Indonesia considering cutting palm oil export levy to spur shipments

Indonesia is considering cutting its palm oil export levy to encourage more shipments, a cabinet minister said on Thursday, another move to spur exports after a ban designed to protect domestic cooking oil supplies saw palm oil inventories swell.

The world’s biggest producer of the edible oil has unrolled a series of policies aimed at stimulating exports after a three-week ban on shipments that ended in late May triggered disruption at home and abroad.

To jumpstart exports, the government needs to make extra effort to quickly cut domestic stocks and prop up palm fruit prices for farmers that have slumped since the ban, Senior Minister Luhut Pandjaitan said at an industry event.

“For shipments to flow we may have to lower the export levy to provide incentives for businesses to export,” Luhut said. He did not provide further details.

Indonesia had cut the export levy to a maximum $200 per tonne for July from $375 previously, but is due to increase the level to $240 in August.

Indonesia’s trade ministry is also considering setting its export reference price every two weeks instead of monthly, to be more reflective of quick-changing international prices.

The government set the reference price based on palm oil prices in Indonesia, Malaysia and Europe and use it to determine the size of export taxes.

The most recent reference price has been set above $1,500 per tonne, putting the export levy at the maximum level. A separate export tax of $288 per tonne is also imposed when the price is set above that level.

Asian palm oil prices slumped in recent weeks amid Indonesia’s shipments resumption, higher output and fear of recessions. Malaysian benchmark palm oil prices has dropped by 18 per cent so far this month.

The government wants to “flush out” palm oil supplies to clear space for companies to buy more palm oil fruits from farmers in what is Indonesia’s peak harvest season.

“The ‘flush out’ is taking place, but the result is not yet as we expected,” Luhut said. Sahat Sinaga, chairman of the Indonesia Palm Oil Board, said the domestic palm oil stock had surged to 6.2 million tonnes following the ban.