ICC Announced The Study Results on Cooking Oil Price.

Wednesday, February 23, 2022

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Jakarta (21/1) – At a journalist forum held online yesterday afternoon in Jakarta, the Indonesia Competition Commission (ICC) conveyed the results of a study on the cooking oil prices surge. The forum presented Commissioner Ukay Karyadi, and the Director of Economy, Mulyawan Renamanggala. Based on the research results, ICC explained that the cooking oil prices surge was triggered by, among other things, the increase in demand for crude palm oil (CPO) in the biodiesel industry and the international market. The current price- fixing effort by the government is good in the short term, but in the long term it will not be able to solve the industrial problems marked by the high concentration of integrated business actors and discouraging policies that hinder the increase of the number of business actors in the industry.

The research was carried out against the background of the cooking oil prices surge from October 2021 to IDR 20,000 per liter and the alleged cartel behind the prices surge. The research focuses on two issues, namely, whether the prices surge happened due to government policies or anti-competitive behavior by business actors. It was explained that the signals related to these two things already existed.

From the research results, ICC found that there is a market concentration rate (CR4) of 46.5% in the cooking oil market. This means that almost half of the market is controlled by just four cooking oil producers. The largest business actors in the cooking oil industry are also integrated business actors, from oil palm plantations, CPO processing, to cooking oil producers. The distribution of cooking oil factories is also uneven. Most of the factories are located on the island of Java, not in the area of oil palm plantations. In fact, the dependence of cooking oil factories on the supply of CPO has become very large.

ICC assesses that the cooking oil prices surge in various regions is in line with the increase in demand and the increase in CPO prices. The prices surge was due to the growth of the biodiesel industry, the decrease in export taxes in India, and the increase in demand from abroad due to the increase in demand for fuel. The position of CPO as a global commodity also makes it difficult for cooking oil producers to compete with export markets in terms of obtaining raw materials, even though cooking oil producers are still in the same business group as CPO exporters. ICC also found that the current government policies have not encouraged the growth of the cooking oil industry, as many regulations tend to limit and reduce business competition. ICC once submitted policy recommendation to the government regarding various policies that reduce business competition in the cooking oil industry in 2007.

Based on the results of the research, ICC recommended that the government revoke regulations that create entry barriers for new business actors in the cooking oil industry, including local and small-medium-scale business actors. The increasing number of new business actors is expected to reduce the dominance of vertically integrated business groups. Furthermore, to guarantee the supply of CPO, ICC suggested that it is necessary to encourage the existence of contracts between cooking oil producers and CPO to guarantee prices and supply.

ICC hoped that the formation of market prices was not resulted from cartels or other prohibited agreements but by the law of supply and demand, and hoped that the government encourages unaffiliated business actors. ICC will continue to explore various evidence regarding this industrial problem.