the UR values are close to zero. In the second decomposition, US component performs well; however, UC values in some instances are fairly low. Compared to
the decomposition of MSE statistic, almost all the Theil’s U-Statistic are close to zero for the endogenous variables for the model. This suggests that overall the
simulation model has reasonably good forecasting ability.
7.3. Evaluation of the Impacts of Crude Palm Oil Export Tax
From the study, it has been realized that the export tax policy has had significant impact on the CPO industry in Indonesia. For the period under study,
2002-2007, while the export tax fluctuated from 3 percent in the year 2002 to 1.5 percent in 2004, and then 6.5 percent in 2007, the average effective tax of the
entire period stood at 2.31 percent for the entire period. As a result of the 2.31 percent average export tax, the mature area of oil palm plantation has been
reduced by an average of 0.25 percent over the years or around 2180 ha per quarter of the year period as can be observed from Table 32.
It therefore shows that for the period under study, the total area of land under palm oil in Indonesia had reduced by 8 720 ha per year on average. This
indicates that this export tax policy has had a substantial negative effect on investment in the industry as it has led to a drastic reduction in cultivated area
under oil palm. As a result of this negative investment effect, CPO production has also been depressed by the policy. However, the reduction in production has not
been all that significant as compared to other variables. It was estimated that the policy had caused a reduction of 0.031percent of the total production contributing
to about 999.8 tons CPO reduction which translates to a decline of about 4000 ton per year.
The most devastating impact of the policy had been on the export and farm income. During that time horizon, the export tax policy had caused exports to
reduce by 1.737 percent compared to the scenario under the previous export tax regime. In other words, Indonesia had sacrificed her export of about 41 000 tons
due to the imposition of export tax. In a period of one year, the average effect of export tax policy caused depression of export volume leading to 164 000 tons of
CPO reduction in export to the world market. Clearly, the export tax policy reduces not only competitiveness of the Indonesian palm oil industry but also
hurts producers of CPO, some of them are small-holder farmers, due to the lower price of CPO relative to the world market price. The reduced export value and
CPO domestic price really hurts the palm oil producers in Indonesia showing that the export tax is only useful for the benefit of the consumers.
It was however realized that the export tax policy benefitted the domestic consumers of both CPO and cooking oil as it was effective in controlling domestic
cooking oil price as well as CPO domestic price. With this policy, the government had been successful in keeping the cooking oil price down when the world CPO
price increased or when the rupiah was substantially depreciated. Using this policy, the government had kept the cooking oil price to be 1.904 percent or Rp
106.64L lower than it should be. It also led to the reduction in domestic palm oil price by 1.37 percent resulting into Rp 56kg savings by the palm oil consumers in
Indonesia. Considering the reduction in both prices, the export tax imposed on Indonesian CPO for the entire period from 2002 to 2007 improved the welfare of
the domestic consumers who are mostly low income earners in Indonesia. Due to
that effect, the consumers increased their consumption of CPO in Indonesia by 0.016 percent translating to 137 tons increase in CPO consumption by volume.
Table 32. Impacts of Export tax on Indonesian Crude Palm Oil Industry Effect of 2.31 Percent Tax
Variables Mean value
Percent Units
Mature area 000 ha 871.16
-0.250 -2.18
CPO consumption 000 tons 849.84
0.016 0.14
CPO Export 000 tons 2360.00
-1.737 -41.00
CPO Domestic price Rpkg 4089.00
-1.370 -56.00
Palm Oil Productivity Tonha 3.68
-0.010 -0.01
CPO Stock 000 Tons 930.79
0.370 3.41
Production 000 tons 3225.00
-0.031 -0.99
The study also revealed that the export tax contributed in the enhancement of increased stock of CPO in Indonesia. With an implementation of export tax
during the period the analysis was undertaken, it was realized that the stock of CPO in Indonesia had increased by 0.37 percent when an average tax of 2.31
percent was used. This shows that the quantity of CPO in stock had increased by 3411 tons in the three month period that translates to about 10 000 tons per year.
7.4. Projection of the Impacts of Export tax on Crude Palm Oil Industry
