Estimating Factors That Affect Domestic CPO Prices in The Short And Long Run Using The ECM Approach

Abstract

Abstract Crude palm oil (CPO) is an agricultural material that is Indonesia’s leading export product and is used as raw materials to meet domestic demands in industries such as the food industry. This research aimed to evaluate the factors that influence domestic Indonesian CPO prices in the short and long run. This research used an econometric approach with Error Correction Model (ECM) analysis employed by econometric and time series data from 1981 to 2021 from GAPKI, BPS, Energy and Mineral Resources Ministry, IndexMundi, Ministry of Agricultural, Trade Ministry, and Bank Indonesia. This research showed that in the short run, Indonesia’s domestic CPO prices were significantly influenced by CPO international prices and the Rupiah exchange rate to USD (at 1% level) and soybean oil prices (at 5% level). Soybean oil price showed a negative relationship to the domestic CPO price. Indonesia’s domestic CPO prices in the long run were significantly determined by CPO export volume, Rupiah exchange rate to USD, soybean oil prices, and CPO export tax. Government policies in the domestic and international markets for CPO-based products must pay attention to CPO price movements and exchange rates.