The indonesian governments temporary export restriction on crude palm oil (cpo) in 2022 and its impacts on the global market, with implications for vietnam as an importer

ABSTRACT Literature has demonstrated that trade liberalization generally improved societal well being and overall economic wellbeing. The natural functioning of comparative advantage was said to open up markets and encourage export through trade liberalization. Past research demonstrated evidence of domestic price disciplining and the elimination of excess profits of domestic businesses with market power functioning in oligopolistic marketplaces when domestic markets were exposed to international competition. The removal of inefficiencies through increased competition led to a rise in production (Verdoorns Law). It was also recognized, though, that in some instances, unmanaged liberalization may lead to sizable foreign companies establishing themselves as oligopolies or even monopolies in the recently liberalized market. Due to their market dominance, these companies may operate contrary to the rules of a free and open market, such as by engaging in anticompetitive behavior. The main form of palm oil is produced, known as crude palm oil (CPO). Palm oil is the world’s most widely used vegetable cooking oil. Indonesia and Malaysia produce 57% and 27% of palm oil available in the global market, respectively (Ritchie Roser, 2021). Cooking oil prices in Indonesia are directly impacted by international CPO prices because it is a commodity that is traded globally. Due to the rising demand for biofuel as a result of the global economic recovery and the diminishing productivity of oil palm plantations in Indonesia and Malaysia, global CPO prices dramatically climbed during 2021 and into 2022 (Nafisah Amanta, 2022). As a result, and in spite of its fundamental need, inexpensive cooking oil was hard to come by. Indonesia is a significant and promising partner for Vietnam, and it cherishes Vietnams status and role as one of the ASEAN nations with the greatest impact. Numerous cooperation agreements and accords in numerous sectors have been negotiated between Vietnam and Indonesia. There are other mechanisms for bilateral collaboration in place as well. By examining the topic, The Indonesian Governments temporary export restriction on Crude Palm Oil (CPO) in 2022 and its impacts on the global market, with implications for Vietnam as an importer”, we would have chance to understanding thoroughly the impacts of exportban policy and domestic application of Indonesia Government towards optimization on the basis of the current system of CPO’s products situation and export sector in the world and in Indonesia and estimation of future development in the industry.

Table of Contents

ABSTRACT 2

INTRODUCTION 3

Literature review 3

Methodology: The research method uses descriptive qualitative 3

Information collection method 3

Information processing method: combination of quantitative and qualitative 3

Objectives 4

Scope of Research: 4

OVERVIEW 5

1.1 A guide to CPO export (2018-2022) 5

1.1.1 Definition and value of Crude Palm Oil 5

1.1.2 Features of CPO products 6

1.2 CPO's products export contribution to the world's economy (2018-2022) 6

1.2.2 Exporters and consumers of CPO's products 9

1.2.2.1 Exporters of CPO’s products in the world 9

1.2.2.2 Consumers of Indonesian CPO’s products in the world 10

Indonesia as CPO's products exporter before the restriction 11

2.1 Production of Palm oil in Indonesia (2018-2022) 11

2.2 Export Duties of Indonesian CPO's products (2018-2022) 12

The Indonesian Government's export restriction on Crude Palm Oil (CPO) in 2022 15

3.1 The issuance of Ministry of Trade Regulation No 8 of 2022 on 1 February 2022 and MOT Regulation No 11 of 2022 15

3.2 Purposes of the temporary restriction 15

3.3 The outcome of the temporary export bans 16

3.4 Changes from the government towards the outcomes 16

Current situation and expected developments 18

4.1 Current situation of Indonesia in the global market 18

4.2 Expected development 18

Implications for VN as an importer 20

5.1 Reactions to the temporary restriction 20

5.2 Overall impacts on trade market 20

5.3 Draw lessons for policy 21

CONCLUSION 22

REFERENCES 23

Literature has demonstrated that trade liberalization generally improved societal being and overall economic well-being The "natural" functioning of comparativeadvantage was said to open up markets and encourage export through trade liberalization.Past research demonstrated evidence of "domestic price disciplining" and the elimination

well-of excess prwell-ofits well-of domestic businesses with market power functioning in oligopolisticmarketplaces when domestic markets were exposed to international competition Theremoval of inefficiencies through increased competition led to a rise in production(Verdoorn's Law) It was also recognized, though, that in some instances, "unmanaged"liberalization may lead to sizable foreign companies establishing themselves asoligopolies or even monopolies in the recently liberalized market Due to their marketdominance, these companies may operate contrary to the rules of a free and open market,such as by engaging in anticompetitive behavior

The main form of palm oil is produced, known as crude palm oil (CPO) Palm oil is theworld’s most widely used vegetable cooking oil Indonesia and Malaysia produce 57%and 27% of palm oil available in the global market, respectively (Ritchie & Roser, 2021).Cooking oil prices in Indonesia are directly impacted by international CPO pricesbecause it is a commodity that is traded globally Due to the rising demand for biofuel as

a result of the global economic recovery and the diminishing productivity of oil palmplantations in Indonesia and Malaysia, global CPO prices dramatically climbed during

2021 and into 2022 (Nafisah & Amanta, 2022) As a result, and in spite of itsfundamental need, inexpensive cooking oil was hard to come by

Indonesia is a significant and promising partner for Vietnam, and it cherishes Vietnam'sstatus and role as one of the ASEAN nations with the greatest impact Numerouscooperation agreements and accords in numerous sectors have been negotiated betweenVietnam and Indonesia There are other mechanisms for bilateral collaboration in place

as well By examining the topic, "The Indonesian Government's temporary exportrestriction on Crude Palm Oil (CPO) in 2022 and its impacts on the global market, withimplications for Vietnam as an importer”, we would have chance to understandingthoroughly the impacts of export-ban policy and domestic application of IndonesiaGovernment towards optimization on the basis of the current system of CPO’s productssituation and export sector in the world and in Indonesia and estimation of futuredevelopment in the industry

Despite our best efforts at research and analysis on the subject, we are only able toanalyze and evaluate on a very basic level due to time constraints and limited knowledge.With limited information, there will be several flaws; the writers hope to receivefeedback from Mrs Vũ Thị Huyền Phương for further improvement

Our sincere appreciation

Literature review

INTRODUCTION

- The WTO agreements: They cover a wide range of topics, including: agriculture,textiles and apparel, finance, telecommunications, government acquisitions, industrialstandards and product safety, laws governing food safety, intellectual property, and muchmore But there are a few straightforward, essential ideas that appear in all of thesepublications The multilateral trading system is built on these tenets (Hoekman, B.M.,Mattoo, A and English, P (2002))

- Comparative advantage: theory, empirical measures and case studies: theory, analyticaltool and case studies of comparative advantage (Tri WIDODO, 2009)

- Trade Agreement between the Government of the Republic of Indonesia and theGovernment of the Socialist Republic of Vietnam: The social character of labor, theadvancement of civilized human-human connections, and the lengthy history of growthand origin all contribute to the inevitable process of international integration People whowish to flourish in society must be closely connected to one another A nation that wishes

to develop must collaborate with other nations on a global scale (Trade Agreementbetween Indonesia and Vietnam (1995))

Methodology: The research method uses descriptive qualitative Information collection method

- Introspection and bonded approach: personal consultation of experts, articles…

- Individual and comparative approach: year-by-year data and transportation index

comparisons, table ranking order, policies over the years

- Historical and Logical Approach: Reviewing past metrics, the impact of events on thedata

- Sources of data: The Central Statistics Agency [BPS], the Indonesian Ministry ofIndustry, the United Nations Commodity Trade Statistics, academic papers on thecompetitiveness and oil palm development strategy, and CPO export and import data[code HS 151110] are the sources of the statistical data used in this study

Information processing method: combination of quantitative and qualitative

- Quantitative: gather information from statistical documents on web pages Refer toeconometric models in previous studies, review charts, tables, and graphs, and then makepreliminary judgments about the information gathered.

- Qualitative: Visually visualize the relationship between elements in the structure of

things, generalize the relationships of things

Objectives:

One of the plantation products that plays a significant economic role in Indonesia is palmoil, which is also exported as a currency-earning product for oil and gas Crude Palm Oil(CPO), the primary product of palm oil, is produced In accordance with the risingdemand for CPO in export destination nations for both biodiesel and food raw materials,CPO's export volumes as a key product continue to rise However, the mix of exportschanged from CPO to goods derived from palm, specifically RBD palm olein and PFAD,

in 2009 when the customs regulation went into effect

Scope of Research:

In general, the Study is conducted for the purpose of proposing and determining theimpacts of export-ban policy and domestic application of Indonesia Government towardsoptimization on the basis of the current situation of CPO production and export sector inthe world and in Indonesia and estimation of future development in the industry

1.1 A guide to CPO export (2018-2022)

1.1.1 Definition and value of Crude Palm Oil

Oil from the core of oil palm fruit is used to make palm oil, an edible oil Red is the color

of the pulp The high inactive vitamin A content is the reason why crude palm oil has ahue that is naturally reminiscent of pulp It is distinct from coconut oil or kernel oil It isfrequently combined with or blended with coconut oil to create a highly saturatedvegetable fat that is also used in cooking

CPO is mostly utilized in South-East Asia, West Africa, and some regions of Brazil forcooking purposes Due to its inexpensive price, commercial kitchens use it Because ofthe high level of saturated fats, it is less healthful than its competitors Nigeria, Colombia,Indonesia, and Malaysia are the top four CPO producers They are significant palm oilexporters Malaysia produces around a quarter of the world's palm oil, with Indonesiaproducing more than half Between 75 and 85% of the world's supply comes fromIndonesia and Malaysia combined, although 42 other nations also produce palm oil,notably Thailand, Colombia (which has dramatically increased production since the end

of the internal war), and Nigeria Mumbai is one of the main commercial hubs in India,and is a net importer of crude palm oil [NCDEX (2022)]Additionally, it is used to createbiodiesel, and glycerin is one of its byproducts Furthermore, because crude palm oil is aprocessed good, demand and supply are constant year-round

Parameters for performance review of commodity - NCDEX (2022)

It is common for palm oil to be exported; in 2019, an estimated 65% of total palm oilproduction was exported However, as seen by the accompanying graph, that percentagehas somewhat decreased recently

The palm oil market is anticipated to reach a value of USD 67.3 billion in 2022 and togrow at a CAGR of 5.1% from 2023 to 2030 The market's exponential expansion isbeing driven by demand from the food, beverage, biofuel, energy, personal care, andcosmetics industries Major manufacturers are located in the area because raw materialsare readily available there The market is intensely competitive and broad in scope as aresult of the presence of multiple all-scale companies who fight for market share throughhigh production, excellent distribution networks, high-quality products, and a variety ofcompetitive methods.[ Baliño, S et al (2020)]

The market for palm oil was estimated to be worth USD 67.3 billion in 2022, and from

2023 to 2030, it is expected to increase at a CAGR of 5.1% Demand from the food,beverage, biofuel, energy, personal care, and cosmetics industries is driving the market'sexponential growth Due to the region's easy access to raw materials, major

manufacturers are concentrated there Due to the presence of several all-scale playerswho compete for market share through high production, superior distribution networks,high-quality products, and a variety of competitive strategies, the market is both fiercelycompetitive and wide-ranging in scope [(2023) Grand View Research.]

1.1.2 Features of CPO products

1.1.2.1 Prices of CPO products

In the world, more than 17 different oils and fats are produced and sold For these oilsand fats, a broad variety in price is not unusual The variances rely on marketarrangements and the unique characteristics of various economic sectors There seem to

be considerable pricing variations even among oils of the same sort that aremanufactured

1.1.2.2 CPO's products export duty development

Some of these items can be exported duty-free, however, some nations charge forexports Similar to that, several nations that import similar goods have put levies on them

In the case of vegetable oils, imports of unprocessed oils are subject to just modestcharges, but imports of oils that have undergone further processing are subject tosignificantly higher tariffs Some exporting nations place higher tariffs on crudevegetable oil exports and lower duties on processed oil exports

Similar oil-producing nations compete with one another for markets Tariffs and pricingare two ways that competition may manifest The government of a nation may imposetariffs or charges on items exported from that nation in order to raise money or tosafeguard the domestic economy On the other hand, by taxing solely the foreign good,importing nations put tariffs on imports to benefit home manufacturers who are subject toimport competition The more expensive it is for customers to purchase foreign goods,the more they will turn to domestic providers, who will gain from the increased demandand higher prices brought on by the levy

1.2 CPO's products export contribution to the world's economy (2018-2022) 1.2.1 Market share of the products

The bulk of Indonesia’s palm oil was made up of crude palm oil and refined palm oil,with crude palm oil (CPO) exports reaching around 25.9 million metric tons in 2020 Inthat year, the export value of this commodity was about 17.3 billion U.S dollars.(According to Statista)

The main export market for Indonesian CPO was India, which made up more than 60percent of the total CPO exports in 2020 India was in turn the world’s largest importer ofpalm oil in that year In 2019, India introduced higher import duties on palm oil, leading

to a decline in demand from this market However, Indonesian palm oil exports werebuffeted by increased demand from China, which sought alternative vegetable oilsupplies due to restrictions caused by the trade war with the U.S (According to Statista)

According to Figure 1, with the exception of 2020, Indonesian CPO dominated the value

of CPO exports on the international market from 2000 to 2019 This demonstrates thatMalaysia, one of the major exporters, is more focused on refined palm oil ProcessingIndonesian CPO still lags well behind Malaysia Only 59.66% of CPO can be convertedinto derivative products in Indonesia, and only 40.34% can be exported The COVID-19outbreak, the lockdown, and the fall in economic growth in Indonesia and several othernations, particularly those that are the primary palm oil export destinations, allcontributed to the decline in demand for Indonesian CPO in 2020 In this regard, Li andGan (2014) predict that Malaysian CPO exports and other CPO producing countries inthe world are expected to continue to increase until 2023, although domestic consumptionwill increase due to population growth and the need for CPO derivative products

The results of the market share index analysis show that the share of Indonesia’s CPOexports in the European Union market ranges from 5% to 25.12%, higher than other CPOimporting countries in Italy, Spain, and Germany The high percentage of CPO exportsshows that Indonesia is a major exporting country in the EU market to meet the EUindustry’s vegetable oil needs (Figure 2) This data shows that there has been a decline indemand for CPO exports since 2012 after a negative campaign with the label “Palm Oilfree” and propaganda to switch to local vegetable oils, namely sunflower oil, soybean oil,and rapeseed to reduce GHG emissions, reduce trade problems -off fuel-food,minimizing embodied deforestation However, in reality, the European Union has notbeen able to meet the demand for vegetable oil from local oil and still needs CPO exports.

In 2022, the Indonesian government issued the first temporary CPO export ban on April

28, 2022 due to scarce domestic cooking oil supplies that caused an average 43% pricehike of the commodity price domestically Because of the export ban, CPO producers andmanufacturers experienced over-capacity in inventories and that caused them to refrainfrom buying FFB from smallholders This outcome led to the revocation of the palm oilexport ban on May 23, 2022 Since the export ban was revoked, domestic palm oilstakeholders have been pressuring the government to boost the smallholders’ FFB sellingprice and accelerate CPO export activities To resolve the issues, the governmentintroduced a policy that waived the CPO export tax in July 2022 and that boosted theFFB selling price by USD 0.13/kg by August 2022 It almost reached the government’starget of USD 0.135/kg, but still far from the April selling price of USD 0.2/kg Because

of this, the wave was extended to October 31st, 2022, to maintain export momentum

At the same time, the global CPO price has been declining since June 2022 The globaldemand for Indonesia’s CPO, especially from China, has declined, while Malaysiaexperienced its CPO peak production season in June The CPO price declined further in

August 2022 The Trade and Finance Ministries were urged to re-adjust their CPO exportstrategies to compensate for the decreasing CPO export duty caused by the CPO pricedrop.

CIF Rotterdam Price Index for CPO Source: GAPKI

1.2.2 Exporters and consumers of CPO's products

1.2.2.1 Exporters of CPO’s products in the world

The demand for palm oil is high in every country because it is used in food, cosmetics,and biofuel Indonesia continues to dominate the market for exporting palm oil to othercountries There are a limited number of major palm oil producers worldwide 83.9% ofthe total value of palm oil exported in 2021 was accounted for by the two largestexporters, Indonesia and Malaysia With shipments valued at $42.4 billion, or 87.1% ofthe global total, Asian countries saw the highest dollar sales from exported palm oilduring 2021 At 5.2%, European exporters came in second, and 4.2% of palm oilshipments worldwide came from Latin American nations, excluding Mexico butincluding the Caribbean

Tinier percentages came from Oceanian countries (1.7) led by Papua New Guinea and theSolomon Islands, Africa (1.6%) and North America (0.3%)

1 Indonesia: US$26.7 billion (54.7% of palm oil exports)

7 Colombia: $468.7 million (1%)

By value, the listed 15 countries shipped 95.7% of global palm oil exports in 2021.

Among the top exporters, the fastest-growing palm oil exporters since 2020 were: Nepal(up 419.9%), Thailand (up 353.5%), Djibouti (up 278.6%) and Turkey (up 75.2%)

1.2.2.2 Consumers of Indonesian CPO’s products in the world

Ten destination countries of Indonesian palm oil exports are China, India, USA, Pakistan,Malaysia, Netherlands, Bangladesh, Russia and Italy The USA rating as palm oilimporter rose from fifth in 2020 to third in 2022

In 2021, Indonesia exported N/A in Palm Oil, making it the 1st largest exporter of PalmOil in the world In the same year, palm oil was Indonesia's second-most popular export,behind coffee China ($4.22B), India ($3.45B), Pakistan ($2.84B), the United States($1.38B), and Bangladesh ($1.36B) are Indonesia's top export markets for palm oil

Between 2020 and 2021, China ($1.76 billion), Pakistan ($1.22 billion), and the UnitedStates ($791 million) exhibited the strongest export growth for Indonesian palm oil

Indonesia as CPO's products exporter before the restriction

2.1 Production of Palm oil in Indonesia (2018-2022)

2018 may be remembered as the year when Indonesia’s national palm oil output soaredhigh above world demand levels, leading to strong pressure on the prices of thecommodity for most of the year The Indonesian Palm Oil Producers Association(GAPKI) said that Indonesia’s palm oil production in 2018 rose by 23 percent overproduction in the previous year, reaching 22.32 million tons Indonesia Palm OilProduction 2018 2019 is 40.5 million tons It is Prediction that Palm Oil Production ofIndonesia will Climb to 48 million tons by 2025 At June 2019, Indonesia had producedjust under eight million metric tons of certified sustainable palm oil

The combination of good price in early 2020 that had enabled growers to fertilize andrestore their oil palm plantations and favorable weather condition had increased theproduction of CPO at the average of 3,917 thousand tons during the period July -December 2020

The year 2021 stands as a recovery year from Covid-19 pandemic as demand for palm oilsaw a rising tendency, but production was relatively stagnant due to various factors, such

as weather, limited supply of fertilizer and manpower shortage For Indonesia, theproduction of crude palm oil (CPO) in 2021 reached 46.888 million tons or 0.31% lowerthan that of 2020 at 47.034 million tons

The year 2022 in Indonesia was marked by unusual incidents which include extreme wetweather, surging cases of Covid-19 in February, the outbreak of Russia - Ukraine war inFebruary, very high prices of vegetable oils that include palm oil, very high prices of oil,government’s palm oil export ban during 28 April - 23 May, high prices of fertilizers andvery low realization of replanting program for smallholders (PSR)

All of the unusual incidents had significantly affected the palm oil industry in Indonesia

in terms of production, consumption, and exports

Extreme wet weather had impacted the activities of pollinating insects and harvest.Fertilizers that are expensive and hard to find had affected the activities to maintain theplants, while the export ban had caused the farmers to stop harvesting their fresh fruitbunches (FFB) during the export ban and several months after the ban as the stock wasstill very high

The failure of PSR program to realize target and the only small increase of plantationacreage at 600,000 hectares during the last 5 years due to moratorium of oil palmplantation licenses had made the growers to lose hope of increasing productionthrough the new

planting The very high prices of palm oil have also caused the smallholders to delay theirplanting program, causing the acreage of old plantations with lower productivity was still

in larger portion

Such condition had contributed to the stagnation of CPO production in 2022 at 46.729million tons, which was slightly lower than that in 2021 at 46.888 million tons and it wasthe fourth consecutive year that saw stagnant growth of palm oil production Localconsumption in 2022 reached 20.968 million tons, which was higher than that in 2021 at18.422 million tons

With the realization of production, local consumption and exports mentioned above, thenthe local stock of palm oil is estimated to reach 3.658 million tons Based on the growthrate of production and consumption, all those problems hindering the production increaseshould be tackled soon

The condition that has affected the palm oil industry during 2022 is predicted to continueaffecting the performance of palm oil industry in 2023 Production is projected to remainstagnant

2.2 Export Duties of Indonesian CPO's products (2018-2022)

In November 2022, the Minister of Trade of Indonesia increased the export duty andplantation fund tariff on the export of crude palm oil (CPO) after the reference value ofthe CPO market was set at USD 826,58/MT

The export tax imposed on palm oil products consists of two, namely Export Duty andExport Levy Although both of them are export tax instruments but they have difference.The export duty become state revenue, while the export levy used to funding thedevelopment of national palm oil industry, in accordance with mandate of Law 39/2014concerning of Plantation and development of palm oil-based biofuel

At the end of 2020, Indonesian government issued a new policy related to changes of exportlevy tariffs for palm oil and its derivative products as stipulated in Minister of FinanceRegulation No 57/PMK.05/2020 (PMK 191/2020) concerning Service Rates of thePublic Service Agency and the Palm Oil Fund Management Agency

In this regulation, the amount of export levy is a progressive rate based on the thresholdprice or reference CPO price was set by Ministry of Trade Not only CPO, export of palmoil derivatives products are also subject to levy, but the rates are lower than CPO’s levy

On 30 November 2022, the Minister of Trade of Indonesia issued RegulationNo.1533/2022, extending the export duty on crude palm oil (CPO) at 18 USD/MT after