Abstract
Indonesia is the world's CPO producer country, and at the same time, Indonesia also the largest exporter of CPO in global market. Some of the main countries that are becoming export destinations for Indonesia CPO are India, China, the European Union, USA and Pakistan. Empirically, it is seen that the phenomenon of widening gap in Chinese vegetable oil consumption patterns, where consumption growth is higher than domestic production growth. This boosted Indonesia's CPO exports to China and subsequently had an impact on the Indonesia-China trade balance. Analytical method used is ordinary least square (OLS), which is arranged in two-equation models. Findings of this study conclude that (a) Indonesia's CPO exports to China are affected by the increase in consumption of vegetable oils in China. This is consistent with the expected hypothesis; (b) the value of Indonesia's CPO exports to China has a positive impact and helps reduce Indonesia's trade balance deficit. This is consistent with the research hypothesis. Indonesia's CPO exports have a positive impact on the Indonesia-China trade balance, in particular contributing to overcome the Indonesia-China trade balance deficit. This research shows that CPO is Indonesia's strategic commodity that helps overcome Indonesia's trade balance deficit.
Highlights
China has an important role and position in global trade
crude palm oil (CPO) exports to Europe still grow by 1.8% per year, but the position of CPO exports has begun to feel the pressure from the end consumer side, and the last few years began to decrease around 100,000 tons per year
This is a concern for Indonesia, where the trend of CPO exports to the EU if there are no strong efforts in Indonesian palm oil diplomacy to Europe, it is not impossible, CPO exports to the EU market will continue to decline in the future, and consumers want to develop a source of domestic vegetable oil, though by paying a higher price
Summary
China has an important role and position in global trade. The population of China reaches 1.4 billion people, or nearly one-fifth of the world's population (7.2 billion people) (UN, 2016). As the country with the largest population, China is trying to fulfil its domestic consumption and become one of the world's biggest producers of oil. By 2016, China is the world's major producer of soybean oil, with production of 15.58 million tons or 29% of the world's total production, followed by USA, with production of 10.22 million tons (or 19%). China was the second-largest producer of rapeseed oil, with production of 6.55 million tons (24.6% of total world production). The world's leading rapeseed producer is the EU-27, with a 36% share (USDA, 2018)
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