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Comparative Analysis of the Competitiveness of the Indonesian and Malaysian Palm Oil Industry
Abstract:
The palm oil industry of Indonesia has always been overshadowed by that of Malaysia, the world’s main palm oil producer and exporter. The objectives of this study were to (1) calculate the production cost, (2) measure production efficiency and productivity in producing fresh fruit bunches (FFB) and crude palm oil (CPO), (3) examine the export competitiveness of Indonesia’s palm oil, and (4) recommend policy alternatives to improve the competitiveness of Indonesia’s palm oil industry. Production costs were analyzed in tabular descriptive manner, while efficiency of production was analyzed using Banker-Charnes-Cooper (BCC) model. Productivity was analyzed using general malmquist productivity index (GMPI) and export competitiveness was analyzed using revealed comparative advantage (RCA).
The study found that for some parameters, Indonesia’s competitiveness was higher than those of Malaysia. Indonesia’s FFB yield, oil extraction rate (OER), and CPO yield were higher with lower production cost of FFB and CPO than those of Malaysia. These conditions were supported by the increasing trend of export performance ratio (EPR) and net export/total trade ratio (NE/TT). However, Indonesia’s palm oil industry was still inefficient in using production input, and productivity of palm oil estates suffered a fluctuating decreasing trend.
By comparing Indonesia’s palm oil industry competitiveness based on ownership status (between horticultural limited liability companies (PTP) and privately-managed estates), the study found that the competitiveness of PTP estates was lower than that of privately-managed estates. The FFB and CPO yield per hectare, OER, efficiency of production, and productivity index in PTP estates were lower than those of privatelymanaged ones. Production cost of CPO in PTP estates was higher compared with that in the private estates.
Based on the results of the study, several strategies are recommended to improve the competitiveness of Indonesia’s palm industry. First, there is a need for immediate replanting of oil palm trees to replace the trees that are over 20 years old, and those that are over 17 years old and damaged. Second, fertilizer application must be done according to the recommended dosage. Third, the quality of FFB fraction being harvested and processed needs to be improved. Fourth, the fund gained from the palm oil export tax should be deposited in a special account. Lastly, the strategy for determining the export tax needs to be reviewed.