ANN/THE JAKARTA POST – A plan by India, the world’s top buyer of vegetable oils, to increase its import tax on the commodity could hamper the growth of Indonesia’s palm oil exports.
India has consistently been the second-largest export destination for Indonesian vegetable oil products, buying 16 per cent of the country’s total shipments last year, according to International Trade Center (ITC) data, below only China’s share of 21 per cent.
Muhammad Osribillal, an industry and regional analyst at Bank Mandiri, told The Jakarta Post on Monday that if the planned tax were implemented, Indian buyers would still purchase Indonesian CPO and refined, bleached, deodorized palm oil (RBDPO) products. However, the tariff hike would impede demand growth for those commodities.
From 2015 to 2019, a period in which India raised its CPO import tariff from 7.5 per cent to 40 per cent, Indonesian palm oil exports to New Delhi appeared stable, Osribillal said.
India’s CPO imports rose by an average of 75 per cent in the five years before the previous tariff hike, but the country’s imports stagnated in the years following the tax increase.
“CPO import growth stagnated from 2015 to 2023, even decreasing by 1.9 per cent,” he said.
India’s new tax hike plan seeks to help protect farmers from a decline in oilseed prices, two government sources said on August 28, Reuters reported.
India abolished basic import taxes on crude vegetable oils to cool prices in 2022, but the country still levies a 5.5-per-cent tax, known as the Agriculture Infrastructure and Development Cess, that covers vegetable oils.
For imports of RBDPO products, New Delhi imposes a 13.75-per-cent tax rate.
Indonesian Palm Oil Association (GAPKI) chairman Eddy Martono told the Post on Monday that the association had yet to receive any information on the matter, but he expected the higher import tax would make palm oil products more costly for buyers in India.
He said exports to India were still running as usual “because demand is still there”.
Malvika Priyadarshini, the Indian Embassy’s counselor for the economy and commerce, told the Post on Monday that the embassy did not have any detailed information on the matter.
Josua Pardede, chief economist at private lender Bank Permata, told the Post on Monday that India’s planned higher import tariffs would reduce the competitiveness of Indonesian palm oil as compared to vegetable oils produced in the domestic Indian market.
He expected Indian consumers to switch to locally produced vegetable oils, as the country produced “a fairly large amount of soybean oil and rapeseed oil”.
He suggested that the government get involved in efforts to diversify Indonesia’s CPO export destinations to lessen the blow of drops in demand from top buyers such as India.
“The government could also expedite efforts to increase domestic CPO consumption to anticipate declining export demand, such as by deploying the mandatory B40 program,” Josua said.
He was referring to a delayed government plan to boost the proportion of palm oil-derived fatty acid methyl ester (FAME) required in the country’s biodiesel from 35 per cent to 40 per cent, with the rest being fossil diesel fuel.
