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Economics Research
Work Report
Why Indonesia’s CPO (Crude Palm Oil) Price Spiked,
Despite being the World's Largest Producer CPO.
Alonzo Bradley Irawan (11C)
Date of Investigation / Experiment
CITA HATI CHRISTIAN SCHOOL WEST CAMPUS
SURABAYA
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Introduction/Background Knowledge
As the Russia Ukraine Nato conflict happens many countries around the world have cut
ties importing and exporting goods from Russia as well as Ukraine. Russia and Ukraine exported
about 75% of their sunflower seed to Turkey, India and China(1). After the cut, Indonesia's
export of palm oil increased by 193% to India 51.7 % to EU and 68% to China (2). Sunflower
seed oil as a primary cooking oil for western and middle eastern countries. They are used for
sautéing and deep frying because they have a really high smoke point. Russia and Ukraine are
the top producers for sunflower seed oil but since they are in a conflict exports for sunflower
seed has been falling this makes sunflower seed oil to become expensive because their number 1
and 2 producers are in a war sunflower seed oil production now only depends on Argentina and
turkey which produces about 1/5 of the oil that Russia and Ukraine produce. (3) This causes
many people to substitute Sunflower seed oil with palm oil because palm oil is also good for
deep frying and sautéing and they are currently easier to find and is also cheaper than the
sunflower seed oil. The demand for palm oil seed in the western countries has been increasing
day by day causing the export price for palm oil to increase. Due to the increase in price many
Indonesian Palm oil producers decide to export most of their palm oil which causes the shortage
of palm oil in Indonesia because the supply of palm oil decreases so the price of the palm oil
skyrockets. (4)
According to aseanpost.com 2022 Indonesia is one of the biggest Palm oil producing
countries, the land used to grow palm trees and produce palm oil is about 15.08 million hectares.
With that comes the expectation for crude palm oil price in the country to be very cheap. In 2022
the price of the palm oil went up really high causing Indonesia small store owners to suffer,
because of the price of the palm oil they weren’t able to make profit. According to
aseanpost.com This price spike was thought to be caused by the export made by the Palm oil
company.(4) In 2022 Indonesia produced about 51.3 million tonnes and about 33.7 million were
exported so about 65.6% of the palm oil produced was exported (5) this was a really high export
percentage compared to the previous year where indonesia produced 46.9 million tons and
exported 27 million tons which around 57% of the palm oil produced (6), this causes the supply
of palm oil in the country to decrease by a lot which causes the price to increase. A number of
businessmen and high ranking officials were also suspected of secretly exporting palm oil, (7)
which also leads the palm oil to become even more scarce
Nearly all Indonesian cuisine uses palm oil either for margarine or for deep frying. The
price of palm oil went from 13 800 Rupiah per liter in 2021(8) to 25 300 Rupiah per liter in
2022. Because of this, (9) the Indonesian Government has set a price ceiling for the palm oil at
14 000 Rupiah so that palm oil can be affordable for Indonesian Citizens, the Indonesian
government is also subsidizing the palm oil materials and also banning the export from 28 April
(10) to 23 May 2022 (11) so the producers would stop exporting and start prioritizing the local
citizens first after the export ban the government increased the tariff from $38 to $52 a tonne (12)
so that the price in the country could stay at 14 000 Rupiah.
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Research Question/Objectives/Goals/Aims
Due to the increase in price of the Crude palm oil, my research question would be "To
what extent does the price ceiling introduced by the government help to lower the price of
CPO.”
Objective and Benefit.
The objective of a research study on CPO (Crude Palm Oil) price in Indonesia could be to
analyze and understand the factors that affect the price of CPO in the Indonesian market during
the spike. Overall, the objective of the research study would be to provide a comprehensive
understanding of the factors that drive CPO prices in Indonesia
Theory
Market failure Occurs when the market fails to allocate resources efficiently, or to
provide the quantity and combination of goods and services mostly wanted by the society market
failure results in allocative inefficiency, where too much or too little of goods or services are
produced and consumed from the point of view of what socially most desirable. Palm oil is one
of the most desirable goods for the Indonesian citizen since it is used for cooking. In this case of
the CPO in Indonesia, due to exports and price ceiling the of CPO Indonesia in unable to supply
the quantity demanded for their own citizens, this causes the Demand to not equal the amount of
the goods supplied and Price ceiling also sets the price below the market equilibrium therefore
causes shortage and inefficiency.
Letters A and C shows the consumer surplus of the CPO when the Price ceiling is applied
while E shows the Producer surplus as we can see the the Consumer surplus is a lot more
than the Producer surplus this is because the price ceiling causes an inefficiency and
DeadWeightLoss and we can see from Letters B and D which represents it. therefore to avoid
the market failure the government must not use the Price ceiling since it causes
inefficiency.(13)
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Methodology
This study will be approached by using literature review, where data will be presented in
graphical form. The research will involve 20 Journals and articles, Such as (INDONESIA IS
THE BIGGEST GRANT OF OIL PALM CRUDE PALM OIL (CPO) IN THE WORLD
BUT FACING THE PROBLEM OF OIL SCARCITY SURPRISE COOKING OIL
PRICES)(15) By Junaedi University of Muhammadiyah Makassar with trusted sources and
DOIs.
First evaluate the quality and credibility of the sources. Consider factors like
methodology, sample size, data sources, and author credentials. Assess biases or limitations
that might influence the findings. Then Analyze the collected literature for recurring themes,
patterns, and insights. Compare and contrast different viewpoints and methodologies.
Identify common reasons cited for the CPO price spike Lastly Summarize the main findings
of the literature review. Discuss the implications of identified factors for the CPO price spike.
Address any contradictions or inconsistencies in the literature. Conclude by highlighting the
key takeaways and the potential implications for stakeholders.
(1) https://www.tridge.com/intelligences/sunflower-oil/RU/export
(2) https://gapki.id/en/news/22129/ris-palm-oil-exports-rise-in-august
(3) Russia bans sunflower seed exports, imposes quota on sunoil |
(4) Reutershttps://fulcrum.sg/indonesias-cooking-oil-crisis-causes-and-consequences/
(5) Indonesians Pay Price Of Cooking Oil Crisis | The ASEAN Post
(6) https://www.reuters.com/markets/commodities/indonesia-palm-oil-export-curbs-biodiesel
-plans-hit-world-vegoil-supplies-2023-01-13/
(7) https://databoks.katadata.co.id/datapublish/2022/07/27/tiongkok-pasar-terbesar-cpo-indon
esia-pada-2021
(8) https://www.cnbcindonesia.com/news/20220818084051-4-364598/harga-minyak-gorengturun-jadi-segini-menuju-normal
(9) https://www.suara.com/bisnis/2022/04/20/074621/kronologi-lengkap-kasus-korupsi-mafi
a-minyak-goreng-sudah-dicurigai-sejak-2021
(10) https://www.nortonrosefulbright.com/en-id/knowledge/publications/0297596e/indone
sian-government-ban-palm-oil-export
(11) https://www.fao.org/giews/food-prices/food-policies/detail/en/c/1529567/
(12) https://www.reuters.com/markets/commodities/indonesia-lowers-export-tax-threshold
-crude-palm-oil-680t-ministry-2022-08-09/
(13) https://www.investopedia.com/terms/p/price-ceiling.asp#:~:text=While%20that%20m
ake%20 staples%20 affordable,economy%2C%20making%20it%20more%20inefficient.
(14)https://bajangjournal.com/index.php/IJSS/article/view/4137/3073
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(15)https://web.archive.org/web/20220915045655id_/https://gjeta.com/sites/default/files/GJETA
-2022-0148.pdf
https://repository.cips-indonesia.org/id/publications/558662/from-export-ban-to-export-accelerati
on-why-cooking-oil-price-interventions-were