Monday, 2 March 2009

Indonesia Expected To Increase CPO Exports To Pakistan

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Monday, 02 March 2009

Indonesia, the world's biggest crude palm oil (CPO) producer, is expected to increase its exports of the commodity to Pakistan after the latter has agreed to cut by 10 percent its import duty on Indonesian CPO exports under a preferential trade agreement (PTA) scheme.

"During the on-going talks on PTA, Pakistan has agreed to lower its import duty on Indonesia's CPO and CPO base-product exports by 10 percent," Trade Minister Mari Elka Pangestu said on the sidelines of the 14th ASEAN summit in the Thai resort city of Hua Hin over the weekend.

Indonesia, whose annually CPO production is estimated at between 19 and 20 million tons, has lobbied Pakistan to obtain a PTA trade facility. The PTA negotiations between Indonesia and Pakistan were scheduled to be completed last year but due to a change in the government leadership in that country, the talks were resumed only last month.

Pakistan was prepared to cut its import duty on Indonesian CPO and its downstream products by 10 percent in the framework of PTA. At the same time Indonesia was ready to lower its import duty on Pakistan's 'kino' orange in return, Mari Elka Pangestu said.

Indonesian exporters whose CPO exports to Pakistan reached US$400 million per annum, badly need the agreement. So far, the Indonesian primary export commodity could not compete in Pakistan with that of Malaysia which has previously been granted an import duty reduction based on a PTA scheme.

According to head of Research and Development of the Ministry of Agriculture, Gatot Irianto, Indonesia's CPO and other CPO-based product exports to Pakistan were subjected to a Rs9,100 import duty per ton while those of Malaysia, the world's second largest CPO producer, was given a 10 percent cut or a discount of about US$16 per ton, making the Indonesian CPO less competitive.

"So, if Malaysia gets a 10 percent discount it means that it can sell its CPO at a price which is Rs91 lower than Indonesian CPO. The price difference is equal to US$16," he added.

As a result of the different treatment, the volume of Indonesian CPO exports to Pakistan in the past few months had dropped to 350,000 tons, and Indonesia lost an income of Rp800 billion.

In 2009, Indonesia's CPO production is expected to reach 19.8 million to 20 million tons, an increase from 17 million to 18.6 million tons in the previous year.

In the meantime, chairman of the Indonesian Crude Palm Oil Businessmen (GAPKI), Akmaludin Hasibuan said recently that Indonesia needed to lobby Pakistan so that it would also get the same facility as Malaysia.

After all, Pakistan is important to Indonesia as a gate for exports to central Asian countries such as Afghanistan, Kyrgyzstan, Kazakhstan and others. Indonesia has to expand its CPO exports.

Indonesia's CPO exports to Europe so far are hampered by a regulation the European Union has adopted with regard to the impact of fossil and biofuel gases on the greenhouse effect.

At present, crude palm oil industry is the country's second biggest foreign exchange earner after the oil and gas sector, which provided employment for at least four million people.

Derom Bangun, chairman of the Indonesian Crude Palm Oil Council (DMSI) and adviser of the Indonesian Crude Palm Oil Businesses Association (Gapki), said that apart from exports, domestic demand for the commodity should also be boosted.

Of the estimated 20 million ton production this year, only about 4.5 million to 5 million tons will be consumed at home. Demand for CPO at home could increase to 6 million to 6.6 million tons.

"With the increase in domestic demand, exports could be reduced so that it would also reduce pressure on the world market," he said.

Besides CPO, Indonesia's exports of other commodities to Pakistan are also expected to increase if both countries already sign the PTA scheme.

According to Trade Minister Mari Pangestu, Indonesia and Pakistan have reached an agreement to broaden the number of commodities to be covered in their Preferential Trade Agreement.

"Previously PTA talks between the two countries focused on the reduction of import duty on CPO and on orange only but talks have now included other types of commodities as well," the trade minister said.

Pakistan also asked an exchange of import duty cut on other commodities besides on the CPO and orange. Likewise, Indonesia would also ask for the lowering of the import duty on its exports of other commodities such as papers.

"Because we asked additional types of commodities, they also asked the same things," she said.

The minister said that both sides were still negotiating tens of commodity tariff headings that still needed further agreements before the PTA was signed.

"We hope that agreements on these would be reached sooner because Malaysia has been enjoying a preferential tariff on its CPO exports," she said.