Interview: Franky Widjaja
How will new export duties on crude palm oil (CPO) and its derivative products affect the industry?
FRANKY WIDJAJA: The new export duty is not necessarily a major change or something completely new. I view it as more of a fine-tuning of existing policy. The original idea of the export duty was to alleviate pressure on inflation so that essential commodities like rice, sugar, flour and cooking oil do not experience a significant increase in price as these products are vital to the majority of the population. When the price of CPO began to climb at an alarming rate, it was necessary for the government to intervene in order to keep the price of certain products at a reasonable level.
The other motivating factor for the export duty is to encourage the development of downstream industry and value-added products. Essentially, there has been a slight reduction in the export duty on refined products and a slight increase in the export duty on CPO. This provides greater profit margins for refined products and gives producers an added incentive to invest in downstream industries. With the poverty rate at what it is today, these types of policies are quite welcome as they will increase investment and therefore provide more employment opportunities.
The industrialisation or manufacturing of downstream products through resource-based commodities is exactly what the country needs to focus on in terms of improving its overall economic development. We must continue to support value-added industries rather than simply exporting raw materials. The cocoa industry, for example, has benefitted from export duties. New downstream manufacturing operations have either been reopened or newly constructed, providing additional opportunities for employment. Hopefully similar benefits will be seen in the CPO industry.
How will the moratorium on deforestation affect the growth of CPO production?
WIDJAJA: Any long-term growth requires a sustainable growth strategy. The moratorium on deforestation is a necessary part of the country’s sustainable growth policy. While it might limit the availability of land for new palm oil development, there is still ample opportunity for producers to increase yields.
However, the issue at hand is overlapping land classifications between the central government and the regional or local governments. There is a great deal of confusion as to what specific land falls under the moratorium and what is available to the industry for CPO farming. I am encouraged that the government is undertaking a renewed effort to clarify its spatial planning strategy in order to resolve many of these conflicts.
The Ministry of Forestry, the Ministry of Public Works and the Land Planning Department are all working closely with regional governments, including governors and bupatis (mayors) in order to create a single map which will provide much-needed clarity on the issue of land utilisation. Right now there are a few maps going around and this creates confusion and conflict.
Through improved coordination and a clear road map, the palm oil industry has ample opportunity to increase its productivity at a pace in line with its goals.
Should the country develop a biofuels industry?
WIDJAJA: We all know that as of end of October 2011 the world population reached 7bn. FAO estimates that by 2015, nearly 1bn people will live in hunger and another billion with malnutrition.
This is a global issue and we all have to take part in finding the solutions. We need to ensure food security. Food must be available, accessible, affordable and safe to consume. Given this, I do not encourage the use of food for fuel. We need to ensure that we have improved self-sufficiency for food-based farming.
Therefore, I would encourage the government to prioritise food over fuel. While we have an abundance of palm oil, in the context of food security it is not the right time to develop biofuels. The biofuels industry would have to be strictly controlled and it must be ensured that only land areas designated for biofuels are utilised.
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