Palm Oil Industry Should Be Reorganized to Support Farmers
The Indonesian Palm Oil Farmers Association ask the President to review the export ban on palm cooking oil products and their raw materials because it has a direct impact on FFB prices.
By
DIMAS WARADITYA NUGRAHA, ERIKA KURNIA
·5 minutes read
MARINA EKATARI
The Indonesian Palm Oil Farmers Association (Apkasindo) demonstrated against the ban on exports of crude palm oil and cooking oil. The action was held in front of the office of the Ministry of Economy in Jakarta, Tuesday (17/5/2022).
JAKARTA, KOMPAS — The palm oil industry in Indonesia needs to be addressed so that farmers will not become victims when there is a disruption in the palm oil supply chain. At present, oil palm farmers are still too reliant on big palm oil companies and they don’t have the power to determine the price of oil palm fresh fruit bunches, which can easily fall if there is a fluctuation in the price of their derivative products.
This is one of the demands made by an Indonesian oil palm farmer organization during a protest at the Office of the Coordinating Economic Affairs Minister in Jakarta on Tuesday (17/5/2022). The protest was triggered by the drop in the price of oil palm fresh fruit bunches (FFB) at the farmer level following the government’s announcement to ban exports of cooking oil and its raw materials.
The government will maintain the export ban until the cooking oil price in the domestic market matches the government's reference price of Rp 14,000 (96 US cents) per liter.
The secretary-general of the Oil Palm Farmers Union, Mansuetus Darto, said oil palm farmers had so far acted only as suppliers of raw materials of the palm oil-related industries. There is no single farmer institution that has its own factory to process FFB into finished materials, such as cooking oil, he said.
"The export ban could be an opportunity for the government to support oil palm farmers to have their own palm oil processing factories by utilizing palm oil funds managed by the Palm Oil Plantation Fund Management Agency," he said.
Darto added that currently, the downstream palm oil industry was dominated by private companies. Almost all cooking oil-producing companies have their own oil palm plantations.
Private companies, he continued, fully control the palm oil industry, from upstream to downstream. In fact, in the supply chain of palm products, several private companies have processing or refining facilities that also receive raw materials from oil palm smallholders.
"If we want to talk about national palm oil industrialization, these large private companies must be pushed downstream, and let the farmers' cooperatives handle the upstream," he said.
The chairman of the Indonesian Palm Oil Farmers Association (Apkasindo), Gulat Manurung, said that the price of the FFB had declined by between 50 percent and 60 percent since the announcement of the export ban.
RIZA FATHONI
A Worker harvest oil palm in the plantation area of PT Sawit Sumbermas Saran Tbk (SSMS) in Pangkalan Bun, Central Kalimantan, Thursday (29/4/2021).
Based on Apkasindo's calculations, the potential income loss of oil palm farmers due to the drop in FFB prices since 27 April 2022 reached Rp 11.4 trillion. About 6.58 million tons of FFB were damaged because they were not absorbed by the factories, causing a great loss to the farmers
"The price of FFB has declined sharply All factories have refused to absorb FFB because their storage tanks are full,” said Gulat.
According to Apkasindo, the price of FFB in a number of palm oil plantation centers in Sumatra, Kalimantan and Sulawesi is now in the range of Rp 1,600 to Rp 1,940 per kg, the government’s price reference of between Rp 3,000 and Rp 3,100 as stipulated in Agriculture Ministerial Regulation No. 1/2018.
"We ask the President to review the export ban on palm cooking oil products and their raw materials because it has a direct impact on FFB prices," he said.
Important to note
In a study conducted by Mohamad D Revindo and Cania A Sinaga from the Center for the Study of Business Climate and Global Value Chains Institute for Economic and Community Research, the School of Economics and Business (LPEM FEB) of the University of Indonesia in April 2022, the impact of the export ban of cooking oil and its raw materials on the absorption of FFB at the farmers level should receive special attention from the government.
"As the CPO production far exceeds domestic demand, it is necessary to anticipate the impact of the export ban on FFB absorption at the farmer level," the report said.
National CPO production in 2021 reached 46.88 million tons, of which about 18.42 million tons were used for domestic needs. As the structure of the CPO industry is oligopolistic, the bargaining power of corporations is stronger than that of farmers. This means that most of the largest impact of the decline in CPO sales was passed on to farmers.
In a written statement, the head of the Instiper Palm Oil Study Center, Yogyakarta, Purwadi, said the complexity of cooking oil policies in the domestic market showed the need to improve business governance in the palm oil industry and its supply chain.
"It is now the right time to improve governance comprehensively because palm oil has become a global product, traded, and contributes to world food and energy," he said.
Coordinating Economic Affairs Deputy Minister for Food and Agribusiness Musdhalifah Machmud was reluctant to respond when he was asked about the issue of supply chain governance for the palm oil industry. However, he stressed that the government wants palm oil (derived products) to be not only available but also affordable.
"The government is trying to maintain a balance between high international prices and controlling domestic prices to meet people's cooking oil needs," he said.
