KPPU Probes Cooking Oil Influx

KOMPAS/RENY SRI AYU ARMAN

A buyer at a supermarket in Makassar, South Sulawesi, looking for cooking oil, Friday (25/3/2022)

The current influx of cooking oil supply on the market after the price cap policy was revoked raises a question over its pricing.

Two weeks ago, the government put a retail price ceiling (HET) on bulk cooking oil, while the prices of cooking oil in premium and basic packaging were left to the market mechanism. Shortly afterwards, packaged cooking oil that had previously disappeared from the market or had been sold far above the HET suddenly flooded the market.

This week, the Business Competition Supervisory Commission (KPPU) started investigating a number of cooking oil producers.

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Transparency in Determining Cooking Oil Price

Among its duties, the commission is in charge of preventing monopolies and oligopolies, and is trying to find out how the price of cooking oil is determined. There are at least eight producers believed to be capable of determining the price (Kompas, 30/3/2022).

We appreciate the KPPU’s move, although it was expected that an investigation would have been conducted earlier. We also appreciate the KPPU’s suggestion to President Joko Widodo to establish new cooking oil producers in the regions to guarantee equitable, nationwide supply of the commodity and prevent a recurrence of the cooking oil shortage.

Therefore, it would be no overreach if the Oil Palm Plantation Fund Management Agency (BPDPKS) granted facilities, through farmers’ groups or cooperatives, to set up palm oil manufacturing businesses.

With regard to the KPPU’s recommendation to increase the number of cooking oil producers, we have noticed that almost half of oil palm plantations belong to farmers. Therefore, it would be no overreach if the Oil Palm Plantation Fund Management Agency (BPDPKS) granted facilities, through farmers’ groups or cooperatives, to set up palm oil manufacturing businesses.

A number of farmers who have oil palm plantations of a certain size could build palm oil manufacturing businesses to produce crude palm oil (CPO) as well as cooking oil. This will make cooking oil available to all parts of Indonesia and thwart any attempt by a handful of CPO and cooking oil producers to control market prices.

KOMPAS/RADITYA HELABUMI

Residents buy packaged cooking oil which is sold for Rp. 14,000 per liter at Rusunawa KS Tubun, West Jakarta, Wednesday (19/1/2022).

During the cooking oil shortage that lasted until last week, we referred to the views of economist Milton Friedman. Using tomatoes as an example, Friedman said issuing a policy that restricted the retail price would create a supply shortage and so, tomatoes would disappear from the market. The same kind of policy would affect other commodities, in this case oil and natural gas.

On the extreme ends of the spectrum, governments in communist countries maintain tight control over prices, and in truly capitalist countries, they leave prices entirely to the market mechanism.

We hope the KPPU will execute its tasks transparently and impartially. Commodity prices are determined by government policies. On the extreme ends of the spectrum, governments in communist countries maintain tight control over prices, and in truly capitalist countries, they leave prices entirely to the market mechanism.

Also read:

Transparency Urged in Use of Cooking Oil Subsidy

Cooking oils and several other food items fall under the category of strategic commodities, so the government is responsible for keeping their prices stable. The government also issues policies to set prices that match the target. To this end, regulations are needed that guarantee commodity supplies, distribution and supervision that are respected by both businesses and consumers.

(This article was translated by Aris Prawira).