Friday 29 Mar 2024
By
main news image

KUALA LUMPUR(Feb 10): CIMB Research says that it views negatively the proposals to impose additional taxes on palm oil by France and Russia, as it will make the commodity less competitive against other competing oils.

In a Feb 7 note, CIMB said that at present, palm oil trades at discounts of US$60/US$139 per tonne against soybean oils Brazil/Dutch free on board (fob).

“If the additional palm oil taxes of US$200/tonne and EUR197 (US$219/tonne) are imposed by Russia and France, it will make palm oil less competitive against soybean oils in these countries, [and ]this could result in lower palm oil prices due to weaker demand,” read CIMB’s note.

The Russian government is considering imposing an excise tax on palm oil and soda drinks to help balance its budget, and reduce the consumption of products it considers unhealthy. According to a  business daily report, the tax on palm oil amounting to around US$200 per tonne may be introduced on July 1.

The French government is also planning to impose a progressive tax on palm oil based products. The proposed tax was included in a bill on bio-diversity passed by the French Senate on Jan 21, 2016. On March 15, the Senate and the Congress will make a decision on the bill.

If approved, exporters of palm oil will need to pay EUR300, EUR500, EUR700 and EUR900 for each tonne of palm oil for 2017, 2018, 2019 and 2020, very much higher than the current EUR103/tonne in tax for Indonesia palm products.

After 2020, the tax would be raised annually, as per the decision of the French ministry of finance The bill also sets an import tax of 3.8% for palm oil used in food and 4.6% for kernels used in food products, and the tax proceeds will go towards France’s social security fund.

According to the French senate, the bill is proposed to address several environmental concerns mainly to help fight deforestation and ecosystem damage caused by palm oil,to eradicate the use of dangerous pesticides (paraquat) in oil palm plantations and to help lower health risks, such as heart attacks and Alzheimer’s disease, stemming from palm oil consumption.

“Indonesia has strongly condemned the plan by France to impose a progressive tax on all palm oil-based products and has submitted their objections to the French government [and]Malaysia is also protesting the tax,” said CIMB.

The research house added the objections are premised on France, Denmark, Britain, Germany and the Netherlands being signatories to the Amsterdam agreement that supports sustainable palm oil production practices, and that the tax is discriminatory as French vegetable oils are not taxed equally and it is a violation against World Trade Organization , General Agreement on Tariffs and Trade and European Union (EU) market rules.

Their protests are also based on claims that Indonesia has already adopted Indonesia Sustainable Palm Oil standards, the use of paraquat pesticides has stopped and the health scare claims are untrue.

In 2014, France and Russia imported around 126,000 and 748,000 tonnes respectively of palm oil. In total, these make up around 1.5% of total palm oil output of 60million tonnes in 2014.

“Although the amount of palm oil that may be at risk of being substituted with other edible oils may not be significant on paper, we are concerned that the negative sentiment on and image of palm oil could spread to other countries, in particular within the EU, which is a big consumer of palm oil at 12% of total palm oil output.

“We maintain neutral on the sector. Our top pick [for Malaysia] is Genting Plantations Bhd,” said CIMB Research.

At 10.33 am today, Genting Plantation and United Plantations Bhd shares were not traded. Other palm oil players such as Sime Darby Bhd shares were down 18 sen or 2.29% to RM7.69 and  Kuala Lumpur Kepong Bhd shares were down 6 sen or 0.25% to RM23.76 respectively.

      Print
      Text Size
      Share