Indonesia’s higher palm oil taxes could hit demand and impact smallholders

The introduction of higher crude palm oil (CPO) taxes in Indonesia to raise funds for the country’s palm-based biodiesel programme could hit demand next year, Reuters reported on 3 December.

Smallholder farmers had also not welcomed the higher levy which they said would only benefit larger oil producers who supplied feedstock for Indonesia’s biodiesel, Reuters said.

Indonesia was due to introduce higher CPO levies on 10 December. Export levies would be raised to a progressive system of US$55-US$255/tonne of CPO, depending on price levels. Previously there had been a flat US$55 levy on CPO regardless of price.

The new regulation stipulated that if the CPO reference price was US$670/tonne or less, the levy imposed would be US$55/ tonne. It would increase by US$15 for every US$25 CPO price increase.

In December, the CPO levy had been set at US$180/tonne as the reference price had been set at around US$870, an official at the oil palm fund agency had told Reuters.

The measures were seen as a fundraiser to help subsidise Indonesia’s biodiesel programme, which requires diesel to be blended with 30% bio content (B30) to maximise domestic use of the edible oil.

A slump in fuel prices this year had made it less economical for biodiesel and longstanding plans to increase the bio content to 40% (B40) had been delayed due to funding issues, Reuters said.

The levies could impact palm oil demand next year, and BV Mehta, executive director of the Solvent Extractors’ Association of India, said demand there was not likely to improve.

“India is a very price-sensitive market, the current high prices are likely to reduce demand further,” Mehta told a virtual conference.

The secretary-general of Indonesia’s smallholder farmer association Mansuetus Darto said the policy was “misguided”.

“It only wants to pursue the target of stepping up to B40 and hurting small farmers.”

The market however, had reacted positively, to the news, Reuters said.