Indonesia Seeks Trade Talks With Turkey Amid CPO Price Parity

Jun 06, 2014

The Jakarta Globe. Jakarta. The Indonesian government plans to initiate talks on a preferential trade agreement with the Turkish government in a move that would bring Indonesia’s crude palm oil on par with those of Malaysia, the world’s second-largest CPO producer, according to Trade Minister M. Lutfi.

The Malaysian and Turkish governments signed a free-trade agreement in April that includes reducing the tariff on crude palm oil to 20 percent from 31 percent. Lutfi said that that tariff will come into effect this month.

“That means our CPO will become less competitive as it would be 11 percent more expensive than Malaysia’s,” Lufti said in Jakarta.

The minister said talks had not begun with Turkey, but he intended to meet with his Turkish counterpart in the future. “I want to meet with the government [officials],” he added.

Lutfi said that the government is currently mapping out the long-term, mid-term and short-term objectives from such an agreement, though it must be done as quickly as possible. “We are looking for pragmatic means, so it can be implemented quickly,” he added.

Aside from Turkey, Lutfi said the government planned to add more hubs for its CPO exports in Europe — in Macedonia, Greece and Italy.

Fadli Hasan, the executive director of the Indonesia Palm Oil Association, said that Indonesia’s CPO exports to Turkey have been rising in the past couple years, but that trend could reverse with the Malaysia-Turkey deal.

“For sure, our CPO export to Turkey would decline,” he said.

Fadli said that Indonesia exported 450,000 metric tons of CPO to Turkey last year, more than four times the amount of Malaysia’s exports in the same period. “That’s why we need to counter Malaysia’s move,” he added.

Fadli said that the industry supported the government’s move to focus on a preferential trade agreement rather than the wide-ranging free-trade agreement, which would take years to be completed.

Turkey has the potential to become a major CPO market for Indonesia thanks to its growing economy, said Fadli, adding that the country also has the potential to be a gateway for Indonesian exports to central Asian and Middle Eastern nations.

Fadli warned, though, that Indonesia’s government must act quickly.

“Don’t repeat the Pakistan case,” he said, referring to the Indonesia-Pakistan free-trade agreement signed in 2013, which was five years after talks began and Malaysia and Pakistan signed their free-trade pact.

Indonesia’s CPO exports to Pakistan declined steeply as a consequence. Last year, Indonesia exported 900,000 metric tons of CPO to Pakistan, a 20 percent increase from 2012 but below its pre-2008 level of 960,000 tons, according to Fadli. “Exports to Pakistan have just begun to return to a normal rate,” he added.

Lutfi said that there would be a trade-off in future talks on a preferential trade agreement with Turkey. “They want to export more wheat to Indonesia,” he added. “That’s the art of trading, I scratch your back and you scratch mine.”

Indonesia is the world’s largest CPO producer.

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