Divya Karyza, Jakarta – A plan by India, the world's top buyer of vegetable oils, to increase its import tax on the commodity could hamper the growth of Indonesia's palm oil exports.
India has consistently been the second-largest export destination for Indonesian vegetable oil products, buying 16 percent of the country's total shipments last year, according to International Trade Center (ITC) data, below only China's share of 21 percent.
Muhammad Osribillal, an industry and regional analyst at Bank Mandiri, told The Jakarta Post on Monday that if the planned tax were implemented, Indian buyers would still purchase Indonesian CPO and refined, bleached, deodorized palm oil (RBDPO) products. However, the tariff hike would impede demand growth for those commodities.
From 2015 to 2019, a period in which India raised its CPO import tariff from 7.5 percent to 40 percent, Indonesian palm oil exports to New Delhi appeared stable, Osribillal said.
India's CPO imports rose by an average of 75 percent in the five years before the previous tariff hike, but the country's imports stagnated in the years following the tax increase.
"CPO import growth stagnated from 2015 to 2023, even decreasing by 1.9 percent," he said.
India's new tax hike plan seeks to help protect farmers from a decline in oilseed prices, two government sources said on Aug. 28, Reuters reported.
India abolished basic import taxes on crude vegetable oils to cool prices in 2022, but the country still levies a 5.5 percent tax, known as the Agriculture Infrastructure and Development Cess, that covers vegetable oils.
For imports of RBDPO products, New Delhi imposes a 13.75 percent tax rate.
Indonesian Palm Oil Association (GAPKI) chairman Eddy Martono told the Post on Monday that the association had yet to receive any information on the matter, but he expected the higher import tax would make palm oil products more costly for buyers in India.
He said exports to India were still running as usual "because demand is still there".
Malvika Priyadarshini, the Indian Embassy's counselor for the economy and commerce, told the Post on Monday that the embassy did not have any detailed information on the matter.
Josua Pardede, chief economist at private lender Bank Permata, told the Post on Monday that India's planned higher import tariffs would reduce the competitiveness of Indonesian palm oil as compared to vegetable oils produced in the domestic Indian market.
He expected Indian consumers to switch to locally produced vegetable oils, as the country produced "a fairly large amount of soybean oil and rapeseed oil".
He suggested that the government get involved in efforts to diversify Indonesia's CPO export destinations to lessen the blow of drops in demand from top buyers such as India.
"The government could also expedite efforts to increase domestic CPO consumption to anticipate declining export demand, such as by deploying the mandatory B40 program," Josua said.
He was referring to a delayed government plan to boost the proportion of palm oil-derived fatty acid methyl ester (FAME) required in the country's biodiesel from 35 percent to 40 percent, with the rest being fossil diesel fuel.
Trade Minister Zulkifli Hasan told reporters on Aug. 29 that the government had yet to decide its response to the planned tax hike, but he was confident that Indonesia would maintain significant palm oil exports to India, saying, "It's they who need us."
Bara Krhisna Hasibuan, the Trade Ministry's expert staff member for international agreements, told reporters on the same day that the government would seek clarification from India.
He noted that ASEAN and India had a free trade agreement, signed in 2010, that he hoped could help Indonesia avoid the planned import tax hike.
GAPKI said on Aug. 28 that Indonesia had shipped 3.38 million tonnes of palm oil worldwide in June, a 72 percent increase from the previous month.
Exports to India rose 30.7 percent month-to-month (mtm) in June to 738,000 tonnes. Shipments to China, meanwhile, rose by a sharp 121 percent mtm to 712,000 tonnes.
The government set a reference price of US$839.53 per tonne for CPO shipments in September, up 2.32 percent from the August price.
The Trade Ministry said on Tuesday that the rise in the CPO reference price had been influenced by rising prices of other vegetable oils, including soybean oil, and an increase in demand amid a weaker supply outlook.
Source: https://asianews.network/indias-planned-palm-oil-import-tax-hike-could-hurt-indonesia-exports