Impact of Domestic Policies and External Factors on the Competitiveness and Crude Palm Oil Industry Actor’s Welfare in Indonesia

Abstract

Abstract: Indonesia must continue developing the palm oil downstream industries than only exporting crude palm oil (CPO), that have very high value added in order to fulfill domestic needs and even be exported, so it can save foreign exchange (if we do not import CPO derivative products) and generate greater foreign exchange value (if we export CPO derivative products). The objectives of this study wereto evaluate the impact of domestic policies and external factors on the Indonesian-Malaysian CPO competitiveness and welfare of oil palm farmers and CPO downstream industry actors in indonesia period 2015-2017. This study was conducted by formulating an econometric model of CPO industry. The model specification was dynamic simultaneous equations that consisted of 71 behavioral and 48 identities equations, while model estimated and simulated by using 2SLS and Newton method. The result showed that domestic policy through facilitation of increasing the production capacity of palm cooking oil, margarine and soap industries, as well as increasing CPO demand by other industries can increase the competitiveness of Indonesian CPO exports, as well as increase the welfare of oil palm farmers and CPO producers also net welfare.