Palm oil: CPO exchange’s step forward

This article has been translated by PwC Indonesia as part of our Plantation News Highlights service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Bisnis Indonesia

3 March 2023

By: Indra Gunawan & Hendra Wibawa

Jakarta - The government’s wish to establish a reference price for crude palm oil (CPO) this year has been further specified after the Commodity Futures Trading Regulatory Agency drafted a new export regulation for this commodity. 

Head of the Commodity Futures Trading Regulatory Agency (CoFTRA) Didid Noordiatmoko said that the new policy will regulate the export process of crude palm oil through commodity futures exchange. 

According to him, once realised, the regulation will cover several bases, including the government being able to supervise CPO governance transparently because all transactions will have to be recorded on the futures exchange. 

“Our big strategy is how to create CPO exports through futures exchange. The policy is expected to require that, for every issuance of export permit for CPO and its derivatives, the CPO must be obtained from the futures exchange,” he said in a discussion with the subject Indonesia’s Strategy to Become a Barometer of World Palm Oil Price on Thursday (2/3). 

Moreover, he added that another benefit of the policy is facilitating the CPO export process and providing better clarity through detailed information. 

He emphasised that state revenue would also be clearer and more transparent, including the ease to track prices, from CPO to fresh fruit bunches (FFB). However, Didid said the government needs to make careful considerations, including its impact on the Domestic Market Obligation (DMO) policy and exporters. 

In addition, he affirmed, what types of CPO must be exported through the futures exchange and the exchange mechanism to facilitate trading. 

“It is no less important to determine how much can be exported. We also need a CPO commodity balance,” Didid said. 

According to him, this crucial consideration is needed so that last year’s incident does not repeat, namely when businesses made exports but failed to meet their obligation to fulfil domestic needs. 

“We already have a DMO policy. So, we are still studying whether the DMO will be continued, or the latest policy will be able to minimise the need for policies,” he said. 

Thus far, he has yet to confirm when the new policy will be enforced. The reason being CoFTRA is still discussing with various parties to make the most appropriate policy. 

“Maybe it is not ideal yet, but the most appropriate for now. We will improve it in the future. Because we also need to look at the incentives of business actors, whether in terms of taxes, costs, transactions,” he said. 

Trade Minister Zulkifli Hasan has encouraged CoFTRA to establish commodity price references on Indonesian futures exchange, including for CPO commodity. 

The Trade Minister targets the first reference price to be established will be for palm oil product. The CPO exchange is targeted to be completed in June 2023.

Competitiveness

On the other hand, Secretary General of the Indonesian Palm Oil Association (IPOA) Eddy Martono said he was waiting for CoFTRA’s plan to design a new policy related to CPO export regulations. 

According to him, in principle, businesses will follow suit, as long as it does not interfere with the competitiveness of Indonesian palm oil products. 

“We will see what the rules are like. The important thing is not to incur new costs that make our price less competitive,” Eddy told Bisnis. 

He positively welcomes the government’s plan to establish a reference price or commodity futures exchange, including for palm oil, which is targeted to be completed by the end of this year. 

At present, Eddy revealed that Indonesia has ICDX and KPBN Dumai as futures exchanges for palm oil commodity. 

“Even now, the KPBN reference price has been used already. This means that if later the government wants to make a reference price through a commodity exchange, there would be no problem,” said Eddy. 

On the same occasion, Deputy for Food and Agribusiness Coordination of the Coordinating Ministry for Economic Affairs, Musdhalifah Machmud, hopes that Indonesia will soon become a barometer of world palm oil price. 

This hope can be realised with the implementation of the mandatory 35% biodiesel fuel (B35) programme which began in early February 2023. 

With consistent implementation of B35, she said, the stability of palm oil price would be better maintained. At least 13.15 million kilolitres of CPO will be absorbed by the B35 programme per year. 

“Indonesia’s strategy to become a barometer of world palm oil is no longer an aspiration, but insyaallah [God willing], it will soon be achieved,” said Musdhalifah. 

She revealed that the struggle to build the Indonesian palm oil industry and trade is often faced with tremendous challenges, especially related to negative campaign against palm oil within the country. 

This happened very often a few years ago. In fact, according to Musdhalifah, the palm oil industry actually improves the prosperity of the Indonesian people.