Indonesia's new palm oil levy likely to lift exporters' profit margin

Frequent changes in the levy structure have lead to uncertainties for the sector

  
A worker shows palm oil fruits at palm oil plantation in Topoyo village in Mamuju, Indonesia, Sulawesi Island, March 25, 2017 in this photo taken by Antara Foto. Picture taken March 25, 2017. Antara Foto/Akbar Tado/via REUTERS.

A worker shows palm oil fruits at palm oil plantation in Topoyo village in Mamuju, Indonesia, Sulawesi Island, March 25, 2017 in this photo taken by Antara Foto. Picture taken March 25, 2017. Antara Foto/Akbar Tado/via REUTERS.

JAKARTA - Indonesia's decision to change the levy structure for palm oil exports is expected to improve profit margin for exporters, Indonesia Palm Oil Association (GAPKI) said, though other groups felt the frequent changes in rules are hurting demand.

The world's largest palm oil exporter will cut the ceiling rate for crude palm oil (CPO) levies to $175 per tonne from $255, Finance Minister Sri Mulyani Indrawati said on Monday, after facing criticism from stakeholders. 

The export levy begins when the reference CPO price is at $750 per tonne, with a $20 increase for every $50 rise in the price. The maximum tariff for when CPO prices are above $1,000 will be flat at $175, the finance minister said.

The previous regulation stipulated a $15 levy increase for every $25 jump in crude palm prices.

"The decrease in levy is expected to provide space for companies to invest or increase production capacity so as to absorb additional workers," GAPKI chairman Joko Supriyono said.

"This is important when the government wants a faster economic recovery," he added.

Other groups, however, said the frequent changes in the levy structure have lead to uncertainties for the sector.

Indonesia most recently changed the levies rule in December, imposing higher levies on CPO to generate funds for its ambitious palm-based biodiesel programme, which has helped to sop up excess palm supply and support prices. 

The changes could lead to buyers adopting a wait-and-watch stance and lower demand for Indonesian palm oil, Gulat Manurung, chairman of palm smallholders group APKASINDO, adding that palm fruit prices have been affected.

Meanwhile, Sahat Sinaga, executive director at Indonesia Vegetable Oil Industry Association (GIMNI), said frequent changes in levy rules are making it difficult for traders to calculate prices and risks on palm oil contracts.

"Global markets do not like an ever-changing policy. (Rules) should be maintained at least a year," he said.

Sinaga added the $16 rise for palm derivative products is still a disadvantage for local palm oil refiners and said the group proposed a $14 rise for refined products.

The maximum levy of $175 per tonne is still considered "burdensome" for small holders, who expect the levy cost to be passed up to the fresh fruit prices, secretary general of Indonesian Oil Palm Smallholders Union, Mansuetus Darto said.

He thinks Indonesia, which uses the levy collected to finance its mandatory biodiesel programme and palm replanting among others, can afford to pause levy collection.

"There's no pressing need yet (for the fund) ... BPDB-KS has recorded surplus in recent months because there were no significant spending," he said, referring to the agency who managed the levy funds.

(Writing by Fransiska Nangoy, Editing by Sherry Jacob-Phillips) ((Fransiska.Nangoy@thomsonreuters.com;))


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