Why didn’t Indonesia’s palm oil export ban cool the price of cooking oil?

Reuters

Bernadette Christina and Francesca Nangoy

Indonesia, the world’s largest exporter of palm oil, has cut off shipments of edible oil since April 28 to flood the domestic market with a supply to control rising cooking oil prices.

Despite these tough policies that have wreaked havoc on the edible oil market and lost millions of dollars in revenue, the price of cooking oil, which is a major factor for Indonesian households, has hit the ratings of President Joko Widodo’s approval.

How are the Indonesian authorities trying to control the price of cooking oil?

Since November, authorities have unveiled a misleading set of policy measures, including subsidies, export permits and palm oil tariffs, as well as export bans. Still, it is made from palm oil and fails to meet the cost of household necessities used by most people in the world’s fourth most populous country, in line with an official goal.

What is the price of cooking oil?

Indonesian officials have promised to lift the export ban when bulk cooking oil prices return to Rs 14,000 ($ 0.9560) per liter across the country. Cooking oil prices have peaked, but Commerce Ministry data showed as of Friday that cooking oil averaged Rs 17,300 per liter, down from an average of Rs 18,000 in April but above Rs 13,300 in July.

Indonesian minister blames “palm oil mafia”

Commerce Minister Muhammad Lutfi on March 18 blamed a “palm oil mafia” for exploiting the situation. Sending a chill through one of Indonesia’s major export sectors, the attorney general launched an investigation into corruption in palm oil export permits, arresting a senior Commerce Ministry official and three palm oil executives.

What are the barriers to the distribution of cooking oil?

Government efforts to reduce prices include the state food procurement agency, Boulogne, for the distribution of more cooking oil. But last week Bulugo said a regulatory framework had not yet been created, meaning plans to distribute subsidized cooking oil at Rs 14,000 had not yet begun.

Bulug said regulations were needed to avoid any mistakes in implementation and to ensure clarity on how costs would be covered.

Red tape has been cited as another reason for undermining principles

Gulat Manurang, chairman of the small farmers group APKASINDO, blamed a complex government bureaucracy for trying to stop subsidizing palm oil.

The government is setting aside a subsidy to pay producers for any gap between the cost of production and the selling price.

But for palm refiners to be paid by the Indonesian palm oil fund company BPDPKS, distributors and retailers must provide a highly detailed list, subject to a state audit and may be punishable by imprisonment for any wrongdoing.

“Factories have cooking oil, but they are not selling it to consumers,” said Gulat, who believes the system should be streamlined.

How do the authorities say they are trying to improve distribution?

On Tuesday, the Commerce Ministry announced a program aimed at ensuring that cheap cooking oil reaches thousands of low-income households. The statement said retailers would be able to sell bulk cooking oil at Rs 14,000 per liter to their identity card issuers.

Asked about distribution issues, industry ministry official Marijantiz Punguan Pintaria said there were many components but logistical and transportation constraints were the main obstacles.

What will be the last game?

Jokoi, popularly known as the president, said the need for affordable food undermined revenue concerns and that export bans would be lifted as soon as domestic demand was met. Palm oil traders have speculated that the ban could be lifted at least partially soon, especially with the filling of storage tanks.

Politics can play an important role in time. A survey by Polstar Indicator Political Indonesia this week found that the presidential approval rating is at a six-year low, mainly due to rising cooking oil costs and the impact of inflation. ($ 1 = Rs. 14,645.0000) (Written by Ed Davis; Edited by Christian Smollinger)