JAKARTA : Indonesia will retain its domestic sales requirement for palm oil to keep local cooking oil prices affordable, a senior official told Reuters on Monday, noting that a quota for export shipments would be relaxed further.
Palm oil industry participants have sought the removal of the so-called Domestic Market Requirement (DMO) under which exporters must sell a portion of production locally before being granted export permits.
To reduce high palm oil stocks, the government from Monday will allow exporters to ship nine times the amount sold locally under the DMO, up from seven times previously, Septian Hario Seto, a deputy coordinating minister for maritime and investment affairs, said in an interview.
The world's biggest palm oil producer implemented the DMO scheme to ensure local cooking oil supplies after ending a palm oil export ban on May 23.
However, the ban and DMO have created an inventory glut that has slashed prices of palm oil fruit for farmers.
"We are trying to maintain a balance that is quite complicated to achieve," said Seto.
"We want the cooking oil price at 14,000 rupiah ($0.94) per litre, we want smooth export flows, while also lifting farmers' palm oil fruit prices," he said.
Bulk cooking oil derived from palm oil averaged about 18,000 rupiah per litre in April and now costs about 14,400 rupiah.
The trade minister said last month he would consider removing the DMO if given assurances from palm oil producers that they would maintain enough supply for domestic demand.
"We want to be consistent with our policy, there will be no change (on DMO)," Seto said, adding top ministers reached that conclusion after reviewing the request.
"We have to reduce stocks gradually, we can't do it in one go because it will hurt (global) prices."
Indonesia's export resumption and speculation of a DMO removal, plus higher output in rival Malaysia, have helped drive down benchmark Malaysian palm oil futures, which lost nearly 32 per cent in June and July.
The chairman of Indonesia Palm Oil Association, Joko Supriyono, at an industry conference said the DMO was not the most effective policy to balance supply to export and domestic markets.
He said the government should maintain cooking oil supply for low-income consumers, who typically use 2.5 million tonnes per year, through direct subsidy.
"We must pick an instrument that can secure 2.5 million tonnes without sacrificing our exports that reach around 35 million tonnes per year," he said.