PROSPECT OF INDONESIAN CPO REMAINS BRIGHT

 By Andi Abdussalam 

          Jakarta, Sept 6 (Antara) - Indonesian oil palm farmers should not worry about the current fall in the crude palm oil (CPO) prices in the global market, as the commodity can be absorbed to produce biodiesel domestically.
         As the world's largest CPO producer, with plantation covering some 7.4 million hectares, Indonesia supplies about 44 percent of the world's CPO requirements. Domestic use of raw material for diesel oil production can reduce world supplies and thus leading to price hike in the global market.
         After all, the global need for CPO continues to increase. According to Fadhil Hasan, executive director of the Indonesian Palm Oil Producer Association (GAPKI), the global demand for the product will increase next year benefiting Indonesia.
         So, farmers should not worry about the decline in prices. Moreover, Indonesia is currently launching a program to use CPO as raw material for the production of alternative energy to replace its depleting fossil fuels and to reduce fuel imports.

 
         Indonesian Trade Minister Muhammad Lutfi said that currently the government has been implementing a 10-percent biofuel mix on fuel oil or B10. Biofuel mix will be increased to 20 percent in 2016, which is estimated to reach 8 million kiloliters.
         However, with the mandatory 10 percent biodiesel blending program applicable from the last quarter of 2014, a transition will occur where raw materials, which were initially exported, have to be used for domestic supply.
         "If the mandatory 10 percent biodiesel program is successful in 2014, then I hope the raw material for export can be used to fill that need. If it happens, then prices will stabilize as at this time," said Lutfi.
         He added that if the 10 percent biodiesel program is successful, then in the future the biodiesel mix should be raised to 30 percent. If it is designed with the right formula for long-term program, the domestic CPO industry could have a guarantee on its domestic sale.
         "If we have enough time, we can introduce higher biodiesel blend. With uncertain prices at present, we can best allocate a substantial amount (of CPO for mixture program)," suggested Lutfi.
         Therefore, the GAPKI office for Riau Province, which is the major CPO producer in Indonesia contributing about 30 percent of the national production, hopes that the government will be consistent in absorbing as much CPO product as possible from farmers.
         "The government has issued a policy of 10 percent biodiesel mix in diesel oil fuel at home. However, the implementation of this policy still seems to be inconsistent," Hinsatopa Simatupang, chairman of the GAPKI branch for Riau, said recently.
         He pointed out that producers were actually ready to implement the policy if it required them to meet domestic needs for various products such as food, industry, and energy.
         In his view, the government still gives priority to revenues from export tax of CPO instead of absorbing local palm oil byproducts for domestic market.
         On Friday, Lutfi reported that the government will not revise or cut the exit tax of its CPO exports, although Malaysia has revised for the September-October 2014 period following CPO price fall.
         One of the largest palm oil producers, Malaysia, has eliminated export tax for palm varieties for the next two months. The Malaysian government had earlier set the CPO export tax at 4.5 percent for September. The tax allowance is expected to increase CPO exports to 600 thousand metric tons and reduce reserves to 16 million tons by the end of the year.
         "We have regulations, so we cannot cut exit tax. We will continue with the original regulations," affirmed Lutfi during a press meeting on Friday.
         In reality, according to Simatupang, businesses at home hoped that the government will issue a policy that will facilitate the absorption of biodiesel. Thus, Indonesia will no longer need to depend on CPO exports, which are now facing a gloomy market--due to global economic recession--and becoming the target of black campaign by non-governmental organizations in the European Union.
         He noted that if the capacity of domestic absorption is large, there will be no need to kick a fuss whereby the European Union has accused Indonesian CPO of not being ecofriendly.
        "The consumption of our product by the European Union is relatively small. Its black campaign, however, aims at protecting its own biodiesel products," Simatupang added.
         Oil and people's economy researcher Agung Marsudi of the Duri Institute noted that in the field of energy, the government should optimize efforts to tap renewable biodiesel energy potential to reduce its fuel imports.
         He said Indonesia's biodiesel potential is very high because its CPO production is high, reaching about 26 million tons per annum, of which about 30 percent is produced in Riau Province.
         Mahdi Muhammad of Bank Indonesia (the central bank) for Riau said the development of renewable energy is one of the solutions that the Indonesian government could implement to reduce its current account deficit, which in the second quarter of 2014 had reached US$9.1 billion, up 2.05 percent from the first quarter, amounting to US$4.2 billion.
         In the meantime, Nus Zuzulia Ishak, director general of export development of the trade ministry, said the prospect of CPO in the global market remained bright, although the price of the product was now declining.
         "I believe the price will improve and become better in the future, so that we have to prepare market penetration," Nus Nuzulia Ishak was quoted by Tempo.co as saying on Thursday.
         He stated that in 2013, the world's CPO import had reached US$42.7 billion. Of the amount, Indonesia had contributed some US$17.3 billion or about 43.68 percent of the global requirement. Malaysia had only supplied US$14.9 billion or about 36.4 percent.
         Fadhil Hasan said the amount of CPO exports to the global market will increase in 2015 as a result of improvement in purchasing power of the world consumers.
         "This will benefit Indonesia as the world's largest producer," remarked Fadhil Hasan.
         He noted that Indonesian producers had set a production target of 33 million tons of CPO in 2015, or an increase of 9 million tons from the estimated production this year.
         More than 60 percent of the production is expected to be exported to major markets such as India, Pakistan, South Korea, and European Union, he added.***2***

(T.A014/INE)
EDITED BY INE