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Disparity between Malaysian, Indonesian CPO price affecting global competitiveness

Tuesday, 19 June 2012

KUCHING: The Indonesian tax structure has created the disparity between the price of Malaysian crude palm oil and Indonesian crude palm oil and thus, putting all Malaysian refineries into uncompetitive position in the international market.

Thus, there is an urgent need to address the the current price disadvantage of Malaysian palm oil to Indonesian palm oil in the export market, said the Sarawak Oil Palm Plantation Owners Association (SOPPOA).

For the past five months, palm oil refiners and millers in Sarawak have been cushioning losses for the sake of long term business relationship.

It was revealed that since March 2012, refiners in Sarawak have decided to either buy crude palm oil via on-the-spot contracts (which is far below the Malaysian Palm Oil Board (MPOB) average price) or at a discount of between RM80 to RM180 per tonne from MPOB’s monthly average price.

“As a result, the palm oil millers in the state now have no alternative but to also reduce the purchasing price of fresh fruit bunches (FFBs) from plantations and smallholders in order to survive,” revealed Paul Wong, the first vice chairman of SOPPOA.

Wong noted that before this, millers were buying from plantations and smallholders at MPOB’s monthly average price but many had resorted to buying at spot rate (negotiated price between buyer and seller) or MPOB’s monthly average less the discount offered by refineries.

“The difference can be between RM16 to RM36 per tonne of FFB. Even at these lower prices, millers and refiners are only breaking even in the competitive market for palm oil exporters,” he added.

Thus, the present situation required urgent government action to address the differential tax structure imposed by the Indonesian government to make their palm oil export more attractive to buyers.

In fact, the Palm Oil Refiners Association of Malaysia recently called for the government to take immediate action on the matter, such abolishing duty free crude palm oil (CPO) export quota and a review of the CPO export tax policy.

“If the industry does not adjust itself fast on the price difference, we would expect more refiners to stop their operation. Such a scenario is not good for Sarawak especially with the expected increase in production in the third and fourth quarter, and the limited outlet of CPO for Sarawak,” he added.

“The good news is that the government is fully aware of the issues on hand and as stated by Plantation Industries and Commodities deputy minister Datuk Hamzah Zainudin recently in Kuala Lumpur, and they are in the process of introducing new measures and incentives to ensure the long term viability of the palm oil industry in Malaysia,” Wong concluded.

Taken from The Borneo Post