Exporting Palm Oil

ANTARA FOTO/AKBAR NUGROHO GUMAY

President Joko Widodo (left) escorts Indian Prime Minister Narendra Modi to a bilateral meeting on the sidelines of the ASEAN 35th Summit on Sunday (3/11/2019) in Bangkok, Thailand.

Indonesia faces a new challenge in boosting its palm oil exports, following India’s policy to reduce tariffs on Indonesian palm oil products to match those on Malaysian products.

Indian Prime Minister Narendra Modi has agreed to reduce the export tariffs for Indonesian raw palm oil and refined bleached deodorized palm oil (RBDPO) to respectively 37.5 percent and 45 percent, the same as the tariffs on similar Malaysian products. Modi’s decision to reduce the tariffs was announced last week at a bilateral meeting between Modi and President Joko Widodo on the sidelines of the 35th ASEAN Summit in Bangkok.

Palm oil is one of Indonesia’s mainstay export commodities. India is our new hope amid the difficulties we are facing in exporting our palm oil to the European Union, primarily for environmental and human rights reasons.

The reduced tariff is estimated to increase the value of Indonesian palm oil exports to India by US$500 million.

Data at India’s Commerce and Trade Ministry shows that Indonesia exported 2.13 million tons of palm oil to India in the first half of 2019. Meanwhile, data from the Indonesian Oil Palm Association (Gapki) shows that Indonesia’s total palm oil exports in the same period amounted to 16.84 million tons. The reduced tariff is estimated to increase the value of Indonesian palm oil exports to India by US$500 million.

The tariff reduction is good news amid the economic slowdown forecast for 2019-2020.

Global trade has driven growth in the global economy since the World Trade Organization (WTO) was established in 1995. In the past few years, however, several nations have begun to take a protectionist approach in their import policies. Some people are opposed to global trade, as it has not benefitted everyone.

The trade agreement between Indonesia and India has boosted Indonesian exports to the South Asian country. In return, however, Indonesia has had to open its market for rice and sugar, two commodities that have high domestic demand in which the government is striving to achieve self-sustainability through domestic production.

The increased opportunity for Indonesian palm oil exports to India must be followed up by strengthening the nation’s oil palm agribusiness from the upstream to the downstream.

KOMPAS/SYAHNAN RANGKUTI

A worker loads freshly harvested palm fruit onto a wheelbarrow on Wednesday (2/10/2019) at a PT Ramajaya Pramukti oil palm plantation in Siak regency, Riau. Older palms produce larger bunches of fruit, which can weigh up to 50 kilograms.

Indonesia has much work to do to improve its oil palm agribusiness, from productivity to environmental management and to farmers’ welfare, as well as from diversification to value-added products.

At the same time, opening the domestic market to Indian rice and sugar poses a challenge for Indonesia in protecting its rice and sugarcane farmers and in maintaining food security.

Improving the agribusiness system - financing, protecting against unfair trading, increasing the productivity of both farmers and agribusinesses, and eradicating practices that cause price distortions at the retail level – is also work that we must finish.