Competitiveness of Indonesian Crude Palm Oil and the Effect of Export Tax on its Performance in the World Market
Obado, Alphonce Joseph
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The objectives of this research include: (1) to find out the export competitiveness of the Indonesian CPO in the world market; (2) to assess the impacts of CPO export tax on Indonesian CPO industry. In addition it will assess the effect of exchange rate on Indonesian CPO industry; and (3) to propose strategies that can improve the competitiveness of Indonesian CPO in the world market. Indonesia was found to be most competitive in the CPO export market than any other country, especially in India and China but it faces strong competition from Malaysia. Both Indonesia and Malaysia have comparative advantage of exporting CPO to China and India. Export tax was negatively related to mature area of oil palm plantation, production, export, and domestic price of CPO and positively related to CPO consumption and stock. The export tax policy benefitted the domestic consumers of CPO. Clearly, the export tax policy reduces competitiveness of the Indonesian palm oil industry and also hurts producers of CPO. The foreign exchange rate effect was discovered to be positively related to domestic CPO price, export and consumption but negatively related to production and stock. Alternative strategies to be utilized include: (1) improvement in the promotion, negotiation and enhancement of bilateral relationships between Indonesia and China to improve infrastructure; (2) Indonesia must cooperate and work closely with Malaysia to enable Indonesia to learn from Malaysia how to efficiently produce CPO; (3) development of palm oil projects that can be integrated with other industrial production programs through the revitalization of plantation systems, rejuvenation and rehabilitation of existing farm product; and (4) creation of a conducive atmosphere for investment, permit ownership of plantations by individuals, reducing import cost on farm machines and implements, provide incentives on imports of agricultural machines to improve the competitiveness of Indonesian CPO in the world market. It is recommended that export tax formulation with well considered and sound justifications is needed and from the study, 11.13 percent export tax on CPO was recommended.
- MT - Economic and Management