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.
Highlights
Duty tax on exports of CPO from Malaysia was imposed with the objectives of contributing to Export tariffs are applied for fiscal and market government revenue, encouraging value-added or balancing purposes
Since Malaysia and Indonesia are close competitors and they compete in the same market, a change in export duty rate in one country will affect the other
Under the revised export duty structure, crude palm oil and crude palm kernel oil are cheaper for downstream activities in Indonesia
Summary
Duty tax on exports of CPO from Malaysia was imposed with the objectives of contributing to Export tariffs are applied for fiscal and market government revenue, encouraging value-added or balancing purposes. As for fiscal, it is used to raise downstream processing of Malaysian palm oil and to fund. Export duty is used as an instrument to narrow the big difference in the level of domestic enhance the marketability of Malaysian palm oil to the world Amiruddin (2003). Malaysia and Indonesia are the world’s largest producers of palm oil. Both countries export crude and would affect the level of world prices. Export duty taxes are imposed on effectiveness of such a trade policy critically depends exports of palm oil products by both countries for the on the correct determination of the optimal level of purpose of raising government revenue.
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