Calculating the Profits and Loss of Jokowi’s Palm Oil Export Ban

Jakarta, CNBC Indonesia – President Joko Widodo issued a policy of banning the export of CPO since April 28, 2022. This policy received quite a variety of responses, including the assumption that it was counterproductive.

However, this policy is not without reason. President Jokowi has decided to temporarily close the faucet for the export of CPO and its derivatives. Responding to the surge in domestic cooking oil prices, along with the strengthening of CPO prices in the international market, to a record.

Not to mention, said Jokowi, that Indonesia is the world’s largest producer of palm oil. Ironically, he continued, the Indonesian people had difficulty getting cooking oil.

When the government imposed the highest retail price (HET) for cooking oil of IDR 14,000 per liter for branded packaging, IDR 13,500 per liter for simple packaging, and IDR 11,500 per liter for bulk, accompanied by mandatory domestic supply at domestic prices, cooking oil arrived -suddenly become magical items.

Scarcity and long queues to buy cooking oil were reported in various regions.

“I as President cannot allow that to happen. It has been four months of scarcity and the government has tried various policies but they have not been effective. Therefore, the government has decided to ban the export of cooking oil and cooking oil raw materials. The prohibition applies to exports from all parts of Indonesia, including from the bonded zone,” said Jokowi in a statement broadcast on the Presidential Secretariat Youtube, Wednesday (27/4/2022).

“This prohibition does have a negative impact, it has the potential to reduce production, farmers’ harvests are not absorbed. However, the purpose of this policy is to increase domestic supply so that supply is abundant,” he said.

Fulfilling domestic basic needs, he said, is a high priority. This includes implementing a ban on the export of cooking oil and its raw materials.

“Once domestic needs have been met, of course I will lift the export ban. Because I know the country needs taxes, the country needs foreign exchange, the country needs a trade balance surplus. But meeting the people’s basic needs is a more important priority,” Jokowi continued.

No Calculation

However, Macro Equity Strategist Samuel Sekuritas Indonesia Lionel Priyadi said that the fluctuating export ban (since the planned ban was announced on 22 April 2022) shows the policy-making process in Indonesia is unpredictable and counterproductive.

“I don’t think the export ban policy is right. Instead of making entrepreneurs comply with the export ban, this policy actually creates antipathy and visible defiance to the government’s cooking oil program,” Lionel told CNBC Indonesia, quoted Thursday (12/5/2022) ).

He added that a full export ban would reduce the value of palm oil exports by up to US$2.5-3 billion per month. Or, more than double the impact of the ban on exports of RBD palm olein alone, which reached US$1.1-1.35 billion.

“A larger decline in the value of exports has the potential to make the rupiah vulnerable to the impact of the Fed’s interest rate hikes over the next few months,” said Lionel.

“We are worried that the government’s price target for bulk cooking oil, which is a prerequisite for ending the export ban, is too ambitious. It requires a -29.7% price reduction to IDR 14,000 per liter (equivalent to IDR 15,555.6 per kg),” he continued.

Samuel Sekuritas Indonesia predicts the ban on exports of CPO and its derivatives will last at least one month or less.

Similarly, the Executive Director of the Center for Strategy and International Studies (CSIS) Yose Rizal Damuri assessed that the ban on the export of CPO and its derivatives was minimally calculated, without considering the economic costs.

In fact, he said, government intervention is needed to improve welfare in the event of a failure in the market. Especially regarding staple foods such as cooking oil.

“Therefore, two things must be considered, namely the consequences as well as the mechanism and implementation capability. The CPO ban does not take into account the costs to be borne by the economy,” Yose told CNBC Indonesia, Tuesday (10/5/2022).

Where, exports of CPO and its derivatives are the largest foreign exchange contributor and a significant source of state revenue.

“Perhaps this will succeed in lowering the price of cooking oil in the country. But can you imagine how much revenue the state has lost as 36 million tons of exports per year can no longer be made?” he said.