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Indonesia to swap subsidy for price caps on raw materials to ensure cooking oil supply

Channel News Asia - May 24, 2022

Jakarta – Indonesia, the world's biggest palm oil exporter, will next month remove a subsidy on bulk cooking oil and replace it with a price cap on the raw materials sold to local refiners, a senior official said on Tuesday.

Indonesia allowed the resumption of exports of crude palm oil and its derivatives from Monday but will implement a policy of obligatory domestic sales at a certain price level, known as a domestic market obligation (DMO), to secure the supply of the vegetable oil at home.

The government has struggled to lower prices of cooking oil this year, despite earlier, unsuccessful measures to control exports using the DMO policy.

A three-week ban removed on Monday has helped to stabilise bulk cooking oil prices at around 17,000 rupiah per litre, though still above the targeted 14,000 rupiah price.

Indonesia produces about 60 per cent of the world's palm oil and repeated changes in its export policies this year have shaken global markets at a time of uncertain edible oil supplies caused by the war in Ukraine.

Putu Juli Ardika, Director General for agriculture at the Industry Ministry, told a parliamentary hearing that a subsidy provided to cooking oil makers to help control retail prices will be stopped after May 31, when the government will put in place a new policy to control the raw material price.

Chief economic minister Airlangga Hartarto in an interview on the sidelines of the World Economic Forum in Davos said the government was aiming for a 20 per cent DMO on exports of palm oil, meaning companies must provide a fifth of their supply to the local market.

"At the moment, (the DMO) is 30 per cent, but it will get reduced to 20 per cent if oil prices fall," he said.

Indonesia's Trade Ministry on Monday issued rules stating that companies must obtain an export permit that would be granted only to those able to meet DMO.

Source: https://www.channelnewsasia.com/business/indonesia-swap-subsidy-price-caps-raw-materials-ensure-cooking-oil-supply-270374