Palm oil trade: Avoiding intervention in CPO exchange

This article has been translated by PwC Indonesia as part of our Plantation News Highlights service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Bisnis Indonesia - Perdagangan kelapa sawit: Hindari intervensi bursa CPO

12 October 2023

By: Artha Adventy and Dwi Rachmawati

Jakarta - The government must avoid intervention and interests related to the plan to establish the Indonesian Crude Palm Oil (CPO) Exchange. This step will provide space for the creation of credible and transparent trading activities. 

The Commodity Futures Trading Authority (CoFTRA) of the Trade Ministry has appointed the Indonesia Commodity and Derivatives Exchange (ICDX) as the operator of the Indonesian CPO Exchange. 

ICDX has received approval as a CPO Physical Market Operator from CoFTRA. 

This approval was stated in the Decree of the Head of CoFTRA No. 1/Bappebti/SC-SCPO/10/2023, which was issued on Monday (9/10). 

"ICDX is fully committed to carrying out its duties as the operator of the CPO physical market on the government exchange," said ICDX Head of Corporate Communication P. Giri Hatmoko in his official statement on Wednesday (11/10). 

Giri Hatmoko continued, ICDX will convey technical matters related to trading mechanisms and others at the launch of the Indonesian CPO Exchange together with the Trade Ministry and CoFTRA. 

The presence of the CPO Exchange in Indonesia is considered not easy. Thus far, CPO trading activities refer to foreign exchanges. 

This means that all stakeholders need to create a domestic trading system that can attract investors' interest to trade within the country. 

Meanwhile, Segara Research Institute Director Piter Abdullah Redjalam stated that establishing a CPO Exchange in Indonesia was not considered easy. Minimal intervention is one of the conditions for an exchange to be recognised on the global market. 

In the future, every CPO export must be carried out through the CPO futures exchange. 

So far, Indonesian CPO trading still refers to the Rotterdam and Malaysia exchanges (MDEX). 

"The government must convince and ensure minimal government intervention to support this," said Piter. 

According to him, the obligation for institutions to export via the domestic futures exchange will not necessarily eliminate the role of the Rotterdam and Malaysia exchanges. The reason is, to create a global price reference, an exchange must have its credibility tested. 

Piter mentioned that the Rotterdam and Malaysia exchanges had gone through decades to be recognised by business players globally. Therefore, Piter said, the government also needs to provide incentives to business players to participate in transactions through the CPO exchange without coercion. 

"But the government must be consistent in how the CPO exchange is truly based on market mechanisms, so that the price formed is a credible price," said Piter. 

On the contrary, he views that regulations on the export of CPO and its derivative products that are too strict through the CPO exchange will boomerang for Indonesia and be detrimental to the palm oil industry. 

The commodity producing country, said Piter, does not always have to be the price setter. 

"A market that is credible, efficient, and does not experience distortion will be the common reference," he said. 

Calculating costs 

Indonesian Palm Oil Association (IPOA) Head Eddy Martono said that businesses are considering the mandatory exchange fees, which risk CPO prices to be no longer competitive. 

"This will make buyers move to other producing countries," said Eddy. 

The consideration is that the price will become more expensive because, as the CPO reference price moves away from the threshold of US$680 per tonne, the government sets an export levy of US$85 per tonne and export duty of US$33 per tonne. 

According to him, the mandatory exchange regulation will only increase the burden on business players. "If we add the burden of exchange fees, it is feared that our prices will become uncompetitive," he said. 

On the other hand, Indonesian Oil Palm Farmers Association (Apkasindo) Head Gulat Manurung views that the establishment of a CPO exchange is President Joko Widodo's mandate to the Trade Minister to create a reference price for Indonesian CPO independently. 

"We, oil palm farmers, insist that the Indonesian CPO exchange is not just about profit and loss, but the nationalism of all palm oil stakeholders," said Gulat. 

Through the CPO exchange, the CPO price will later become a reference for the purchase price of farmers' fresh fruit bunches (FFB) at palm oil mills. 

Downstream, continued Gulat, the CPO price formed on the exchange will become a transparent export benchmark price. According to him, the benefits of the CPO exchange are not only useful for export purposes, but also make it possible to carry out CPO transactions for domestic purposes.