Indonesian farmers want authorities to scrap a requirement for exporters to sell a portion of their palm oil domestically, a move that should boost shipments and mean mills pay more for fresh fruit bunches (FFBs), a farming official said.

Indonesia, the world’s biggest exporter of palm oil, shocked global edible oil markets by banning palm oil shipments for three weeks to May 23 in an attempt to cool domestic cooking oil prices.

The ban was eventually lifted because of the pain it caused an industry that employs 17 million workers and with farmers complaining the policy had caused FFB prices to plunge 70 per cent.

Since lifting the ban, the government has cut export taxes and launched an export acceleration programme, but farmers say FFB prices have remained depressed.

“The government must move quickly to increase farmers’ FFB prices by revoking regulations that suppress prices,” Gulat Manurung, chairman of the smallholder farmers’ group APKASINDO, said in a statement late on Thursday, listing export barriers such as mandatory domestic sales requirements and taxes as burdens for farmers.

Palm oil exporters are currently required to sell a portion of output domestically to be made into cooking oil and export permits are tied to such sales.

A NEWSLETTER FOR YOU

Friday, 8.30 am

Asean Business

Business insights centering on South-east Asia's fast-growing economies.

Sign Up

Companies not selling to the domestic market can export but must pay an extra US$200 a tonne tax.

Gulat said these barriers meant mills had not been able to sell inventories built up during the ban, estimating that out of Indonesia’s 1,118 mills, 58 had stopped buying FFBs and 114 limited purchases.

FFB prices are trading in a 1,150 rupiah (S$0.107) to 2,010 rupiah per kg range, far below farmers’ ideal level of 4,500 rupiah, Gulat said.

His target level assumes a global crude palm oil price of US$1,450 per tonne, though Malaysian palm futures were heading for a more than 15 per cent drop this week, with the main contract last trading at RM4,601 (S$1,451.07) a tonne.

“We have suggested that cooking oil should be subsidised, so it is affordable, FFB prices are fair, companies are able to export smoothly and the state gets foreign exchange and taxes,” Gulat said.

Asked for comment on the calls for policy changes, a government spokesman said measures had been launched to speed up exports and existing policies would be maintained, noting it could take two to three weeks to get back to normal and FFB prices were also affected by lower global crude palm oil prices.

Since the ban was lifted, Indonesia has issued permits to export 1.7 million tonnes of palm oil products.

However, shipments have not picked up as expected, with Indonesian palm oil industry group GAPKI also warning exports had been hampered by issues finding ships.

GAPKI Secretary General Eddy Martono told Reuters exporters felt things might not “start to run smoothly” until July. REUTERS