Europe slowdown hits palm oil exports

This is written by Faisal Maliki Baskoro and published in Jakarta Globe.

JAKARTA: Indonesia may fall short of attaining its palm oil export target this year, should a slowing European economy drag down demand, the head of the country’s palm group said.

The Indonesian Palm Oil Producers Association (Gapki) had set its palm oil export target at 18 million tons this year, or 15 per cent higher than last year’s 15.6 million tons. However, its chairman Fadhil Hasan expressed concern about demand from its biggest buyers.

A worker unloads crude palm oil at Tanjung Priok port in North Jakarta. Indonesia may fall short of attaining its palm oil export target this year, should a slowing European economy drag down demand. (JG Photo/Safir Makki)

“If Europe continues to slow down, we may see exports drop slightly below our estimate, to 17 million tons,” he said. “The US economic slowdown will not have an adverse effect as our exports there are very small. But Europe is our second-biggest market as it buys 20 per cent of our palm oil exports,” he added.

He said that in the first half of this year, Indonesia sold 8.2 million tons of palm oil to overseas markets, 10 percent more than the 7.47 million tons sold during the first half of last year.

Despite Europe’s slow recovery, and activists smear campaigns on the supposed environmental impact of oil palm plantations, Fadhil said that Europe imported 1.6 million tons in the first half, 11 per cent higher than the same period last year.

Exports to India, the biggest buyer, are estimated at 6 million tons this year, while China, the third-largest market, is expected to import 2.5 million tons. Shipments to the United States are estimated at around 130,000 tons this year.

He said that demand for palm oil would remain strong in those countries, in line with their large populations. “Overall, we’re expecting export values to reach at least Rp180 trillion [US$21.1 billion],” Fadhil said. Last year, export by value jumped 60 per cent to US$16.4 billion.

Meanwhile, he predicts production will rise to 25 million tons this year, 5.9 per cent higher from 23.6 million tons in 2010.

Fadhil also said that the association would keep looking for new export markets. He cited Eastern Europe, Africa, and Latin America as potential markets. He said the shipping tax adjustment would assist in encouraging further exports.

“The government recently introduced a cut in palm oil export tax, to between 15 and 20 per cent. We believe that this will make Indonesia more competitive and increase exports,” he said.

Crude palm oil (CPO) prices, now at around US$1,075 per ton, are expected to continue to decrease in line with the decline in crude oil prices, and the coming harvesting season, he said. CPO sold for US$1,100 per ton in June.

Franky Widjaja, a deputy at the Indonesia Chamber of Commerce, said that the government could do better in improving Indonesia’s palm oil industry. “The industry could use better access to energy sources, raw materials, skilled labor, and infrastructure. Government and business players could also join hands in research and development,” he said. Franky’s family owns Sinar Mas Group, the biggest local CPO producer.

Indonesia’s US$700 billion economy is forecast to expand by 6.7 per cent next year from an estimated 6.5 per cent this year. Exports account for 29 per cent of Indonesia’s gross domestic product, while private consumption accounts for about two thirds.

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