Vegetable oil industry: Palm oil market stung by EU’s regulation

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

30 March 2023

By: Ni Luh Anggela & Hendra Wibawa

Oil palm farmers in Indonesia are protesting the implementation of the European Union Deforestation Regulation for pushing the price of oil palm fresh fruit bunches to a low level. 

Security at the European Union Delegation Office in Menara Astra Jakarta on Wednesday (29/3) seemed stricter than usual. There were dozens more police personnel and security officers compared to normal days. 

The security at the European Union (EU) Delegation Office was increased as dozens of oil palm farmers arrived for a demonstration protesting the European Union Deforestation Regulation (EUDR) which has been enforced since the end of last year. 

In this action, dozens of oil palm farmers who are members of the Indonesian Oil Palm Farmers Association (Apkasindo) expressed their concern that oil palm products are deemed harmful to the environment. 

Apkasindo Head Gulat Manurung stated that, thus far, oil palm has fulfilled the three dimensions of sustainability, namely ecological, economic, and social aspects. 

“So why is it called [harmful to the environment]? Because this is trade politics. Should we just keep quiet? No. Let us get our rights, we will ask for justice,” he said on Wednesday (29/3). 

According to him, the EUDR implemented by the European Union has resulted in the declining price of fresh fruit bunches (FFB) and may shut down oil palm farmers. 

He noted that the FFB price, which previously reached Rp3,000 per kilogram (kg), has dropped to only Rp1,800 per kg-Rp2,000 per kg. 

In addition to its impact on the FFB price, the EU policy also affects the crude palm oil (CPO) price at the farmer level. 

Gulat revealed that the CPO price has dropped to Rp11,800 per kg from Rp14,000 per kg previously. 

Therefore, Gulat strongly protested the new EU regulation. He also threatened to conduct raids on products made in the European countries if the EU does not repeal this regulation. 

“Airbus aircrafts, Nestle, BMW, we will carry out negative campaigns against them if [the regulation] is not repealed. We will move against all European Union products, we will raid malls, we will remove all sunflower products, soybean oil. We will remove them from the malls,” he said.

A similar protest was also made by Santri Tani Nahdlatul Ulama (STNU). STNU Head Tengku Rusli Ahmad stated that almost 60% of the farmers working in oil palm plantations and the oil palm owners are members of Nahdlatul Ulama (NU). For that reason, the STNU is compelled to help fight the anti-deforestation policy. 

He hopes the EU will repeal the new regulation soon. The reason is that the anti-deforestation regulation is threatening the future of 17 million oil palm smallholders and workers because the anti-deforestation regulation is considered a part of a negative campaign against palm oil. 

“[The anti-deforestation policy] must be repealed, there will be no revisions. Oil palm farmers will not bargain, so it must be repealed. Oil palm exists in Indonesia. If not [repealed], we will boycott,” said Rusli. 

Apkasindo and STNU finally submitted a petition to the European Union Delegation to Indonesia as a protest against the EUDR. 

In the petition, farmers emphasised on five points. First, the EU must repeal the EUDR’s targeting of Indonesian oil palm farmers. Second, repeal the “High Risk” labelling for Indonesia which is the object of the regulation. 

Third, respect and acknowledge the Indonesian Sustainable Palm Oil (ISPO) standards and regulations related to oil palm that apply in Indonesia. Fourth, ensure that the European Union no longer attacks and discredits oil palm as a plant that causes deforestation. 

Fifth, asking the EU to apologise in writing to the millions of oil palm farmers who will be affected by the discriminatory policy of the EUDR. 

The downstream palm oil industry in Indonesia expects the government to establish policies and support, especially in anticipating the impact of trade barriers in export destination countries.

Declining supply 

Meanwhile, the Indonesian Palm Oil Association (IPOA) noted that Indonesia’s palm oil production at the beginning of this year was stagnant, and its supply tended to decline. 

The association reported CPO production in January 2023 at 3.892 million tonnes and palm kernel oil (PKO) at 370,000 tonnes, which were relatively the same as CPO production in January 2022 at 3.863 million tonnes and PKO at 365,000 tonnes. 

IPOA Executive Director Mukti Sardjono said CPO production in January 2023 was around 9.5% lower due to seasonal factors compared to CPO production in the previous month at 4.3 million tonnes. 

Specifically for CPO and PKO domestic consumption, IPOA noted the figure in January 2023 at 1.786 million tonnes, higher than January 2022 consumption of 1.49 million tonnes. “But it was lower than December 2022 consumption at 1.93 million tonnes,” he said in an official statement on Monday (27/3). 

The food industry consumption in January 2023 was only 793,000 tonnes compared to 901,000 tonnes in December 2022. 

The same condition occurred in the consumption for biodiesel which fell to 810,000 tonnes in January 2023 from 850,000 tonnes in December 2022. On the other hand, the consumption for the oleochemical industry in January 2023 at 183,000 tonnes was relatively the same as the previous month at 185,000 tonnes. 

The CPO export volume in January 2023 reached 2.94 million tonnes, which was higher than the December 2022 export at 2.75 million tonnes. 

Exports to destination countries such as Egypt, Italy, and Singapore in January 2023 recovered to 57,220 tonnes, 114,280 tonnes, and 23,800 tonnes compared to exports in December at 9,410 tonnes, 72,580 tonnes, and 8,280 tonnes respectively. 

Exports to Bangladesh, Pakistan, Vietnam, and Russia in January 2023 decreased by more than 50% from the previous month. 

IPOA also noted that the average CPO price in January 2023 was US$1,024 per tonne CIF Rotterdam and the local price was US$754 per tonne FOB Dumai KPBN. 

Meanwhile, the price in December 2022 was US$1,035 per tonne CIF Rotterdam and the local price was US$755 per tonne FOB Dumai KPBN. 

Although there was an increase in exports by volume, the export value of palm oil products in January 2023 was US$2.605 million or lower than the export value in December 2022 at US$2.79 million. 

“With the composition of production, consumption, and export as previously explained, the supply of CPO plus PKO at the end of January 2023 was around 3.1 million tonnes, lower than the supply in December at around 3.56 million tonnes, and less than domestic consumption plus exports for one month,” said Mukti.