NEW DELHI, June 20 (Bernama) -- Malaysia is currently mapping out plans to
make its palm oil sector more competitive but it would not mirror that of
Indonesia''s strategies, which in reality, will result in huge losses for
In Indonesia, export taxes are collected upfront from producers and
Malaysia cannot emulate this pratice as it would distort the market, says
Malaysian Palm Oil Council Chief Executive Officer Tan Sri Dr Yusof Basiron.
"We cannot copy the Indonesian system of charging upfront duties on
Malaysian producers as it is not the right way to do business," he said
to a recent suggestion that Malaysia follow Indonesia''s tax system and
Explaining further, he said the price of fresh fruit bunches (FFB) are
calculated less 18 per cent in terms of oil value.
"This enables refiners to produce palm oil at 18 per cent cheaper than
market rates as it is already discounted at the FFB level.
"The mill will then passes the oil to the refineries at another discount of
eight per cent," he said.
But, some downstream industries only incur minimal export duty, Yusof said,
citing bio-diesel which attracted an export duty of only two per cent.
And, not all processed palm oil is exported as some are consumed locally
in manufactured goods or oleochemicals, said Yusof.
"So they have actually collected lots of money at the expense of producers,"
The Indonesian population consumes significant quantities of palm oil for
which duty has been collected, but not paid to the government, as the oil is
never exported in the first place.
Given the fact that Indonesia''s processing industry is flushed with funds
collected upfront, this allows them to undercut Malaysian exporters.
"Undercutting is bad business," Yusof, said, adding that Malaysia does not
have any option but to lower prices, hence the downtrend in prices the past few
From the business point of view, this is called ''cheap sale'', said an
industry expert who shared Yusof''s views.
Malaysia and Indonesia are the only two main suppliers of palm oil and they
together dominate 89 per cent of edible oil exported globally.
But when one partner offers cheap oil, the other has to reduce prices and
suffer a similar reduction in export revenue.
"When you offer at a discounted price anybody will take (buy). The price
still comes down despite our successful export market," he said, adding that
the best solution for Indonesia was to remove export duty on refined
The aim is to develop their refinery industry, said another expert
who declined to be quoted.
"If they remove export duties on refined products than those who export
crude palm oil like Malaysia will have to clearly indicate their
intention in order for the export revenue to be charged back to the producers,"
The world is in short supply of edible oil, which should result in higher
prices, but that is not the case for palm oil now.
"So, why undercut in a market of just a few palm oil suppliers when
there is a huge demand? People would continue to buy even without a discount or
sale, he quipped.
SM SM VMD