Indonesia unlikely to lift DMO palm oil policy, may raise export quota instead: Gapki
24/09/2022 (Fast Market, Agricensus) - Indonesia is unlikely to remove its current Domestic Market Obligation (DMO) policy on palm oil but may move to raise the current export quota instead, a senior official from the Indonesian Palm Oil Association (Gapki) told Agricensus on Friday.
“There have been parties recommending the lifting of the DMO, but I don’t think the Indonesia government will lift (the policy), though they may raise the ratio from the current 1:9 to 1:13.5 or 1:20,” Mr Fadhil Hasan, Head of Trade and Promotion at Gapki told Agricensus.
The current DMO policy, which requires palm oil exporters to sell a portion of their palm oil to the domestic market before they can receive a permit to export, was implemented following the lifting of Indonesia’s palm oil export ban in late May this year.
The DMO, combined with a Domestic Price Obligation (DPO) policy was put in place to bring down local cooking oil prices and ensure a continual supply for the domestic market.
The export quota denotes the volume that exporters can ship out after fulfilling the DMO, with the current 1:9 ratio raised from the previous 1:7 in August.
“The government is trying to ensure that the raw materials for cooking oil – crude palm oil and RBD palm olein – remain available and sufficient for the domestic market. It’s not a large volume but the key is keeping it available and affordable,” Mr Fadhil said.
Currently companies who sell simple packaged cooking oil at the required domestic price can enjoy a larger export quota versus companies who sell bulk cooking oil, and the government is looking to further improve the scheme to balance exports and cooking oil availability and affordability.
The other challenge that has encumbered export flows since the lifting of the ban has been the limited vessel availability, which saw freight rates jump as much as 50% between May-June as sellers struggled to get vessel space.
While Mr Fadhil observed that the vessel tightness has somewhat eased up, he also noted that the existing export permit requirement and potential delays in receiving approval continue to add a layer of uncertainty when it comes to booking ships.
Mr Fadhil was speaking at the side lines of the Globoil India industry conference in Agra, where he also presented on Gapki's expectations that Indonesian palm oil production will fall to around 45 million mt in 2022 from last year’s 46.9 million mt, due to lower productivity and area expansion.
Coupled with expected lower production from neighbouring Malaysia and lower stock levels, overall prices would remain supported.
His remarks were contrasted with estimates from other presenters, with the most notable coming from Dorab Mistry, Director at Godrej International who forecasted a further slump in Malaysian CPO futures to MYR2,500/mt by year-end based on strong production recovery and softened demand.
In his presentation, Mistry also repeated a call for Indonesia to remove the DMO policy and lift all export taxes and levies until the year-end to boost shipments and regain normalcy in stock levels.