IMPACT OF CPO EXPORT DUTIES ON MALAYSIAN PALM OIL INDUSTRY

Abstract

In January 2013, Malaysia reduced the export duty s tructure to be in line with the Indonesia’s duty structure. Both countries export crude and processe d palm oil. Since Malaysia and Indonesia are close competitors and they compete in the same market, a change in export duty rate in one country will affe ct the other. Indonesia, as the world’s biggest palm oil p roducer, has drastically widened the values between the crude palm oil and refined palm oil export taxes si nce October 2011, to encourage more downstream investments and production of refined palm oil prod ucts. Under the revised export duty structure, crud e palm oil and crude palm kernel oil are cheaper for downstream activities in Indonesia. The new structu re is expected to reduce Malaysia’s competitiveness in th e world market as its export duty is relatively hig her. A high export duty results in high price of crude pal m oil which is the raw material for processed palm oil. The research questions are: (i) What are the likely future trends of crude palm oil exports under the new crude palm oil export duties? Will it increase, red uce or stabilize? (ii) What are the likely future t rends of processed palm oil exports? Will it increase expone ntially, stabilize or reduce? To answer these quest ions, a system dynamics model was developed for the Malaysian palm oil. Application of the system dynamics model provides a framework to understand the feedback structure and how changes in variables impact th e behavior of the palm oil industry. This research su ggests that with low crude palm oil export duties c rude palm oil domestic price, profitability of plantatio n owners, immature crop, mature crop, total planted area, production and exports of crude palm oil increase, however exports of processed palm oil decrease.