VIII. CONCLUSION AND RECOMMENDATION
8.1 Conclusions
Indonesia was found to be highly competitive in the CPO export market than any other country, especially to India and China. Indonesia recorded a
competitiveness index value of greater than one in the two markets. With respect to the China CPO export market, Indonesia and Malaysia were found to be
competitive as their market share continued to increase. Both Indonesia and Malaysia scored above one on the competitiveness index value in the Chinese
market. It has been observed that Indonesia has registered a higher value of
competitiveness index than Malaysia for the period that the study was carried out. With respect to RCAI, Malaysia recorded higher values than Indonesia. This can
be an indicator that Indonesia has an advantage on national endowments than Malaysia as it enjoys a cheaper labor input, intensive use of cheaper materials and
inputs in the CPO industry that makes production cheaper. Malaysia on the other hand has recorded a higher revealed advantage index over the years than
Indonesia. This has been brought about by the fact that Malaysian CPO production industry is more efficient than that of Indonesia. From the revealed
comparative advantage analysis, it was found out that Indonesia faces a strong competition from Malaysia in the export of CPO to the world market.
The study found out that the export tax policy has had significant impact on the CPO industry in Indonesia. The export tax led to the reduction of the
mature area of oil palm plantation. It can also be concluded that the export tax policy benefitted the domestic consumers of CPO as it was effective in controlling
domestic CPO price by reducing its domestic price. The impact of export tax led to depression of production resulting to a reduction in the quantity produced.
Producers, mainly smallholders, have suffered a great deal due to the policy. As the domestic price of CPO is depressed by this policy, the farm gate price of the
farmers’ product fresh fruit bunch or FFB, declines substantially. 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 foreign exchange rate effect was discovered to be positively related to domestic CPO price but negatively related to world CPO price. This can be
observed as the prices of CPO increase with an increase in exchange rate. There are alternative strategies that can be utilized to improve the
competitiveness of Indonesian CPO in the world market. Such strategies include: 1 Improvement in the promotion, negotiation and enhancement of bilateral
relationships between Indonesia and China, as well as between Indonesia and India, with the main aim of contributing towards the improvement of the
infrastructure of the CPO industry in Indonesia; 2 Indonesia must cooperate and work closely with Malaysia which has been the leading CPO exporter in the world
to learn from Malaysia how to efficiently produce CPO so as to compete favorably in the world market; 3 Development of palm oil projects that can be
integrated with other industrial production programs through the revitalization of plantation systems, rejuvenation and rehabilitation of existing farm systems. This
will enable the palm oil producers to expand the existing farms or open new farms that support palm oil production so as to increase its production for world
consumption; and 4 Creation of a conducive atmosphere for investment in the agricultural sector by guaranteeing security, permit ownership of plantations by
individuals, reducing import cost on farm machines and implements that are used in palm oil industry, provide incentives on imports of agricultural machines and
reduce export tax by deregulating export tax and retribution that are not an incentive or that are negatively affecting the competitiveness of CPO from
Indonesia in the world market.
8.2 Recommendations
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