ukraine conflict. There are also indications of ‘mafia’ practices that hamper the distribution of cooking oil to the public," he said.

According to Lutfi, these “mafias” hoarded cooking oil and distributed the CPO and olein to industries that were not entitled to it. They also smuggled the CPO and olein to take the advantage of the high disparity in the export and domestic prices as a result of the government’s market intervention.

KOMPAS/PRIYOMBODO

A buyer take pictures of the price of cooking oil which is felt to be burdensome for residents in a retail shopping center in the Karang area. Central, Tangerang City, Banten, Thursday (17/3/2022). After being scarce in the market, cooking oil stocks are again available in a number of shops and shopping centers at high prices.i.

Intervention failed

A number of members of House Commission VI said the Trade Ministry had failed to intervene in the domestic cooking oil market and did not take firm action against large corporations that controlled the market and cooking oil prices.

Mufti Anam, a member of House Commission VI likened the Trade Ministry to a toothless tiger in dealing with cooking oil producers. Since January, there had been six regulations issued, but none of them had a positive impact on the people's welfare and were unable to solve the cooking oil problem.

Another member of Commission VI, Andre Rosiade, said the decision to remove the DMO regulation and the retail price ceiling as well as to leave the cooking oil market to market mechanisms indicated that the government had lost to local palm oil and cooking oil entrepreneurs.

Also read:

> Transparency Urged in Use of Cooking Oil Subsidy

> Transparency in Determining Cooking Oil Price

In a number of areas, packaged cooking oil was "suddenly" available after the government removed the retail price ceiling but the prices skyrocketed. In Kendari, Lampung, Makassar, Medan, Aceh and Sidoarjo, for example, the price of packaged cooking oil reached between Rp 20,000 and Rp 50,000 per liter on Thursday (17/3). Previously, although the stock in the market was limited, the price of the premium packaged cooking oil was sold only between Rp 14,000 and Rp 16,000 per liter, especially in modern retail outlets.

Separately, the chairman of the Indonesian Consumers Foundation, Tulus Abadi, hailed the government’s new cooking oil policy as more market-friendly. He said the government's intervention in the cooking oil market, which was taken against the market mechanism, had proven to be a total failure and had caused chaos in the market. (HEN/JAL/NIK/NAD/NSA/AIN/ REN/ VIO)

This article was translated by Hendarsyah Tarmizi.