However, as Eid drew near, demand for basic necessities increased sharply including cooking oil. There was still a shortage of bulk cooking oil supply and the price remained high, sparking widespread complaints and protests by the public. The government responded by banning the exports of almost all palm oil products, including raw materials for cooking oil and cooking oil itself. President Joko Widodo personally announced the policy with a terse speech, looking visibly upset.
The export ban caught the market by surprise. Expressions of disappointment came not only from within the country but also the global market. Many parties could not comprehend how Indonesia, the world’s largest exporter of palm oil, resorted to export ban to address supply crunch even though its domestic production is excessive. In 2021, Indonesia produced around 51 million tons of crude palm oil (CPO) and crude palm kernel oil (CPKO) and exported 35 million tons of CPO. Of the total domestic consumption of palm oil, around 6 million is used to produce cooking oil. So it was beyond economic logic that there was scarcity and persistent high price.
Problem started when in February the government issued the DMO and DPO policies and imposed HET for bulk (Rp11,500 per liter), plain packaged (Rp13,500) and premium packaged cooking oil (Rp14,000). The government did not realize that at that time the market price of cooking oil was already above Rp20,000 per liter, so for whatever reason the policy could not be implemented effectively.
Read: House: CPO export ban threatens the livelihood of 2.6m oil palm farmers
After the DMO, DPO and HET policies were discontinued, packaged cooking oil became available again in large quantities in the market because it followed the market price, but bulk cooking oil was still difficult to come by because it was still far below its market price. The public was dissatisfied with the situation, especially when Eid was looming which saw people’s consumption rising. To appease the restless public, the President finally adopted the export ban policy in response to the ineffective previous policies and as a form of “punishment” to producers and exporters who were deemed unsupportive of the government’s cooking oil policies.
However, it turned out that the export ban policy did not last very long. In less than a month, the President revoked the policy and starting May 23 exports of palm oil and cooking oil raw materials was resumed. The reason being the supply of bulk cooking oil in the market was deemed more than sufficient, even though its price has yet to go down to the price set by the government, which is Rp14,000 per liter. Coordinating Economic Minister Airlangga Hartarto said the DMO and DPO policies would be enforced again but until now there has been no directive regarding the new policy so the public was still left in the dark with regard to the detailed contents of the new policy. The lifting of the export ban was carried out after various parties questioned the rationale of the policy in the midst of the global scarcity of vegetable oil supplies caused by the Russia-Ukraine war.
On the other hand, oil palm farmers who suffered due to the policy had been staging protests demanding the export ban be lifted. Indeed, neither party has benefited from the export ban policy. It is obvious that oil palm smallholder farmers were the losers because the price of fresh fruit bunches (FFB) fell by almost 70% and palm oil producers begun limiting their FFB purchases from farmers who found it increasingly difficult to sell their crop, while exporters begun reducing their purchases and operating below normal capacity due to demurrage. Not only that, the government was also the loser because there was no revenue from palm oil export taxes and levies whereas the funds collected from export levies and managed by BPDPKS are very important to sustain the biofuel program and the rejuvenation of small-scale oil palm plantations.
So, the burning question is, why was the export ban policy issued in the first place? Why were the various policies aimed at regulating the price and ensuring the supply of cooking oil ineffective? Many people argued that wrong and bad policies were the main culprits behind the cooking oil debacle. However, there are also many parties who blame palm oil producers for the ineffectiveness of the policy, alleging them as “mafia” who attempted to sabotage the policies and control the government in order to reap maximum profits from global price surge at the expense of the community.
Bad Policy
It is obvious the constantly changing policies issued in a short period of time were what rendered these policies ineffective. How is it possible that in just five months the government issued different policies in an attempt to tackle the scarcity and high price of cooking oil without giving sufficient time for adequate planning and preparation? The lack thereof, compounded by inaccurate data, unscrupulous individuals abusing the policies and the panic buying behavior on the part of the consumers all contributed to the chaotic outcome.
In addition, analysis and identification of problems were also not carried out in a comprehensive and anticipatory manner. It isn’t hard to argue that the policies were made without proper planning and preparation. The evidence lied in the ever-changing policies, from the provision of subsidies that have not been implemented to DMO and DPO. Also, the existing data is not accurate and complete, causing problems in the production and distribution to various regions. This is a fact because previously cooking oil, while it being designated as one of the nine essential food materials (sembako: Sembilan Bahan Pokok), was not an administered commodity, save for its retail price.
It is also undeniable that, in their implementation, the policies have been abused by various parties. Another factor is the weak institutions tasked with implementing, monitoring and enforcing these policies. There are many irregularities and abuses of authority on the ground involving individuals who are supposed to enforce the rules and oversee the implementation of these policies.
But the main reason why these policies were ineffective is that they go against a healthy market mechanism. They distorted the market and created price disparity between cooking oil sold domestically and globally. As a result, it creates an environment that encourages rent-seeking behavior and other illegal activities in the entire supply chain, from upstream to downstream. The lesson to be learned is not to make policies that are against the workings of a healthy market mechanism.