Cooking oil prices in Indonesia remain high despite government intervention
March 16, 2022
Editorial Board (The Jakarta Post)
Concerted efforts by Trade Minister Muhammad Lutfi over the past three months to keep the ceiling on the retail price of cooking oil between Rp 11,500 (80 US cents) and Rp 14,000 per kilogram have been ineffective.
It even took the bull by the horns in late January by legally obliging crude palm oil (CPO) and olein producers to sell 20% of their export volume to domestic cooking oil factories at the domestic price. obligatory, which is only half the figure of the international price. prices. He further tightened the policy last week by raising the domestic market obligation (DMO) to 30%. But the price of cooking oil remains high in many cities.
The problem is not a lack of supply, as Indonesia is the world’s largest palm oil producer with production of more than 55 million tonnes last year. The latest data shows that the country even exported 16 million tons of cooking oil last year.
The crux of the matter is that international oil prices have more than doubled over the past two years and the positive market economy is inducing producers to export to maximize their profits. But when the government pursued normative economics by controlling domestic prices to protect consumers, it forgot one very important thing: it did not designate a special agency to manage the market control mechanism.
The Ministry of Commerce cannot manage market control on its own, especially because the large disparity between DMO prices and free market prices is such that palm oil or olein allocated to DMO is subject to smuggling for export given the vast porous coastal areas across the archipelago.
With the Idul Fitri holiday – when household spending typically skyrockets – just two months away, the cooking oil debacle needs to be dealt with as soon as possible. Whatever new policy action President Joko “Jokowi” Widodo takes in the coming days should include the designation of a special agency to manage the DMO and a fixed price cap.
In this case, we believe that the National Logistics Agency (Bulog) with its distribution points and warehouses nationwide is the most qualified to manage the supply and distribution of cooking oil.
Bulog can be tasked with buying cooking oil in bulk and plain packaging from producers at the DMO price, and selling the oil at the same price plus a margin set by the government to retailers who then sell the oil at a fixed ceiling retail price. Bulog can also distribute its stock through market operations to quickly respond to any shortages in specific areas.
Certainly, Bulog’s supply capacity should be large enough to allow it to bring the market clearing price to the fixed ceiling price and to warn against potential hoarders. Bulog’s initial working capital for market operations may come from the Palm Oil Plantation Fund Management Body (BPDPKS), which collects surcharges on palm oil exports.
The BPDPKS, which spent almost Rs 52 trillion on biodiesel subsidies last year, still has enough funds to finance the operations of the Bulog cooking oil market. Given the risk of inflation, Bulog’s operations in the cooking oil market should take priority over biodiesel subsidies.