Determinants of Indonesian Palm Oil Export: Price and Income Elasticity Estimation

For Indonesian economy, palm oil is considered as one of important commodities. It provides a large amount of export revenue and job opportunities. From year 2000 to 2009, palm oil production in Indonesia has increased every year. In , 2008 about 70% of its production was exported. Recently, Indonesia has become the largest palm oil exporter and has 48% of the worlds market share. The aim of present study was to estimate the determinants of both crude palm oil exports (HS = 151110) and refined palm oil exports (HS = 151190) from Indonesia to the world market. In this study the export demand approach is used as a methodology to estimate price and income elasticity for Indonesian palm oil exports since January 1996 to July 2010. The results found that Indonesian palm oil export is significantly determined by its own export price and foreign countries income. The value of the elasticity of its own export price in the short- run is -0.54 which is larger than the value in the long-run is -0.41. It is similar to the estimated value of foreign countries income elasticity. It has larger value in the short-run (0.61) than in the long-run (0.49). The inelastic income elasticity result indicated Indonesian palm oil export is normal good. The estimated results are supported by in-significant result of world price of soybean oil. In conclusion, Indonesian government should consider the improvement of marketing strategies, trade and domestic policies which support Indonesian palm oil export.