Jakarta. A smallholder association recently urged the Indonesian government to rethink before raising the export levy on crude palm oil (CPO).

World’s largest palm oil producer Indonesia is considering raising the export levy on CPO from 7.5 percent to 10 percent. The higher export levy aims to finance the so-called B40 program which starts this year. The B40 blends 40 percent palm oil-based biofuels with diesel and is a cleaner alternative to fossil fuels.

According to the Oil Palm Smallholders Union (SPKS), a 2.5 percent increase in export levy will cause the fresh fruit bunch price to drop between Rp 300-500 (less than $0.1) per kilogram.

“Raising the CPO export levy to 10 percent is not the best option. The higher export levy will only put farmers at a disadvantage,” Sabarudin was quoted as saying in a recent press statement.

The union claimed that any financial burden that arises from taxes and export levies on CPO trade has always affected the smallholders. At present, the oil palm plantation funding agency BPDPKS is in charge of rolling out the subsidies to the biodiesel producers. About 90 percent of the export levies go to these biodiesel producers, according to Sabarudin.

“It is best to directly involve oil palm smallholders in [the country’s] biodiesel production. The government will be able to save money originally intended for the subsidies that BPDPKS disburses. This would also eliminate the need to raise the export levy,” Sabarudin said.

The export levy also has both short and long-term impacts. 

Farmers will struggle to implement the best cultivation practices. It will be difficult for them to purchase fertilizers -- whose prices remain high -- amid cheaper fresh fruit bunches.

In the long run, it will likely lead to low productivity in the plantations owned by small-scale farmers. This will eventually take a toll on the raw material supply of the biodiesel program. SPKS also warned that the export levy could affect the implementation of the government’s Indonesian Sustainable Palm Oil System (ISPO) certification program. As the name suggests, the ISPO certifies farmers who adopt sustainable and legal cultivation practices.