18/02/2023 (Jakarta Globe), Jakarta - Palm oil producer Astra Agro Lestari recently said that Indonesia’s short-lived export ban on crude palm oil, or CPO, had created a quite lasting impact on its business processes and the industry as a whole.

“We had to extend the intervals between each harvest, thus lowering the core production. This took a toll on our business process and to this day, there are still things that we have to fix,” Astra Agro Lestari chief executive officer Santosa told reporters at a presser in Salatiga.

“The declining core production led to a bigger capacity in our factories. So we could accommodate the people’s needs, but we had to use a quota so our tanks would not overflow. The oil on our tanks was at neck level, but we did not have to use floating tanks,” Santosa said.

From April 28 to May 23 last year, the world’s largest palm oil-producing country imposed an export ban on CPO to tame domestic cooking oil prices. This drastic measure led to rising stockpiles. Some palm oil makers even had to rent floating tanks or ships to store their oil. Hundreds of palm oil factories also had to temporarily stop production.

According to Santosa, the nationwide CPO supply usually averages from 3.5 million to 4 million tons, but it amounted to 7 million tons when the ban was in place.

“The ban already got lifted by June, but there were those who struggled to find ships [to export their CPO] as those ships were still used as floating tanks in some factories,” Santosa said.

Upon the lifting of the ban, the domestic market obligation (DMO) policy came into effect, in which the government mandated producers to allocate some of its supply to meet the demand at home before securing an export permit.

"Meeting the prerequisites to start exporting again takes time," Santosa said.

He added that Astra Agro Lestari saw a halt in its sales for three months until Sep. 2022 as it worked on meeting those requirements.

Indonesia exports more than 30 million tons of palm oil every year, meaning that two thirds of what it produces is going overseas.

“So there is a gap if we force all the produced palm oil for domestic needs. It would put the palm oil industry and farmers the most. Let us not forget that smallholder farmers account for 45 percent of oil palm plantations in Indonesia and they are the ones hit first [by such policies],” Santosa said.

Santosa told reporters that the post-reshuffle policies “were quite supportive” of the palm oil industry – for instance, the zero export levy.

The Deepvali celebration in India —which saw a rise in demand for palm oil— also helped the industry get back up last year. Supply also returned to about 3.8 million tons, according to Santosa.

“I hope history won’t repeat itself again this year. Our production was not that great, the [recovery] process takes time. Astra Agro’s stockpile today has returned to normal. The harvest time has almost recovered, but there is still the after-effect of extending the harvest intervals,” Santosa said.

Santosa revealed that Astra Agro Lestari would set aside Rp 1.5 trillion ($98.9 million) to Rp 1.7 trillion for capital expenditure (capex) from its internal cash flow. The company will mostly use the capex for the immature oil palms as well as the replanting program.

“We don’t have any plans to raise funding this year, so the capex will come from our internal cash flow. We will have to see the fertilizer prices in the second semester, but I can tell you it will not exceed Rp 1.7 trillion,” Santosa said.

Astra Agro Lestari previously reported that it booked Rp 16.51 trillion in net revenue in the first nine months of 2022, a drop from the Rp 18.01 trillion it recorded in the same period last year. The company has yet to announce its Q4-2022 performance.

The palm oil export ban last April came into effect when former Trade Minister Muhammad Lutfi took office. In June 2022, President Joko “Jokowi” Widodo then made a surprise cabinet shake-up which put Zulkifli Hasan in Lutfi’s seat.

https://jakartaglobe.id/business/astra-agro-looks-back-on-past-cpo-export-bans-lasting-impact