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Indonesia Plans Extension of Palm Oil Export Levy Waiver to Year-End

Indonesia Plans Extension of Palm Oil Export Levy Waiver to Year-End
  • Indonesia may extend export levy waiver on edible oils
  • The levy waiver policy is currently scheduled to end after Oct 31
  • The country follows the policy of Domestic Market Obligation to keep local supplies stable

Indonesia, the world’s biggest producer of palm oil, may extend the export levy waiver on edible oil to the end of this year as announced by the country’s chief economic minister.

Indonesia started waiving levies imposed on palm oil export products in mid-July to help reduce a stock glut that accumulated after a three-week export ban in late April, which was designed to stabilize local cooking oil prices. The levy waiver policy on palm oil exports is currently scheduled to end after Oct 31.

“The plan is for an extension… until the end of the year,” minister Airlangga Hartarto told Reuters. Indonesia collects export levies, on top of a separate export tax, to fund subsidies for its biodiesel and smallholder replanting programs.

However, as palm oil prices have dropped and the cost of palm oil-based biodiesel is lower than fossil diesel fuel, Indonesia currently needs fewer funds for the biodiesel program. 

The extension of the Palm Oil Export levy waiver would directly ease palm oil exporters in the country. It is crucial for the government to maintain a seamless channel for the export of the commodity as the country happens to be the biggest exporter of palm oil in the world. 

A Look at the Numbers

In 2020, Indonesia exported US$17.9 billion in palm oil, making it the largest palm oil exporter in the world. Palm oil is the most traded agro-commodity in the country. The main destination of palm oil exports from Indonesia are- India (US$3.05 Billion), China (US$ 2.47 Billion), Pakistan (US$1.62 Billion), Spain (US$854 Million), and Malaysia (US$729 Million).

The fastest-growing export markets for Indonesia between 2019 and 2020 were India, Pakistan, and Spain. India is the biggest commodity buyer and supplements most of its edible oil requirements from Indonesia. 

Domestic Market Obligation Policy

Indonesia, the biggest palm oil exporter, follows a policy of Domestic Market Obligation to keep supply stable at home. The policy covers all crude palm oil and RBD palm olein products such that exporters must sell 20 percent of their planned exports to the domestic market.

This obligation came into force on 27 January 2022. The move is intended to curtail a rise in domestic cooking oil prices. The mandatory portion to be sold domestically must be sold at a maximum price of IDR 300 per kilogram for crude palm oil and IDR 300 per kilogram for olein. The Indonesia Ministry of Trade has also implemented similar requirements on biodiesel products, effective 8 February 2022.

The government would continue to monitor the implementation of the Domestic Market Obligation policy to ensure domestic cooking oil supply. Exporters of palm oil are required to sell a portion of their products at home before being allowed to export. Companies are allowed to export nine times the amount they have sold domestically.

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