Indonesia considering cutting palm oil export levy to spur shipments

The world's biggest producer of the edible oil has unrolled a series of policies aimed at stimulating exports after a three-week ban on shipments that ended in late May triggered disruption at home and abroad.

To jumpstart exports, the government needs to make extra effort to quickly cut domestic stocks and prop up palm fruit prices for farmers that have slumped since the ban, Senior Minister Luhut Pandjaitan said at an industry event.

"For shipments to flow we may have to lower the export levy to provide incentives for businesses to export," Luhut said. He did not provide further details.

Indonesia had cut the export levy to a maximum $200 per tonne for July from $375 previously, but is due to increase the level to $240 in August.

Indonesia's trade ministry is also considering setting its export reference price every two weeks instead of monthly, to be more reflective of quick-changing international prices.

The government set the reference price based on palm oil prices in Indonesia, Malaysia and Europe and use it to determine the size of export taxes.

The most recent reference price has been set above $1,500 per tonne, putting the export levy at the maximum level. A separate export tax of $288 per tonne is also imposed when the price is set above that level.

Asian palm oil prices slumped in recent weeks amid Indonesia's shipments resumption, higher output and fear of recessions. Malaysian benchmark palm oil prices has dropped by 18% so far this month.

The government wants to "flush out" palm oil supplies to clear space for companies to buy more palm oil fruits from farmers in what is Indonesia's peak harvest season.

"The 'flush out' is taking place, but the result is not yet as we expected," Luhut said.

Sahat Sinaga, chairman of the Indonesia Palm Oil Board, said the domestic palm oil stock had surged to 6.2 million tonnes following the ban.

Constant changes in Indonesia's export policies had made buyers wary and exporters have faced difficulties securing vessels. Plummeting international prices plus high export taxes also gave companies reason to pause exports, he said, calling for reductions.

"I would suggest 25% discounts for the tax and levy," he said, adding that with the current export quota, exports might not normalise until late August.

Some palm oil mills had stopped buying fruits and others were buying them at low prices, farmers have said.

In West Kalimantan province, farmers have waited days to sell fruits at a mill that sets a daily purchase quota, farmer Albertus Wawan said, sharing pictures of a long line of parked trucks piled high with palm fruit.

Indonesia, the world's top producer of palm oil. Palm oil, the world's most used vegetable oil, is used in a range of consumer products and cooking. The price of the edible oil skyrocketed in late April when the government first announced the ban. Prices have since eased, with Malaysian benchmark palm oil prices down roughly 18% so far this month.