Effects of tax and tariffs on palm oil (part 1)

World biggest exporters of palm oil

• There are two main exporters of palm oil namely Indonesia and Malaysia
• Together they account for almost 90% of total palm oil exports

History of the Malaysian palm oil processing industry 

• Early in Malaysia's inception (1960 - 1975) only a few factories were  refining some 10% of country's total CPO production for export to industrialised countries (e.g. USA, Japan and Australia)
• Palm oil refining in Malaysia only started to emerge on the country's scene in the 1970s:
• Late 1960s efforts were made to promote processed palm oil (PPO) produts
• An export tax on CPO was introduced in 1976
• Implication of the export tax
• CPO exports became more expensive which reduced CPO supplies to foreign producers and lessened the supply constraints on estates and mills

The effect of the CPO export tax was a drastic increase in PPO exports and reduction in CPO exports

• The export tax also has signaled to the potential investors that government was focused on promoting downstream refining, making it a safer investment prospect and allowing the processing industry to flourish.

CPO price at RM 2,500/MT would attract tax of RM 530

• Malaysia is unlikely to increase taxes and tariffs on CPO exports due to competition from Indonesia
• Malaysia's main focus in on developing its downstream activities