The B35 programme makes Indonesia a barometer of world palm oil price

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.

Investor Daily

3 March 2023

By: Ridho Syukra

Jakarta - The government is optimistic that the 35% biodiesel mix (B35) programme implementation, which started on 1 February 2023, will make Indonesia a barometer of world palm oil price. This is because the concern that the biodiesel programme will bring down crude palm oil (CPO) price did not come true. Therefore, the biodiesel programme will be continued to stabilise CPO price in the international market.

Deputy for Food and Agribusiness Coordination of the Coordinating Ministry for Economic Affairs, Musdhalifah Machmud, said that many people had previously underestimated the B35 programme. The programme was considered to cause CPO price drop. In fact, CPO price is currently starting to recover. “About B35, many people said that Indonesia would suffer from declining price. But we are still united, biodiesel is our effort to maintain palm oil price and create stability. This is evident in the existence of B35. B35 is a tool to maintain the stability of palm oil price,” said Musdhalifah during a discussion with the subject Indonesia’s Strategy to Become a Barometer of World Palm Oil Price as reported on Thursday (02/03/2023).

According to Musdhalifah, the global CPO price has now reached US$889 per tonne, an increase from only US$779 per tonne previously. “The increase is due to B35. Because of the biodiesel [programme], CPO price did not sink too far and remained at a reasonable level,” she said. However, apart from the biodiesel programme, there are other factors that affect CPO price, including harvest season, weather, and others. “So, I believe Indonesia’s strategy to become a barometer of world palm oil price is no longer an aspiration, but insya Allah [God willing], it will soon be achieved. The potential is there, we have B35. When we shake [the market] with biodiesel, everyone is nervous, they know the price will recover,” said Musdhalifah. 

However, Musdhalifah said, as a consequence of the biodiesel programme implementation, Indonesia has received a lot of opposition, among others from the European Union (EU). The EU imposed a mandatory due diligence statement for products suspected of originating from deforestation and forest degradation activities, including palm oil. In fact, Indonesia has long since implemented a non-deforestation scheme and traceability aspect, including through the implementation of Indonesian Sustainable Palm Oil (ISPO). “The market demands for non-deforestation, we have fulfilled that. They ask for traceability, we have also fulfilled that through ISPO. This EU regulation just wants to complicate things, to damage the reputation of Indonesian palm oil. This is all to make the price of our palm oil fall,” said Musdhalifah. 

Executive Director of the Palm Oil Agribusiness Strategic Policy Institute (Paspi) Tungkot Sipayung also believes that the background of Indonesia’s B35 programme includes the occurrence of a global recession. Many international institutions predict that the world economy would experience a recession this year. A recession will reduce income and lower consumption. Indonesia’s palm oil export destination countries, such as the European Union and the United States, are estimated to be hit by the recession, whereas Asian regions, such as China and India, may not be too severely affected, but their economy would decline. “The global demand for palm oil is projected to decrease this year. If left unchecked, the global CPO price will sink too far. Now it is US$800-900 per tonne, if there is no B35 in the first semester, the price could fall to US$700 per tonne. Therefore, the B40 should also start in the second semester,” said Tungkot Sipayung to Investor Daily.

Meanwhile, earlier in January 2023, the Trade Minister Zulkifli Hasan wanted Indonesia to have a CPO Reference Price through the establishment of the Palm Oil Exchange at least in June 2023. The CPO Reference Price is expected to become a global reference like the Malaysia Exchange and the Rotterdam Exchange. As part of the efforts to realise this, the Trade Ministry’s Commodity Futures Trading Regulatory Agency (CoFTRA) plans to require the export of CPO and its derivative products through futures exchanges. This policy has three major objectives that aim to improve the governance of the national palm oil industry, namely realising Indonesian CPO Reference Price, improving export data, and facilitating the government in securing the fulfilment of domestic palm oil needs.

Easily accessible 

In the same discussion, the Director of Planning and Fund Management of the Oil Palm Plantation Fund Management Agency (BPDPKS) Kabul Wijayanto said that BPDPKS strongly hopes there will be an Indonesian CPO Reference Price which could represent the price of palm oil, both at the farmer and industry level, that will be marketed to meet domestic needs, such as raw material for food or energy (biodiesel), and the price of CPO that will be marketed abroad (export). “The Indonesian CPO Commodity Price or Indonesian CPO Reference Price is expected to be a reference for stakeholders, both the government as a policy maker and for palm oil industry players. For BPDPKS, this price is expected to support maximised revenue and the continuity of funding for BPDPKS programmes,” said Kabul. 

Currently, BPDPKS revenue is heavily influenced by CPO price because the basis for imposing export levy rate is the reference price according to the Minister of Finance Regulation No. PMK.154/PMK.05.2022, whereas the Trade Ministry’s reference price is regulated in the Minister of Trade Regulation No. 46 of 2022. Thus far, the source of price for the Trade Ministry’s CPO reference price is derived from weighted price, namely the FOB CPO price in Indonesia Exchange (60%), FOB CPO in Malaysia Exchange (20%), and CPO CIF Rotterdam (20%). “The most important thing is an easy access to data on palm oil commodity price for policy makers, exporters, and us at BPDPKS,” he said.