Governance improvement: Palm oil industry receives special attention

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Bisnis Indonesia

17 April 2023

By: Denis R. Meilanova & Indra Gunawan

Jakarta - President Joko Widodo took decisive steps to improve the governance of the palm oil industry by issuing a Presidential Decree appointing the Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan as Chair of the Task Force Steering Committee to handle the matter directly. 

Presidential Decree No. 9/2023 mandates the establishment of a Task Force for Improving Palm Oil Industry Governance and Optimising State Revenue to handle and improve the governance of the palm oil industry as well as the settlement and recovery of state revenue from tax and non-tax in the palm oil industry. 

“The development of the palm oil commodity-based industry in Indonesia continues to improve in terms of productivity, but audit results show that there are still problems in the governance of the palm oil industry, which could result in a loss of state revenue from tax and/or non-tax,” stated the consideration of the Presidential Decree as cited on Sunday (16/4). 

The task force itself consists of steering committee and executive team, and President Joko Widodo decided to assign the Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan as Steering Committee Chair. In addition, the Coordinating Minister for Economic Affairs Airlangga Hartarto and the Coordinating Minister for Political, Legal, and Security Affairs Mahfud MD were also appointed as Deputy Chair I and Deputy Chair II. 

Within the task force, Luhut will provide directions to the executive team chaired by Deputy Minister of Finance Suahasil Nazara, among others related to strategic policies to accelerate the handling and improvement of the governance of the palm oil industry, as well as the settlement and recovery of state revenues from tax and non-tax in the palm oil industry. 

Low production 

On the other hand, the low production of palm oil recently has become a concern amid increasing domestic consumption of this commodity. 

Palm oil production in February 2023 was recorded at 3.88 million tonnes, still lower than January 2023 at 3.89 million tonnes. However, this figure was not as significant as the decrease in January compared to December 2022, which was 4.3 million tonnes. 

Head of the Indonesian Palm Oil Association (IPOA) Eddy Martono said that palm kernel oil (PKO) production also decreased slightly from 370,000 tonnes in January 2023 to 369,000 tonnes in February 2023. However, the downward trend is predicted to increase again. 

“Referring to the trend of palm oil production in the previous years, this indicates that the decline in production that has been going on since September 2022 is expected to end soon,” he said. 

Eddy explained that the downward trend in palm oil production coincides with the increasing demand for domestic consumption. In 2017, palm oil consumption reached 11 million tonnes, increasing to 13.4 million tonnes in 2018, 16.7 million tonnes in 2019, and 17.3 million tonnes in 2020. Then, in 2021 it grew to 18.4 million tonnes, and in 2022 it reached 20.9 million tonnes. 

“I believe that in 2023 there will be another increase in consumption because there is the mandatory B35 [programme]. This can increase [additional consumption] up to 3 million [kilolitres],” he said. 

According to Eddy, total domestic consumption in February 2023 was 1.8 million tonnes, higher than January 2023 at 1.78 million tonnes. Although the amount was not significant, this increase was mainly for the consumption of the food industry, the oleochemical industry, and the biodiesel industry. 

For this reason, he reckoned it is necessary to accelerate the Smallholder Oil Palm Rejuvenation (PSR) programme. He is concerned that this trend will reduce Indonesia’s palm oil export and lower the foreign exchange performance of the palm oil industry. 

“The point is that we need to accelerate PSR. Why? We should not let foreign exchange be sacrificed in the future, which means exports are reduced to meet domestic needs.” 

Furthermore, Eddy said that not only production, but total export volume also decreased from 2.94 million tonnes in January 2023 to 2.91 million tonnes in February 2023. 

Based on the export destination, the biggest increase occurred in China, which rose by 287,000 tonnes or 55%, Bangladesh by more than 115,000 tonnes or 289%, and Egypt by more than 81,000 tonnes or 142%. 

Meanwhile, exports also increased for destinations in the European Union (except Spain and Italy), the Philippines, Myanmar, and Vietnam, although in smaller amounts. 

On the other hand, exports significantly declined in India, which decreased by 301,000 tonnes or down 41%, and Pakistan by 87,000 tonnes or around 45% decrease. A decline also occurred for destinations in the United States, Malaysia, and Singapore in smaller amounts.