Agricultural export: Smallholder palm oil rejuvenation makes no progress

This article has been translated by PwC Indonesia as part of our Plantation News Highlights service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Bisnis Indonesia

28 February 2023

By: Ni Luh Anggela & Hendra Wibawa

The government is striving to revitalise smallholder oil palm plantations, following the significant role of this commodity in boosting the performance of agricultural exports in the country. 

At a time when all economic sectors were contracting due to the Covid-19 pandemic, the agricultural sector continued to grow positively. This has been proven for about 3 years during the pandemic. 

At the same time, the export performance of the agricultural sector also showed a positive trend. Statistics Indonesia (SI) recorded the value of agricultural exports from January-December 2022 at Rp640.56 trillion, an increase of 3.93% compared to the same period in the previous year. 

The plantation sub-sector became the largest contributor to exports in the agricultural sector with a contribution reaching 97.16% or Rp622.37 trillion. 

Exports of plantation commodities which surged in 2022 were mostly contributed by palm oil commodity by Rp468.64 trillion or 75.30%. 

The Agriculture Minister Syahrul Yasin Limpo said that the palm oil commodity is one of the country’s foreign exchange sources.

“Our export growth exceeds Rp600 trillion, 90% of which is from oil palm and other plantations,” he said at the National Oil Palm Coordination Meeting in Jakarta on Monday (27/2). 

Unfortunately, the Agriculture Minister stated that the smallholder oil palm plantations continues to face major challenges related to their productivity. 

According to him, the low productivity of smallholder oil palm plantations and the suboptimal use of agro-input are the main challenges for Indonesian oil palm planters. 

In addition, the national oil palm plantation productivity has only reached 3 tonnes per hectare to 4 tonnes per hectare of crude palm oil (CPO) equivalent. 

“This could threaten the future of smallholder palm oil in Indonesia if a comprehensive measure is not taken,” he said. 

Therefore, the government currently strives to improve the upstream sector of smallholder oil palm plantations by replacing old or unproductive plants through the Smallholder Oil Palm Rejuvenation (PSR) program. 

Thus far, there are 2.8 million hectares that have the potential to be rejuvenated from the total smallholder oil palm area. 

The Agriculture Ministry’s Director General of Plantation Andi Nur Alamsyah said that from 2017 to 2022, the achievement of the PSR program had only reached 278,200 hectares. The PSR program realisation remained very low compared to the smallholder oil palm plantation area. 

“We all understand that PSR realisation remained very low from 2017-2022, our achievement was 278,200 hectares,” said Andi. 

With 278,200 hectares of oil palm area that has been covered by PSR out of 2.8 million hectares, this means only 9.93% has been successfully rejuvenated. 

In contrast, President Joko Widodo aims for PSR to target 180,000 hectares of oil palm plantations in 21 provinces and 123 regencies/cities of oil palm plantation centres. 

As the PSR target was not achieved, he said that efforts are required to reach this target, including by holding a coordination meeting. 

“We really hope that holding this coordination meeting can be a momentum to build a joint commitment to encourage a better achievement of the PSR program,” he said.

Difficult requirements 

In a separate meeting, the President Director of the Oil Palm Plantation Fund Management Agency (BPDPKS) Eddy Abdurrachman revealed that one of the reasons for the subpar target achievement of the PSR program was the difficult requirements for oil palm smallholders. 

He hopes that the PSR requirements would be easier so that farmers can carry out the oil palm rejuvenation program. “Thus far, the requirements include that the oil palm area is not located in in a forest area, not in a business area, and the land meets legal requirements. That is the problem,” said Eddy. 

Head of the Central Executive Board of the Indonesian Oil Palm Farmers Association (Apkasindo) Gulat Manurung also confirmed the difficulty of the PSR requirements. He also denied that the PSR budget of Rp30 million per hectare received by farmers was considered too small. 

“Many people misunderstand that farmers are not interested in PSR because the money is only Rp30 million. But that is not the case. Even if they are given Rp100 million, if the requirements are difficult, they would not be able to make it,” said Gulat. 

One of the requirements considered difficult is that the land must be clear from forest areas. The Job Creation Law states that any land under 5 hectares that has been occupied for 5 years can be rejuvenated. 

“But we need letters. How [to get] the letter? The letter requires all sorts of procedures, oil palm smallholders would not be able to afford it. So, what should be in place is the existing ones like the Job Creation Law,” he emphasised. 

Apart from the inefficient requirements, he added, last year’s fertiliser price which soared by 300% also triggered the low realisation of the PSR program. 

“Because we did not use fertiliser. Fertiliser [price] last year increased by 300%. [The productivity] decreased as there was no replanting because PSR could not be carried out,” he said. 

Regarding Indonesia’s plan to file a dispute against the European Union at the World Trade Organisation (WTO) regarding palm oil exports, Gulat strongly supports this move. 

“If the government does not appeal, we will appeal, the oil palm smallholders,” said Gulat. 

To win the dispute at the WTO, Gulat asked the government to conduct more site visits to see the effects of oil palm, whether economically, socially, and environmentally. 

“To show the reality on site, make more site visits, see how effective the 3 dimensions of economy, social affairs, and environment of oil palm are,” he said. 

In addition, the smallholders are optimistic that they can win the dispute. The reason is that this action is Indonesia’s effort to protect its strategic commodity. 

On the other hand, the Agriculture Ministry’s Director General of Plantation Andi Nur Alamsyah revealed that the government is preparing a plan to file the dispute to the WTO. 

“Right now, we are discussing the issue of traceability, we are building big data on plantations, blockchain, so that challenges of export can be handled. Just pray for it,” he said. 

The Coordinating Ministry for Maritime and Investment Affairs’ Deputy for Investment and Mining Septian Hario Seto said that the government would file a dispute related to the palm oil trade. 

“In the palm oil sector, we would also file a dispute, so there would be two new disputes against the European Union. And we must increase our trade. For palm oil, we might submit it in two months,” said Seto.