TEMPO.CO, Jakarta – Indonesia and Malaysia, the world largest Crude palm oil (CPO) producers hope they will eventually be able to set the worlds reference price for the commodity in future.

“Indonesia and Malaysia are expected to increase collaboration to set the global price and marketing. The most important thing is the price of CPO,” Malaysias Federal Land Development Authority (Felda) Chairman Tan Sri Shahrir Samad said in Kuala Lumpur on Saturday.

Indonesia and Malaysia are the worlds number one and number two CPO producer countries with respective production of about 35 million tons and 18 million tons per annum. As they control more than 80 percent of the CPO market in the world, these countries have the potential to control its price too.

Indonesia is predicted to produce about 35 million tons of CPO in 2017, of which about 23 to 25 million tons are for exports. By 2020, Indonesias CPO production is expected to reach 40 million tons.

Indonesia exported 25 million tons of CPO last year — mainly to India, China, Pakistan, and the Netherlands — bringing in $17.8 billion in revenue, or about an eighth of the countrys total export proceeds.

So far, the world price of CPO has been determined by the Rotterdam market. According to the Indonesian Palm Oil Producers Association (Gapki), the price of CPO has continued to fluctuate and touched the lowest level at US$629 per ton at the Rotterdam CPO bourse in 2015 from the previous level of $831 per ton.

However, the price was relatively stable at the end of 2016, at about $670 per ton. Gapki has predicted that the price of the commodity would be at an average of $680 to $690 per ton in 2017, according to Gapki executive director Fadhil Hasan late last year.

Hence, Indonesia and Malaysia should collaborate to place themselves as the world price trend setters of CPO. “What is more important is how Indonesia and Malaysia could decide the highest price in the global market,” Samad remarked.

Samad noted that the stable price of CPO will have a positive impact on the palm oil industry, small farmers, and Felda pioneers.

Felda has the worlds largest palm oil plantations, with 811,140 hectares of palm oil trees in the Malaysian peninsula of Sabah and Sarawak. This company also manages palm oil plantations in Indonesia in cooperation with Rajawali Corp.

“The purchase of some stake in Rajawali is a strategic investment. We purchased the shares as our strategic move. However, we cannot reveal what strategies are there,” he remarked.

Samad said his company has no plan yet to increase its stake.

“We will concentrate in the future to increase collaboration in deciding the CPO price in the global market,” he noted.

He admitted it was not easy to expand plantations in Indonesia. Hence, it prefers to cooperate with Indonesian companies through share ownership participation.

Currently, Indonesia is estimated to have 11.6 million hectares of palm oil plantations. Of this total, some eight percent are managed by state companies, 49 percent by private CPO industries, and 43 percent belong to small farmers. The livelihood of about 16-20 million people depends on upstream and downstream palm oil businesses across Indonesia.

“This is (increasing collaboration) beneficial not only for Felda but also for both countries. This should start with cooperation. About 80 percent of the global CPO production comes from Indonesia and Malaysia,” Samad pointed out.

Samad had earlier met Indonesian Minister of Villages, Disadvantaged Regions, and Transmigration Eko Putro Sandjojo, who is also the investment liaison officer between Indonesia and Malaysia.

At an “Indonesia-Malaysia Business Matching” event, Sandjojo said that Indonesia is imposing a moratorium on the expansion of palm oil plantations. Thus, it is impossible to open up new plantations.

“What Felda is doing is to purchase the shares of companies that already have palm oil plantations,” the minister explained.

Spokesman of the Indonesian Palm Oil Producers Association Tofan Mahdi noted that the reference price of CPO is determined in Rotterdam and the Kuala Lumpur Commodity Exchange.

“However, Indonesia is now attempting to set a global CPO reference price. The concept about it is still being drafted. There is also a Joint Marketing Office that has plantation companies, but it has yet to set a price that can serve as a global reference price,” he added.

In the meantime, amid the efforts of CPO producer countries to put their products in the world market, there is a challenge coming from the European Union, through a resolution passed early this month.

The resolution, passed during a European Parliament plenary session, aims to counter the impact of unsustainable palm oil production, such as deforestation and habitat degradation. The resolution cited Southeast Asias role in particular.

Members of the European Parliament advocated that a single certification scheme should be implemented in order to guarantee that only sustainably produced palm oil enters the EU.

In response to this, the Council of Palm Oil Producing Countries (CPOPC) established by major producers — Indonesia and Malaysia — will convey its stance.

Coordinating Minister for Economic Affairs Darmin Nasution stated that the CPOPC ministers will draft a joint communique. The council will also visit the EU in May to share its perspective as palm oil producers.

“The CPOPC ministers have expressed concern over the resolution of the EU parliament, as it is counterproductive to palm oil producing countries efforts on the sustainable management of resources,” Darmin noted.

Source: https://en.tempo.co/read/news/2017/04/23/056868763/Indonesia-Malaysia-Poised-to-Set-World-CPO-Price