10/01/2013 (Jakarta Globe) - Crude palm oil production in Indonesia is expected to climb 5.7 percent this year despite challenging market conditions, according to a key industry group.

Susanto, head of marketing at the Indonesian Palm Oil Association (Gapki), told reporters in Jakarta on Tuesday that CPO production will top 28 million tons this year, up from 26.5 million tons last year. He added that exports of CPO and its refined products might reach 20 million tons this year, up from 18.2 million tons last year.

Gapki secretary general Joko Supriyono said palm oil firms had endured hardship last year due to falling commodity prices exacerbated by what he described as unfavorable government policies.

“2012 was not a good year for the palm oil industry, as price dropped by 12 percent” to $999.78 per ton on average, he said.

This translated to a 4.2 percent decrease in export value to $20.7 billion last year, despite a 10.3 percent increase in export volume.

Susanto said the price is expected to continue falling this year, with CPO moving between $800 and $900 per ton in the year’s first quarter. “Starting from April to July there will be a price recovery, but it will still be hard to reach $1,000,” he added.

Joko said the palm oil industry in Indonesia suffered from an unfavorable tax regime, which could cost the country some global CPO market share to India, Pakistan and Malaysia, the world’s second-largest CPO producer, behind Indonesia.

The government imposed a CPO export tax rate ranging from 7.5 to 22.5 percent this year, while the Malaysian government planned to cut its export tax to between 4.5 and 8.5 percent this year, from 23 percent previously. The tax rate in both countries is adjusted according to fluctuations in the price of CPO.

Joko called on the government to review and relax its tax regime or put the country at risk of losing its foothold in India and Pakistan, Indonesia’s two largest CPO markets.

“If [Indonesia] does not make competitive adjustments, then Indonesia certainly will lose to Malaysia,” he said.

The industry also lamented the government’s decision to impose a moratorium on forest clearance as well as high logistics costs due to poor infrastructure.

Joko claimed that the moratorium limited palm oil companies to expanding plantations by only 220,000 hectares last year, from 600,000 hectares in a typical year, potentially costing the country some 120,000 new jobs and $4 billion in gross domestic product.

The government introduced the two-year moratorium, which expires in May this year, as part of the country’s contribution to global efforts to protect forests.

The association, however, sees a possible solution in higher consumption of biodiesel, a refined palm oil product. Some 1.35 million tons of biodiesel were shipped abroad last year, a substantial increase from 2011’s figure of less than 300,000 tons, according to Susanto.

Joko said Indonesia had the capacity to produce 4.5 million tons of biodiesel a year, but only produced 1.5 million tons last year.

“The government needs to accelerate biodiesel consumption and make it a mandatory program,” he said.

Gapki has as members several hundred plantation industry companies, including Sinar Mas Group and Astra Agro Lestari of Astra International.