August 28, 2013

 

Indonesia rejects plan to scrap soy import duty

With ministries unable to decide on how best to tackle rising prices of the food staple in the Southeast Asian nation, the Indonesian government rejected a plan to scrap its 5% import tariff for soy.

 

Earlier, Trade Minister Gita Wirjawan said government departments were discussing whether to remove the import tariff, after global soy prices spiked due to dry weather and the rupiah plunged.

 

"We proposed to scrap the soy import duty with other ministries but it was refused," said Wirjawan, speaking after a meeting at the chief economic minister's office.

 

The threat of dry weather in top supplier the US has pushed Chicago soy prices to 11-month highs, while the Indonesian rupiah is trading at four-year lows. Compounding this, Indonesian soy inventories are now at multi-year lows below 300,000 tonnes, enough to meet around two or three months of demand, government officials and traders said, with no large shipments expected until October.

 

Soy imports is forecast to hit 1.8 million tonnes this year, or around 70% of its annual needs. Most shipments come from suppliers in the US. To help tempe and tofu makers, the government would allow any amount of soy imports that the market needed, Wirjawan said, without giving further details.

 

Indonesia still had enough soy stocks to supply several months of demand, Wirjawan said earlier, adding that soy consumption until July was 1.9 million tonnes but that an additional 600,000 tonnes was needed for 2013.

 

Only registered soy importers can ship the oilseed in Indonesia, and traders said the government had been slow in issuing permits, which was stoking prices further. Around 20 companies had applied for soy import permits, Wirjawan said, without giving details on how many or who had been granted licences and volumes.

 

Major soy importers in Indonesia, include Sungai Budi Group, Cargill Inc. and FKS Multi Agro Tbk.

 

"We believe that soy stocks are significantly below historical averages," said a soy trader. "Domestic prices appear to be reflecting global soy futures and a depreciating rupiah."

 

Indonesia's soy imports are relatively small compared to top buyer China, but as wealth increases and eating habits change, shipments are likely to climb steadily. The nation is struggling to meet rising demand from an increasingly affluent population of 240 million, and is the world's top importer of sugar and Asia's largest wheat buyer.

 

The Indonesian government often suspends import duties for food imports such as rice, soy and wheat in a bid to fight inflation and dampen civil unrest. After global food prices spiked last year, Indonesia temporarily scrapped its soy import tariff and extended the role of state procurement body Bulog beyond rice in order to build bigger food stockpiles.

 

Domestic producers of staple foods tofu and tempe, a protein-rich substitute for costlier meat, threatened to go on strike last year. To protect domestic farmers, the government imposes curbs on imports and trading of food staples, which has been criticised by consumers and international trading partners.

 

Shortages of beef caused a corruption scandal this year. Food import quotas in Indonesia encourage bribes and price spikes and must be replaced with import tariffs, a panel of government advisers urged earlier this year.

 

Last week, Indonesia's government unveiled a fiscal package to promote foreign investment, reduce imports and quotas and prop up its tumbling rupiah currency.