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The Indonesian vegetable oils sector : modeling the impact of policy changes

Author

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  • Larson, Donald F.

Abstract

In two decades, Indonesia has become the world's second largest producer of palm oil and coconut oil. But Indonesia remains a price-taking producer of perennial (tree) crops in a market dominated by annual crops, particularly soybeans. Indonesia has expanded production despite a Byzantine collection of price and quantity restrictions that affect both consumers and producers. But the Government appears ready to liberalize trade and increase private participation in the sector. The author simulated the effects of trade liberalization on the sector and the effects of an export tax on tax and export revenues. His policy simulations show that: (a) removing cumbersome government regulations would stimulate production but would not guarantee consumer benefits; (b) whatever scenario is pursued, past investments in tree crops guarantee rapid expansion of production, but increased production does not give producers marketing power; (c) the rapid expansion of vegetable oil production may precipitate a domestic crisis in the palm oil milling industry; and (d) should the export tax on vegetable oils increase, export revenues will drop and some of the gains from tax revenues will be offset by reduced revenues from state-owned estates.

Suggested Citation

  • Larson, Donald F., 1990. "The Indonesian vegetable oils sector : modeling the impact of policy changes," Policy Research Working Paper Series 382, The World Bank.
    • Handle: RePEc:wbk:wbrwps:382
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    References listed on IDEAS

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    1. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, November.
    2. Akiyama, T. & Trivedi, P. K., 1987. "Vintage production approach to perennial crop supply : An application to tea in major producing countries," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 133-161.
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    Cited by:

    1. Benjamin Henderson & Lynn Henry & Gordon MacAulay & Jen Tatuh, 2010. "Potential Payoff from R&D in the Coconut Industry of North Sulawesi, Indonesia," Asian Economic Journal, East Asian Economic Association, vol. 24(1), pages 69-85, March.
    2. Larson, Donald F., 1996. "Indonesia's palm oil subsector," Policy Research Working Paper Series 1654, The World Bank.
    3. Henderson, Benjamin B. & Henry, Lynn A. & MacAulay, T. Gordon, 2006. "Investment and Change in the Coconut Industry of North Sulawesi: An Equilibrium Displacement Analysis," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 139789, Australian Agricultural and Resource Economics Society.

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