Removing Subsidy on Bulk Cooking Oil Won't Instantly Lower Its Price: Economist

25 May 2022 19:02 WIB

TEMPO.CO, JakartaCenter of Economics and Law Studies (CELIOS) director Bhima Yudhistira believed that the government’s decision to remove the subsidy on bulk cooking oil starting May 31, 2022, will not instantly lower the commodity price in the domestic market.

Instead, it might repeat past mistakes since the government will swap the policy to the domestic market obligation (DMO) again.

“This will repeat the previous mistakes in enforcing DMO. Because issues behind the high price of cooking oil lie in the distribution. Although the supply is abundant, as long as the distribution is controlled by the private sector, the profit margin of each distribution point will be difficult to control,” said Bhima to Tempo via a text message on Wednesday, May 25, 2022.

The government planned to stop the subsidy starting next week following the downward trend in the commodity price in the domestic market. In line with that, the government was set to implement the policy of domestic sales mandatory at a certain price level in a bid to maintain the commodity price below the highest retail price (HET). At present, the DMO quota has not been set yet. 

Bhima suggested the government strictly supervise the implementation of DMO so as to ensure there is no leakage at the producer level, establish coordination between the Trade Ministry and the Customs to verify the export volume, and encourage a surge in crude palm oil supply as the raw material for cooking oil.

The economist also emphasized issues in commodity distribution, assuming that the price will be hard to suppress due to the long distribution chain to reach consumers. “Unfortunately, distribution issues are not under the control of the Trade Ministry, but the Industry Ministry,” he added.

Bhima further highlighted the overlapped authority between ministries in dealing with the cooking oil issue. He argued that its distribution should be handled by the State Logistics Agency (Bulog).

FRANCISCA CHRISTY ROSANA 

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