is no guarantee that the processors will pass on the lower price of cooking oil. Considering that the concentration ratio CR4 in this industry is large, which
indicates a potential oligopolistic market structure, it is not likely that the consumers fully benefit from the lower price of cooking oil.
Although the export tax policy benefits consumers of cooking oil made from CPO, it hinders the development of the cooking oil industry in Indonesia as
a whole since it does not encourage diversification in cooking oils. As mentioned earlier, the major sources of cooking oil in Indonesia are coconut oil, which is
made from CCO crude coconut oil, and RBD refined, bleached, deodorized Olein, which is made from CPO. These two products are close substitutes so that
policies imposed on one commodity will have tremendous effects on the other commodity.
The imposition of an export tax diverts CPO from the export market to the domestic market, lowering all cooking oil prices. This leads to competition with
the domestic coconut oil industry, which otherwise would provide more of the raw material for domestic cooking oil. Considering that significant amount of
copra is made from coconuts that come from small-holder farmers, the export tax policy on CPO could further lower price of coconuts and pressure farm incomes.
7.5. Effect of Foreign Exchange Rate on the Crude Palm Oil Industry
The foreign exchange rate effect was also evaluated with respect to the CPO prices. The effect was evaluated with an increase in exchange rate by 10
percent based on the current value. It was discovered that foreign exchange rate is positively related to domestic CPO consumption, CPO export and CPO domestic
price. However, exchange rate was found to be negatively related to world CPO price, palm oil mature area, CPO production and stock.
With an increase of ten percent in exchange rate, the mature area under oil palm will reduce by 0.387 percent while production will reduce by 0.372 percent.
These result in 3 369 ha and 12 000 decrease in palm oil area and production in that order as reported in Table 34. Based on the same exchange rate, the stock of
CPO in Indonesia will reduce by 3.576 percent or 33 285 tons.
Table 34. Effect of Exchange Rate on Crude Palm Oil Industry
Variable Mean Simulated
value Percentage
effect Effect in
value Mature area 000 ha
871.16 867.79
-0.387 -3.369
Palm Oil Productivity Tonha 3.68
3.68 -0.033
-0.001 Production 000 tons
3225.00 3213.00
-0.372 -12.000
CPO Stock 000 Tons 930.79
897.51 -3.576
-33.285 CPO consumption 000 tons
849.84 850.08
0.029 0.244
CPO Export 000 tons 2360.00
2386.00 1.102
26.000 CPO Domestic price Rpkg 4089.00
4106.00 0.416
17.000
The consumers further lose with an increase in exchange rate in Indonesia. This can be observed as the domestic price of CPO increases with an increase in
exchange rate. The consumers are charged Rp 17kg when the exchange rate increases by ten percent in Table 34. As a result, it will increase the price of
domestic CPO and its products as supply will be low due to increased exports. At the same time, the value of the currency shall have depreciated and with constant
per capita income, the domestic prices increase significantly.
7.6. An Alternative Formulation of Export Tax Rate
From the analysis undertaken considering the effects of export tax government policy on Indonesian CPO industry, the results indicate that the
implementation of the CPO export tax has significant advantages and
disadvantages to the CPO industry. It has been realized that export tax policy has a redistribution impact to all stakeholders involved in the industry and
government revenue. This policy has benefitted both consumers and the government making them better off. On the contrary, producers have become
worse off, indicated by the decline in mature oil palm area, production, export, farm income and employment.
Considering the benefits and costs of the policy, the government is likely to maintain this policy in the future. This is because it would enable the
government to redistribute income to the majority of the population who are consumers of CPO by products like cooking oil. The government also depends so
much on the revenue earned from export through export tax policy. As this policy has substantial impacts on the industry, it needs to be reformulated in such a way
that consumers are fairly protected from a sharp fluctuation of the international market, while producers still gain a normal profit or incentive to develop their
plantations. Following this, the magnituderate of CPO tax should consider the following facts:
1. Investment in oil palm plantations is a long-term venture and therefore,
price fluctuation cannot be avoided by the investors producers. Within a certain period of time, CPO price may well be above production cost and
vice versa . Production cost in this case includes variable cost and capital
accumulation for reinvestment or rehabilitation sustainable development approach;
2. Using this approach, production cost assuming that the exchange rate is
Rp 9000USD is around USD 165.2t or Rp 1 487kg. therefore, the value
to be taxed should be the profit between the market price and the production cost;
3. Profitslosses strongly depend on the world price WDPOP and exchange
rate INE. Therefore, these two factors should be explicitly considered to determine the rate of the tax. In other words, the export tax rate has to be
calculated on the bases of the fluctuation of these variables. Thus, profit P = WDPOPINE - 1 487;
4. When the price of CPO is below the production cost, the
producerssmallholders suffer from a loss. Using world CPO price in the last two decades,
it was found that the number of times that CPO prices were below the production cost, or probability P to get profit is around
0.7 P =0.7. This means that if the producerssmallholders have to transfer part of their profit to consumers and government, it is only around 0.7 of
the time can that be transferred. This coefficient acts as the first weight in distributing welfare as represented by Equation 16;
5. On the basis of the secondary rights theory which states that profit gain of
an industry is not merely enjoyed by the people involved in the industry, but also by people, who because of some obstacles cannot participate in
the industry. This theory is relevant because profit gain by producers due to either world price increase or currency depreciation will cause a
decrease in consumer welfare. In line with this argument, it is assumed that 75 percent of the profit belongs to producers as primary right, while
the rest of about 25 percent will belong to consumers as a secondary right SR. The main rationale behind this assumption is that the social cost of
the estate crop industry in so-called reformation era is around 20 -30 percent. For example, the government asked private estates to release
around 20 percent of their land for local people. For NES Schemes, the government stipulated that total of local people involved in the project is at
least 30 percent of total participants; 6.
The magnitude of the tax should also consider the number of producers and consumers, as a proxy of political powerpressure group. The number
of producers together with their family members is assumed to be 5 percent of the total population in Indonesia. In this study, the number of
consumer NC and producers together with family members NP are 232 million and 11.6 million, respectively; and
7. The magnitude of the tax should also consider the income share of oil
palm plantation to total farmers’ income IS, and share of cooking oil expenditure to total household expenditure ES. Within this study, the
former is estimated to be around 80 percent and the latter to be 4 percent BPS, 2001.
Following all these arguments then, the formulation of an alternative export tax is as follows:
PE = Π
P SR NCNP ESIS = WDPOPINE-1 4870.70.2523211.6480..................... 16
= WDPOPINE-1 4870.175 = WDPOPINE-1 48717.5 ...................................................... 17
Therefore, nominal tax is 17.5 percent where:
PE = Export tax rate Rpkg WDPOP = Export price USDt
INE = Exchange rate RpUSD
Estimating effective tax for Indonesian CPO industry using the above formulated equation is as follows;
Therefore
Tax WDPOP
INPQ WDPOP
EET −
=
5 .
17 454
2 .
165 454
− =
EET = 11.13 percent
Where: WDPOP = USD 454ton average price for entire period studied INPQ = USD 165.2ton average cost of production
Tax = Nominal export tax rate percent
7.7. Effect of Recommended Export Tax on Indonesian Crude Palm Oil
