RI Needs Special Body to Tackle Rising Palm Oil Challenges

The Indonesian Palm Oil Board (DMSI) has called for the establishment of a special authority to tackle various issues hampering the domestic palm oil industry.
The board’s chairman, Derom Bangun, said the rising challenges for the industry ranged from trade restrictions based on environmental and health concerns, to tighter competition with rival vegetable oils, all of which required more concerted efforts to be managed.

Palm oil, used in many products from cooking oil to cosmetics, is intensively scrutinized due to its high saturated fat content, which is detrimental to health, as well as deforestation and bad environmental practices seen in plantations across the country. It also used to be the cheapest edible oil, but high demand has pushed up its price, narrowing the gap with other oils like soybean and rapeseed.

In Europe, the third biggest export market for Indonesian palm oil, for example, there had been a strong campaign to reduce its consumption, Derom said.The anti-palm oil sentiment is already evident, especially in France where some food manufacturers already put a “no palm oil” label on their products.Palm oil has recently lost its market share in India, Indonesia’s biggest buyer, as the price gap with soybean oil shrank to an average US$84 each ton this year from $244 in 2013, according to data compiled by Bloomberg.“We need a stronger institutional capacity to address these challenges. Advocacy and promotions need a special budget, but in fact, our ministries do notF allocate funds to do these things,” Derom said in a recent media briefing.Although Indonesia’s palm oil production was higher than the neighboring Malaysia, its capacity for research and the development of human resources working in the industry lagged far behind, he added.

Malaysia, the world’s second biggest palm oil producer after Indonesia, has, since the 1970s, collected funds of MYR 11 ($3.27) per ton of crude palm oil (CPO) produced by plantations. The funds have been used to finance a wide array of activities pertaining to research, development and promotion of the industry through the Palm Oil Research Institute of Malaysia (PORIM) and the Palm Oil Registration and Licensing Authority (PORLA), which have been merged into the Malaysian Palm Oil Board.The body contributes to expand the use of palm oil and promote the marketability of the commodity both domestically and overseas, including publishing scholarly articles on palm oil in international journals, all of which Indonesia is yet to do.

Derom said that the lack of institutional capability on the Indonesian side had also discouraged the country from cooperating more closely with Malaysia to face the barriers both had in the international trade arena.“We really hope to catch up with Malaysia in terms of research, promotion and human resource
development,” he said.At present, the government’s progressive export taxes on CPO and its derivatives help retain the raw material for local refiners.However, many planters complain because the funds are not channeled to assist the further development of the industry.

Palm oil is the second top contributor to total exports in Southeast Asia’s largest economy, after coal. It contributed $19.22 billion, or 10.53 percent, to the country’s total exports of $182.57 billion last year.

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