JAKARTA (Reuters) – Indonesia will keep a domestic sales requirement for palm oil in place to ensure cooking oil prices remain affordable at home, a senior government official told Reuters on Monday, noting that a quota for export shipments would be relaxed further.
Palm oil industry participants have called for the removal of the so-called Domestic Market Requirement (DMO) under which exporters must sell a portion of production to the local market first before being granted export permits.
To help reduce high palm oil stocks, the government from Monday will allow exporters to ship nine times the amount they have sold at home under the DMO scheme, up from seven times previously, Septian Hario Seto, a Deputy Coordinating Minister for Maritime and Investment Affairs, said in an interview.
Indonesia, which is the world’s biggest palm oil producer, implemented the DMO scheme to secure supplies of cooking oil at home after removing a palm oil export ban on May 23. However, the ban and the ensuing DMO have resulted in an inventory glut which in turn has slashed prices of palm oil fruit for farmers.
“We are trying to maintain a balance that is quite complicated to achieve,” said Seto.
“We want the cooking oil price at 14,000 rupiah ($0.9415) per litre, we want to smooth export flows, while also lifting farmers’ palm oil fruit prices,” he said.
The price of bulk cooking oil derived from palm oil had averaged around 18,000 rupiah per litre in April though have since come down to 14,400 rupiah.
The trade minister said last month he would consider removing the DMO as long as he had assurances from palm oil producers that they would maintain enough supply to meet domestic demand.
“We want to be consistent with our policy, there will be no change (on DMO),” Seto said, adding that top ministers had come to this conclusion after reviewing the request.
“We have to reduce stocks gradually, we can’t do it in one go because it will hurt (global) prices,” he said.
Indonesia’s export resumption and speculation of a removal of its DMO policy, coupled with higher output in rival Malaysia, have helped drive down benchmark Malaysian palm oil futures, which lost nearly 32% in total in June and July.
(Reporting by Fransiska Nangoy, Bernadette Christina Munthe; Editing by Ed Davies)
