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GLOBAL COMPETITIVENESS OF INDONESIAN PALM OIL1 2

Tulus Tambunan Kadin Indonesia

Indonesian Trade Performance: A Brief Overview

One of the most important developments in world trade over the past thirty years has been the growing participation of developing countries. While the value of global merchandise trade expanded on average by 10% per year from 1970 to 2000, outpacing the growth of output, developing countries’ exports grew at 12% per year and their share of total trade expanded from about one-quarter to one-third (Figure 1). Emerging market countries in Asia and, to a lesser extent, Latin America were the main contributors to this impressive performance. This includes China, India and Indonesia since they initiated reforms and some of the middle- and higher-income countries in Asia that were themselves poor in the 1970s. This increase in trade was not limited to providing exports for industrial country markets. Over the period, developing countries became an important market for their own exports as well. The share of developing country exports to other developing countries increased from 17% in the mid-1960s to around 40% during the second half of the 1990s (IMF & World Bank, 2001).

Indonesian trade is predominantly North-South with a low proportion of South-South trade. Since special and differentiated treatment applies to developing countries in the WTO negotiations, this has implications for Indonesia’s negotiating strategy (McGuire and Prabowo, 2004). Based on data from WITS/TRAINS (World Bank/WTO), in 2002, around 39% of Indonesia’s goods and services imports were from developed countries. The major sources of imports are from Japan, the European Union (EU) and the United States; these three countries are also the most important destination regions for Indonesian exports.

During the period of rapid growth prior to the 1997/98 economic crisis, Indonesia underwent massive economic transformation, characterized by drastic changes in economic structure, trade patterns and industrial formation. This process has been associated with the changing patterns of Indonesia’s trade and industrial policies for the last three decades, from an import substitution strategy in the 1970s, export promotion strategy in the beginning of 1980s and then trade and financial liberalization since the late 1980s. Since then, international trade activities have become important components in Indonesia’s economy. Both values of exports and imports have increased substantially, while the structure of exports has also changed dramatically. The process of 1

Bahan diskusi dalam Pertemuan Bulanan LP3E-Kadin Indonesia, “Kelapa Sawit Sebagai Andalan Pertumbuhan Ekonomi Nasional”, 7 Juli 2005, Jakarta

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Draft dari salah satu bagian dari penelitian yang sedang dilakukan oleh penulis, bagian dari proyek tahunan dari EU: AsiaInvest 2005, dengan judul Trade Development Between Indonesia and the European Union (EU).

industrialization has also been rapid, and various indicators show that the process of industrial upgrading, from low to higher value added manufacturing and from the dominance of natural resource based to labor intensive industries and then to capital intensive industries, has been taking place (Aswicahyono, 2004).

Based on findings of a study conducted by Aswicahyono (2004), Figure 2 depicts the pattern of Indonesia’s exports since 1965. Until the late 1970s, manufacturing exports constituted no more than 4% of total exports. By 1987, the share of manufacturing exports had surpassed the share of agricultural exports, and in 1992, overtook the share of oil, mineral, and basic metal exports. As the share of agricultural and primary product exports declined and the share of manufacturing exports increased, Indonesia became less prone to external terms of trade shocks.

During the 1997/98 economic, the value of Indonesia’s total merchandize exports declined (Figure 3), although for some products, the slow down has actually started some years before the crisis (see Figure 2) due mainly to the decline in its international export prices (Magiera, 2000). Since then the Indonesian trade has grown very slowly, and thus the trade challenge for Indonesia now is how to improve, sustainability, its trade performance, especially non-oil and gas trade or manufacturing trade, which was previously a major driver of economic growth prior to crisis. Trade in oil and gas, or low value added necessity products, were able to fair better through the crisis. While the non-oil and gas trade balance has moved to a trade surplus post-crisis as imports compressed, it has failed to return to the same level of pre-crisis growth. This follows a period of rapid trade growth driven by selective export development policies.

It is generally argued that poor trade finance, infrastructure deficiencies, political and social instability, lack of human resource, market distortions created unattended by macroeconomic policies, high cost economy, and the

reliance of exports on imports all contributed to the poor export performance of Indonesia after the crisis. These structural weaknesses surfaced post-crisis and continue to exist today. It is also argued that the poor performance of Indonesia's exports has been caused by Indonesia's inability to adjust export structure to bring it into line with the dynamics of world demand.3

Figure 2. Indonesia’s composition of exports, 1963 to 2001(%)

Source: Aswicahyono (2004)(data from World Bank).

Next, Table 1 presents data on Indonesian export during the 2000-2004 period. As can be seen, the growth trend of Indonesia’s total export during that period is almost 4%, as compared to about 4.38% of non-petroleum and natural gas. In 2000, the share of manufactured goods in total export of non-petroleum and natural gas was almost 88% and it declined a little bit to 87% in 2004. But, in 2004, the export of manufactured goods grew with 1.5 percentage point higher than that of non-petroleum and natural gas.

Two tables further present data on Indonesian export of non-petroleum and natural gas for respectively, the 1999-2003 period and January- April 2005 by country of destination. Table 2 shows that the United States (US) was the most important export market for Indonesia, followed by Japan in the second place. One interesting observation from this table is that, although China during that period was in the fourth place, the Indonesian export of non-petroleum and natural gas went to this country grew much higher than that to the US, or Japan. Another interesting fact is that before 2005 (as shown in Table 2) the European Union was not so important as a

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market of destination for export of non-petroleum and natural gas from Indonesia. But data for January-April 2005 as presented in Table 3 show a different picture that the EU has become the most important market for Inon-petroleum and natural gas commodities from Indonesia.

Figure 3. Indonesian Merchandize Trade, 1993-2003 (USD billions)

Source: WTO (2004)

0 10 20 30 40 50 60 70

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

B

illio

n

s

U

S

$

Export Import Trade-Balance

Table 1. Summary of Indonesia’s Exports, 2000-2004

Table 2 Indonesian Export of Non-Petroleum and Natural Gas by Country of Destination, 1999-2003

Table 3. Indonesian Export of Non-Petroleum and Natural Gas by Country of Destination, January-April 2005

Source: Deprind database.

Indonesian Palm Oil Production and Trade Performance

During the last twenty years, the history of the palm oil industry in Indonesia is one of evolution from government sponsorship and market interventions to private sector initiative in response to international price signals. The evolution of the market from public to private sector, while substantial, is incomplete. Investments in new oil palm estates receive preferential financing terms. Further, marketing interventions aimed at reducing inflation and assisting consumers remain but with unintended consequences.

Until early 1990s, most palm oil was produced on publicly-owned estates, although the mix will change rapidly during the next decade as existing plants mature. Indonesia is one of the lowest-cost producers of vegetable oil in the world (Tampubolon, et al, 1994). Comparative studies on production costs, based on engineering techniques, generally estimate average costs at around $200/ton.4

Since 1991, the government has intervened infrequently in the marketing of palm oil. However, with the price boom in palm oil, inflation fears and concern for consumers has motivated recent market interventions. Still, growth in incomes over the past decade has resulted in a diversified household budget with less importance given

4 _{However, recent information received by the author while writing this report from some officials in the Department of}

to cooking oil, even among the poor. In the 1990s, on average, cooking oil comprises 1.4% of the consumption price index (CPI) and 4% of the household budget of the poorest 20% of the rural population. As a result, the 21% increase in the prices of cooking oil in 1994 only contributed 0.3 points to the inflation rate. Further, the costs to the poorest consumers of the increase in palm oil was equivalent to a 0.4% decrease in their household income (Larson, 1996).

The government uses three policy tools to affect domestic prices: 1) an export tax; 2) buffer stock operations; and 3) directed sales from public estates. In the 1990s, the export tax is triggered when FOB prices reach about $435/ton and targets only above-average profits. The tax has been effective in lowering domestic prices, but does so by transferring income from the oil palm growers who are primarily off-Java, to the government and to consumers who are primarily on-Java.5

Since the reforms, restrictions on imports and exports have been lifted and domestic prices of crude palm oil and refined products, including cooking oil, have followed international prices. As a result, crude oil and olein stock pile operations and directed domestic sales cannot have a substantial enduring effect on domestic prices.

In Indonesia, the palm oil industry has been one such source of growth in a dynamic agricultural sector. In the last twenty years, production has grown from less than 400,000 tons of crude palm oil (CPO) to over 4 million tons. In addition, with production costs among the lowest in the world, investment levels are expected to remain high. The tree crops sector occupies a strategic niche in Indonesian agriculture and development, providing a valuable source of foreign exchange earnings and generating incomes for millions of smallholder families. Since tree crop production is concentrated off-Java where poor soils limit food production, growth in the tree crop sector has also contributed greatly to poverty alleviation off-Java.

Based on recent data from BPS, Figure 4 shows the growth trend of output in palm oil industry in Indonesia for the 2000-2004 period is almost 28% as compared to 3.8% of total output of manufacture. During 2003-2004, production in this industry increased by 49.05%, much higher that that of total output of manufacture which is only 19.07%. From the world perspective, based on FAO database, Figure 5 presents a long-term development trend of world production share of Indonesian palm oil for the period 1961-2004. In 1961, the share was about 6.84 percent and in 2004 it is around 35.81 percent.

With respect to trade, Figures 6 and 7 show trends of long-term development of world export and import of palm oil. World import in 1961 was 645,600 mt or US$ 143,642,000 and 20,125,461 mt or US$9,374,352,000 in 2003. World export in 1961 was 629181mt or in value about US$134,855,000 in 1961 and 20,802,005 or US$

5_{The way in which the tax is implemented creates a burden for the processing industry. Generally, the tax has discouraged}

local processing by heavily taxing processing margins. Further, since the tax rates for palm oil products are not directly linked to the tax on crude palm oil, processing margins are unpredictable and the policy inhibits common risk management practices such as forward sales. This is an unintended consequence of the mechanics of the tax.

8,930,629,000 in 2003.

Figure 4. Output share of Palm Oil in total output of manufacturing industry, Indonesia, 2000-2004

Source: BPS 0 2 4 6 8 10 12

2000 2001 2002 2003 2004

%

Figure 5. World Production Share of Indonesian Palm Oil, 1961-2004

Source: FAO database

0 5 10 15 20 25 30 35 40

1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003

%

Figure 6. World Exports and Imports of Palm Oil (Quantity; mt): 1961-2003

0 5000000 10000000 15000000 20000000 25000000

1961 1965 1969 1973 1977 1981 1985 1989 199 3

1997 2001

Mt

Imports Exports

Figure 7. World Exports and Imports of Palm Oil (value: 000 US$): 1961-2003

0 1000000 2000000 3000000 4000000 5000000 6000000 7000000 8000000 9000000 10000000

1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003

000 US

$

Imports Exports Source; FAO database

Further, as shown in Figures 8 and 9, Indonesian export of palm oil also increased from 117,300 mt or US$21,390,000 in 1961 to 6,386,410 mt or US$2,454,626,000 in 2003. Indonesia started to import palm oil only since 1973 with 127mt or US$65,000 and no import in 1978 and 1979, and started to import again since then and in 2003 amounted to 4,014 mt or US$2,202,000

Figure 8. Indonesian Export and Import of Palm Oil (mt): 1961-2003

Source: FAO database

0 1000000 2000000 3000000 4000000 5000000 6000000 7000000

1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003

Mt

Figure 9. Indonesian Export and Import of Palm Oil (000 US$): 1961-2003 0 500000 1000000 1500000 2000000 2500000 3000000

1961 1964 1967 1970 197

3

1976 1979 1982 1985 1988 1991 1994 199

7

2000 2003

Va

lu

e

Imports Exports

Source: FAO database

Malaysia has always been the strongest competitor for the Indonesian export of palm oil. So, it is interesting to see how is the relative position of Indonesia with respect to Malaysia in international trade on this particular crop. Figure 10 may give some clue about this question. In 1961, the share of Indonesia was 18% compared to 15% owned by Malaysia. However, since the 1970s, Malaysia has increased significantly its production and export, and in 2003 Malaysia owned about 58% while Indonesia 30.7% of world trade in palm oil. The relative weakness of Indonesian position in world market for palm oil is also observable by looking at the long-term development trend of export ratio between Indonesia and Malaysia. As can be seen in Figure 11, in 1961 the export volume of Indonesian palm oil was almost 124 times larger than that of Malaysia, but in 2003 it reduced by more than 50% to about 52.9 times.

Figure 10 World Market Share for Palm Oil of Indonesia (I/W) and Malaysia (M/W), 1961-2003

0 10 20 30 40 50 60 70 80

1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003

%

M/W I/W

Figure 11 Export Ratio of Palm Oil Indonesia – Malaysia, 1961-2003

0 20 40 60 80 100 120 140

1961 1964 196 7

197 0

1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003

%

Source: see Figure 10

Competitiveness

Methodologically, the trade performance or global competitiveness of a country can be examined by analyzing a number of indicators/indices or through various methods of analysis. One method which is appropriate to be used to examine the Indonesian competitiveness of palm oil the so-called country market analysis profile conducted by ITC from UNCTAD. This provides an overview of the export performance of developing countries and economies in transition in terms of the product composition of their exports, the dynamics of international demand, and growth patterns of their leading export products. The national export performance analysis shows: the leading export products of each country and their extent of concentration or diversification, the products for which each country has out/under performed other countries and increased/decreased its international market share, the extent to which the leading export products are positioned in growing or declining markets, and the market segments in which the leading export products are positioned in terms of unit values.

Conceptually, the national export performance is based on trade data for the years 1997 to 2001 reported by 184 countries and territories to the COMTRADE database of the United Nations Statistical Division, which together account for more than 90 percent of world trade.

This analysis yields two types of information. The first information is presented in Figure 12 showing the national export performance of Indonesia vs. international demand from the dynamic perspective. The figure presents the performance of Indonesia’s 20 leading export product groups, including palm oil. It shows the export value of the products under review (size of the bubbles), and it compares the national export change in world

market share (horizontal axis) to the growth of international demand (vertical axis). The figure also provides an overview of the concentration of Indonesian exports: the appearance of one or a few comparatively large circles shows that exports are highly concentrated. In addition, the figure indicates the average nominal growth of world imports (horizontal reference line) over the 1997 to 2001 period, which was 4.5% p.a. Moreover, the vertical line (i.e. the line of constant world market share) divides the figure into two parts. Exports of products to the right of this line have grown faster than world imports and thereby increased their share in the world market. Conversely, products to the left of the vertical line have seen erosion of their world market share. The figure also provides an overview of the concentration of exports. The appearance of one or a few comparatively large circles shows that exports are highly concentrated. The vertical and the horizontal reference lines are of particular interest from a trade development perspective, since they divide the chart into four quadrants with different characteristics. The quadrants have been labeled as follows:

1) “Champions”: winners in growth markets (upper right, first quadrant): these are the export products for which Indonesia has performed very well, such as palm oil and its fractions and natural rubber. These are particularly dynamic products, which are growing faster than world trade in general and for which Indonesia has outperformed world market growth and increased its share in world imports. Indonesia as an exporter of these products has proven its international competitiveness over the late 1990s. Trade promotion efforts for these products are less risky, as there are national success stories, which can serve as reference points.

2) “Underachievers”: losers in growth markets (upper left, second quadrant): these products such as women’s suits, jackets, dresses skirts, etc represent particular challenges for trade promotion efforts in Indonesia. While international demand has been growing at above-average rates, Indonesia has been falling behind. Its exports have either declined or grown less dynamically than world trade. As a result, Indonesia has been losing international market share. In general, the bottleneck is not international demand, but rather on the supply side. For these products, it is essential to identify and remove the specific bottlenecks, which impede a more dynamic expansion of exports.

3) “Declining sectors” (lower left, third quadrant):6the export prospects for these products tend to be gloomy, for example woven fabrics of synthesis. World imports of these products have been stagnating or have actually declined, and the market share of Indonesia has gone down. Trade promotion efforts for product groups in this category face difficulty. Indonesia needs to adopt an integrated approach to take into account bottlenecks both on the supply and on the demand side.

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It should be noted that the criterion for distinguishing growing and declining products is the average nominal growth rate of total world imports from 1999 to 2003, which was at around 4 to 4.5% annually.

4) “Achievers in adversity”: winners in declining markets (lower right, fourth quadrant): products in this quadrant are characterized by growing shares of exporters in world import markets, which are declining or growing at a below average rate, such as other paper and paperboard in the Indonesian case. From a trade promotion perspective, niche-marketing strategies are required to encourage this positive trade performance despite the overall decline in these markets.

The second information presented in Figure 13 showing the national export performance of Indonesia vs. international demand from the structural perspective. This figure is to some extent similar to Figure 12. The size of the bubble for example is also proportional to the country’s export turnover. The key difference is in the horizontal axis, specified here as the country’s world market share for the corresponding product group. The vertical axis is also different, since we plot here the average growth of world imports in real terms (i.e. volume terms) over 1999-2003. The structural figure is closer to the original Boston Matrix model, also known as the growth-share model. This figure is “structural” in nature because market shares do not vary much over time and world imports expressed in volume terms are, unlike those expressed in nominal (i.e. value terms), not affected by fluctuations in prices and exchange rates. As a result, the overall picture does not change much from one year to the next. Figure 12, by contrast, reflects the most recent changes in market shares. The two figures are therefore complementary. Bubbles to the right of the vertical axis represent those products in which the country is specialised. That is, those products in which the country has, according to Balassa, a comparative advantage.

As in Figure 12, Figure 13 is also divided into four quadrants with different characteristics. The quadrants have been labeled as follows:

1) Stars (upper right quadrant): specialisation in high growth sectors: Products located in this quadrant are those that are growing faster than world trade in real terms. They are also products in which Indonesia is specialised and have captured relatively high world market shares, such as such as palm oil and its fractions, footwear, women’s suits and many others. Indonesia as an exporter of these products has proven their international competitiveness over recent years.

2) Emerging products (upper left quadrant): low market share in high growth sectors. These products, such television camera, as present particular challenges for Indonesia’s trade promotion efforts. While international demand has been growing at above average rates, Indonesia is a relatively minor player with a relatively low market share. This may be because Indonesia has only recently started developing exports in these products or it may be because Indonesia is specialised in niches within the product group in question. For these products, Indonesia needs to identify strategies to increase its market share in these

3) high growth sectors, by analyzing first supply-side bottlenecks faced by the country and its opportunities for horizontal diversification.

4) Snails (lower left quadrant): low market share in low growth sectors. Export prospects for these products, in which no products are included from Indonesia, tend to be bleak as world imports have been stagnating or declining and the country has a low market share in these products. Trade promotion efforts for these products face an up-hill battle. Trade strategies for these products need to take into consideration bottlenecks on both the supply (production) and demand side.

5) Traditional Products (lower right quadrant): specialisation in low growth sectors: Products in this quadrant, such as parts and accessories of video, are those in which Indonesia has a high market share (i.e. highly specialised) but where world demand is declining or growing at below the world average rate. Trade promotion efforts need to focus on niche marketing strategies in order to identify and increase Indonesia’s specialisation in the best performing products within an overall declining product group.

Most data used for Figures 12 and 13 can be found in Table 4 too, which presents the major indicators of the Indonesia’s export performance of the 40 leading items of merchandise exports, at the HS 4-digit level and values are in USS million. All goods: it gives value, growth and growth pattern information for Indonesia's total merchandise exports,7and, all goods (WTO): it indicates the value of national exports according to national sources as reported in the WTO's Annual Report.8The table also gives the rank of the 40 leading merchandise export product groups of Indonesia in 2003. Indonesia has negative values of net export for two product groups, which means that Indonesia is a net importing country (imports being higher than exports).9The average annual percentage growth of export in value as well as quantity over the 1997-2003 period is based on the least-squares method. Whereas, the average annual percentage growth of world trade (=world imports) of the product under review for the same period, both in value and quantity, is based on the least-squares fit.10 Share in world (%:) indicates percentage share of exports of Indonesia in total world exports based on 2003 export values. The horizontal axis in Figure 12 or Figure 13 measures the average annual change of this share over the 1997-2003 7

In case of mirror statistics, the export value is estimated according to the import data of the major trading nations. 8

The comparison of this figure with total exports as derived from Indonesian partner country data indicates the level of export flows covered by mirror statistics. In a few countries, the mirror statistics are actually larger than the national data. This may reflect the CIF-FOB difference in valuation and the non-reporting of exports in the country under review. In case of mirror statistics, the export value is estimated according to the import data of the major trading nations.

9

For most of the low-income countries, negative values may indicate that the export goods (such as technology or machinery) are not produced locally, but are imported from abroad and re-exported to the country of origin or third countries.

10

Data at the 6-digit level of the HS has been used for these calculations. The world trade growth of unit values (average prices) is calculated approximately as the difference between the growth rate in value and the growth rate in quantity.

Figure 12 National Export Performance vs. International Demand from the Dynamic Perspective: Indonesia: 1999-2003

Figure 13 National Export Performance vs. International Demand from the Structural Perspective: Indonesia: 1999-2003

Table 4 Export of Indonesia by Product Groups and Leading Markets

period. The column of leading markets lists the two largest markets for Indonesia’s exports in 2003 and their share in Indonesia’s export.

Another way often adopted to analyse the global competitiveness of a country for a particular products (or group of products) is the so-called Revealed Comparative Advantage (RCA) Index according to the Balassa formula. The index compares the share of a given product in Indonesian exports with the share of this product in world exports. Values above 1 indicate that Indonesia is specialized in the product under review, or Indonesia’s global competitiveness for that product is higher than the world average. Values below 1 indicate that Indonesia is not specialized in the product review, or its global competitiveness is lower than the world average.

Based on data from the Ministry of Industry (Deprindag), Figure 14 presents RCAs of Indonesia and Malaysia, which indicates that Malaysia is indeed the heaviest competitor for Indonesia in palm oil trade, as in most years the RCA of Malaysia is higher than that of Indonesia.

Figure 14 RCAs of Malaysia and Indonesia for Palm Oil, 1996-2002

18.64 28.56 17.7 23.33 23.68 22.03 29.39 31.64 28.47 38.38 29.74 23.36 26.61 26.09

0 10 20 30 40 5

1996 1997 1998 1999 2000 2001 2002 0 Indonesia Malaysia

Appendix

References

Aswicahyono, Haryo (2004), “Indonesia’s Strategy for Industrial Upgrading”, June, Jakarta: Centre for Strategic and International Studies (CSIS).

Feridhanusetyawan, T., Pangestu, M. and Habir, M. (1998), “Export Financing: Issues and Problems during Crisis, unpublished report prepared for the Export-Import Bank of Japan.

Hwa, Oo Leng. 1995 "Fundamental Analysis of the Palm Oil Market" presented at the Kuala Lumpur Commodity Exchange 1995/96 Palm and Lauric Oils Price Outlook Forum. Kuala Lumpur.

IMF & World Bank (2001), ” Market Access for Developing Countries’ Exports”, April, Washington, D.C.: the IMF and the World Bank.

Larson, Donald F. 1990. "The Indonesian Vegetable Oils Sector: Modeling the Impact of Policy Changes," World

Bank Working Paper Series, Number 382. Washington, DC: World Bank.

Larson, Donald F. (1996), “Indonesia’s Palm Oil Subsector”, Policy Research Working Paper No.1654, September, International Economics Department Commodity Policy and Analysis Unit, Washington, D.C.: The World Bank Magiera, S. L. (2000), “Indonesia’s Trade Performance During the Economic Crisis”, Indonesian Ministry of Industry and Trade and USAID Partnership for Economic Growth working paper.

McGuire, Greg and Prabowo (2004),”Trade Policy at the Crossroads. The Indonesian Story”, August, United Nations Support Facility for Indonesia Recovery (UNSFIR), Jakarta

Tampubolon, F.H., B.A. Jones, R. Sitepu, A. Balot. 1994. "Production Costs and Cost Management in Commercial Oil Palm Plantations of P.T. Socfin Indonesia (Socfindo)," presented at the International Planters Conference, Jakarta.

Tomich, T.P. and M. S. Mawardi. 1995. "Evolution of Palm Oil Trade Policy in Indonesia, 1978-1991." Elaeis 7:1. pp. 87-102.

UNCTAD (2004), 2004 Development and Globalization. Facts and Figures, New York and Geneva.

UNSFIR (2004), “Options for Indonesia’s Trade Policy”, The Indonesian Public Policy Network (JAJAKI) Consultation Document, August , Document for JAJAKI, Jakarta: The United Nations Support Facility for Indonesian Recovery.

WTO (2004a), International Trade Statistics 2004, Geneva: World Trade Organisation.

WTO (2004b), World Trade Report 2004. Exploring the linkage between the domestic policy environment and international trade: Geneva: World Trade Organisation

Figure 12 National Export Performance vs. International Demand from the Dynamic Perspective: Indonesia: 1999-2003

Figure 13 National Export Performance vs. International Demand from the Structural Perspective: Indonesia: 1999-2003

Table 4 Export of Indonesia by Product Groups and Leading Markets

period. The column of leading markets lists the two largest markets for Indonesia’s exports in 2003 and their share in Indonesia’s export.

Another way often adopted to analyse the global competitiveness of a country for a particular products (or group of products) is the so-called Revealed Comparative Advantage (RCA) Index according to the Balassa formula. The index compares the share of a given product in Indonesian exports with the share of this product in world exports. Values above 1 indicate that Indonesia is specialized in the product under review, or Indonesia’s global competitiveness for that product is higher than the world average. Values below 1 indicate that Indonesia is not specialized in the product review, or its global competitiveness is lower than the world average.

Based on data from the Ministry of Industry (Deprindag), Figure 14 presents RCAs of Indonesia and Malaysia, which indicates that Malaysia is indeed the heaviest competitor for Indonesia in palm oil trade, as in most years the RCA of Malaysia is higher than that of Indonesia.

Figure 14 RCAs of Malaysia and Indonesia for Palm Oil, 1996-2002

18.64 28.56 17.7 23.33 23.68 22.03 29.39 31.64 28.47 38.38 29.74 23.36 26.61 26.09

0 10 20 30 40 5

1996 1997 1998 1999 2000 2001 2002 0 Indonesia Malaysia

Appendix

References

Aswicahyono, Haryo (2004), “Indonesia’s Strategy for Industrial Upgrading”, June, Jakarta: Centre for Strategic and International Studies (CSIS).

Feridhanusetyawan, T., Pangestu, M. and Habir, M. (1998), “Export Financing: Issues and Problems during Crisis, unpublished report prepared for the Export-Import Bank of Japan.

Hwa, Oo Leng. 1995 "Fundamental Analysis of the Palm Oil Market" presented at the Kuala Lumpur Commodity Exchange 1995/96 Palm and Lauric Oils Price Outlook Forum. Kuala Lumpur.

IMF & World Bank (2001), ” Market Access for Developing Countries’ Exports”, April, Washington, D.C.: the IMF and the World Bank.

Larson, Donald F. 1990. "The Indonesian Vegetable Oils Sector: Modeling the Impact of Policy Changes," World Bank Working Paper Series, Number 382. Washington, DC: World Bank.

Larson, Donald F. (1996), “Indonesia’s Palm Oil Subsector”, Policy Research Working Paper No.1654, September, International Economics Department Commodity Policy and Analysis Unit, Washington, D.C.: The World Bank

Magiera, S. L. (2000), “Indonesia’s Trade Performance During the Economic Crisis”, Indonesian Ministry of Industry and Trade and USAID Partnership for Economic Growth working paper.

McGuire, Greg and Prabowo (2004),”Trade Policy at the Crossroads. The Indonesian Story”, August, United Nations Support Facility for Indonesia Recovery (UNSFIR), Jakarta

Tampubolon, F.H., B.A. Jones, R. Sitepu, A. Balot. 1994. "Production Costs and Cost Management in Commercial Oil Palm Plantations of P.T. Socfin Indonesia (Socfindo)," presented at the International Planters Conference, Jakarta.

Tomich, T.P. and M. S. Mawardi. 1995. "Evolution of Palm Oil Trade Policy in Indonesia, 1978-1991." Elaeis 7:1. pp. 87-102.

UNCTAD (2004), 2004 Development and Globalization. Facts and Figures, New York and Geneva.

UNSFIR (2004), “Options for Indonesia’s Trade Policy”, The Indonesian Public Policy Network (JAJAKI) Consultation Document, August , Document for JAJAKI, Jakarta: The United Nations Support Facility for Indonesian Recovery.

WTO (2004a), International Trade Statistics 2004, Geneva: World Trade Organisation.

WTO (2004b), World Trade Report 2004. Exploring the linkage between the domestic policy environment and