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Indonesia takes U-turn to replace palm oil export curbs with levy

JAKARTA (CNA) – Indonesia will remove export restrictions on palm oil products and raise its export levy instead, its trade minister said yesterday, only a week after the world’s biggest exporter of the edible oil shocked markets by further tightening its curbs.

The Southeast Asian country has since last week required companies to sell 30 per cent of their planned exports of crude palm oil or olein at home, up from 20 per cent imposed in January, under a so-called domestic market obligation (DMO) aimed at ensuring local supply amid soaring cooking oil prices.

In a parliamentary hearing, Trade Minister Muhammad Lutfi said the DMO would be withdrawn and the regulations were agreed and approved yesterday.

Instead, the ceiling of palm export tax and levy would be raised, he said, from a combined maximum of USD375 per tonne to USD675 per tonne. The maximum CPO tax would be applied when prices reach USD1,500 per tonne.

“This is the market mechanism, and hopefully this can maintain supply stability for the people,” Lutfi said.

Bunches of harvested palm oil fruit on a truck in East Kalimantan, Borneo, Indonesia. PHOTO: BLOOMBERG

Global prices of crude palm oil, which Indonesia uses for cooking oil, have surged to historic highs this year amid rising demand and weak output from top producers Indonesia and Malaysia.

Top palm oil producer Indonesia first restricted exports after prices of cooking oil – made from refined crude palm oil – rose more than 40 per cent at the start of the year amid a surge in global prices.

Although the policy increased supply at home, consumers complained that cooking oil was not available at many retailers across the country.

The government this week removed price caps on packaged cooking oil while providing subsidy for bulk cooking oil.

Explaining the decision, Lutfi said there was a price disparity between the DMO and market price that was being exploited. He did not elaborate.

He also told the hearing Indonesia had issued export permits for 3.5 million tonnes of palm oil and its refined products in the past 30 days.