India's Latest Palm Oil Import Policies to Impact on Indonesia?
India's decision to double import duties on crude palm oil (CPO) from 7.5 percent to 15 percent earlier this month should have a big impact (India being the world's largest palm oil importer). The move is an effort to protect domestic palm oil farmers. India also raised the levy on refined, bleached and deodorized (RBD) palm olein by 10 percent to 25 percent.
In fact, the sharply jumping RBD palm olein levy could cause a shift from imports of RBD palm olein to CPO into India. Therefore, it remains unclear to what extent the latest Indian policy decision will have an impact on exports of Indonesian crude palm oil in the second half of 2017. India is one of Indonesia's largest markets for palm oil shipments.
Based on data from the Indonesian Palm Oil Producers Association (Gapki), Indonesian exports of CPO (and derivative products) surged 43 percent year-on-year (y/y) to 3.8 million tons in the first half of 2017. Data from Indonesia's Trade Ministry show that total India-Indonesia trade in the first five months of 2017 reached USD $7.68 billion, up significantly from USD $4.82 billion in the same period one year earlier. Indonesia has the "upper hand" in trade relations, shipping USD $5.95 billion worth of goods to India, while Indonesia imports USD $1.73 billion worth of goods from India.
Indonesian Trade Minister Enggartiasto Lukita said the government will take the appropriate actions to avert a negative impact of India's higher import duties on Indonesian palm oil shipments. However, he did not inform what kind of actions because these still need to be discussed by the government, only adding that the government needs to be careful because it does not want to jeopardize good trade relations.
Sahat Sinaga, Executive Director at the Indonesian Vegetable Oil Refiners Association (GIMNI), advises the government to take swift action against India's higher import duties, or even take similar actions, such as imposing higher export duties. Or, he added, Indonesia can decide not to purchase any palm production machines from India anymore. Or, Indonesia could urge India to sign a preferential trade agreement (PTA) in order to safeguard price certainty for palm oil shipments.
Gapki said Indonesia's palm oil exports rose 25 percent (y/y) to 16.6 million tons in H1-2017. Meanwhile, Indonesia palm oil production rose 18.6 percent (y/y) to 18.2 million tons in H1-2017.
Indonesian Palm Oil Production and Export Statistics:
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
| Production (million tons) |
19.2 | 19.4 | 21.8 | 23.5 | 26.5 | 30.0 | 31.5 | 32.5 | 31.5 |
| Export (million tons) |
15.1 | 17.1 | 17.1 | 17.6 | 18.2 | 22.4 | 21.7 | 26.4 | 26.6 |
| Export (in USD billion) |
15.6 | 10.0 | 16.4 | 20.2 | 21.6 | 20.6 | 21.1 | 16.5 | 18.6 |
Sources: Indonesian Palm Oil Producers Association (Gapki) & Indonesian Ministry of Agriculture