10/06/2008 (Flex News), Jakarta - Indonesia may scrap subsidies on local palm-based cooking oil and soybeans next year because global prices have eased and it has launched a scheme of cash handouts for the poor, the trade minister said on Tuesday.

The subsidies were introduced after a rally in commodity prices pushed up wheat, palm oil and soybean prices, hurting many in a country where millions live on less than $2 a day.

"The government may discontinue subsidies on cooking oil and soybean prices next year as the policy was intended for a short-term period," Mari Pangestu told reporters.

"Besides, the government has provided cash handouts for the poor," she said, referring to a scheme aimed at passing on some of the savings on fuel subsidies to about 19 million poor families, to help offset a hike in fuel prices last month.

Currently Indonesia subsidises local soybean prices by 1,000 rupiah ($0.107) per kg for the food industry and cooking oil prices by 2,500 rupiah per litre for poor families.

Although Indonesia is the world's top palm oil producer, local cooking oil prices have surged since last year as strong demand from both the biofuel and food sectors have pushed global palm oil prices to record highs.

Malaysian palm oil futures have gained about 17 percent so far this year lifted by rallying crude but it is still nearly 20 percent below historic high of 4,486 ringgit hit in March.

The local soybean-based food industry, which depends on imports for 70 percent of its soybean supply, has been hit by surging global prices.

The government has allocated 500 billion rupiah ($53.6 million) to subsidise local soybean prices.

Separately, Bayu Krisnamurthi, deputy to the chief economics minister, said the government was formulating a policy to attract investors to develop food crop estates in a bid to boost food production.

Krisnamurthi said the estates may cover rice, soybean, corn and cassava.

The Southeast Asian country is a major importer of food crops because of low productivity, poor irrigation and lack of quality seeds which means it cannot meet sudden jumps in domestic demand if a failed harvest or natural disaster disrupts production.

The country's key food crops including rice, corn and soybean are cultivated by smallholders and there is very little investment by private firms in developing food crops. -Reuters-