Agriculture down streaming: Pinning hopes on palm oil commodity

  • 08 Nov 2023

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 - Penghiliran pertanian: Berharap kepada komoditas sawit

By M. Mutawallie Syarawie

Bisnis, Balikpapan – Palm oil downstreaming is considered to have a significant role not only in increasing domestic investment, but also in developing derivative industries to meet domestic and foreign needs.

Not without reason. This commodity is capable of producing quite a variety of derivative products, such as cooking oil, soap, and biodiesel.

However, the soaring domestic need to realise the B30 programme by mixing fatty acid methyl esters (FAME) into diesel fuel has caused a surge in the uptake of palm oil for biodiesel in recent years.

Data from the Indonesian Palm Oil Association (IPOA) shows that crude palm oil (CPO) production during the January-August 2023 period has reached 33.11 million tonnes, while crude palm kernel oil (CPKO) products reached 3.17 million tonnes in the same period.

Meanwhile, domestic market consumption for food reached 6.98 million tonnes in the same period. This achievement increased 13.49% compared to the same period the previous year, which only reached 6.15 million tonnes.

Local consumption for oleochemicals also recorded a slight increase by 4.86% to 1.51 million tonnes during the January-August 2023 period.

Local market biodiesel uptake reached 6.38 million tonnes in the January-August 2023 period, or an increase of 9.24% compared to the same period the previous year.

Meanwhile, palm oil for export purposes—in the form of CPO, processed CPO, CPKO, processed CPKO, biodiesel, and oleochemicals—also recorded an increase by 12.25% overall to 21.9 million tonnes in the January-August 2023 period.

Therefore, the relevant stakeholders need to maintain the domestic supply balance because domestic palm oil downstream is deemed capable of boosting investment and economic performance in the regions.

However, palm oil downstream in the regions is also facing several problems, such as in East Kalimantan.

The Supervisory Board of East Kalimantan IPOA, Azmal Ridwan, revealed that one of the inhibiting factors is that the Maloy Special Economic Zone (SEZ) has not started its operation, whereas it should be the centre for palm oil downstream in East Kalimantan.

"The Maloy SEZ, which is located in East Kutai Regency, has been planned as an industrial area that can accommodate palm oil production from West Kalimantan to East Kalimantan. However, until now, there is no clear follow-up on this estate," he explained on Tuesday (7/11).

In fact, the Maloy SEZ is expected to increase the added value of palm oil through several products, such as cooking oil, soap, cosmetics, biodiesel, and others.

He considers that the Maloy SEZ actually has the potential to become a palm oil downstream centre that can accommodate palm oil production from West Kalimantan to East Kalimantan.

That way, this province can become a potential centre for the palm oil industry.

"This area must continue to be expanded and production must remain in East Kalimantan. Investments in the palm oil sector must have strong guarantees," he said.

He views that palm oil has become an option that is difficult to replace by other commodities. Therefore, Azmal reckoned the importance of creating a stable investment climate and supporting the growth of the palm oil sector in this region, considering its sustainability potential and the lack of comparable alternatives in terms of sustainability in this sector.

The government, he added, must provide policies and incentives that are beneficial for the development of the downstream palm oil industry, such as ease of licensing, tax facilities, capital assistance, and infrastructur



On the other hand, East Kalimantan Province is considered to have great potential to develop the plantation sector, both through large companies and smallholder plantations.

However, smallholder plantations, which are the backbone of the economy in rural communities, still face various obstacles, ranging from low productivity, weak organisation, to a lack of product competitiveness.

Hence, to overcome these problems, the provincial government together with relevant stakeholders have formulated strategic measures, including increasing the role and capacity of farmers organisations.

Head of the East Kalimantan Province Plantation Agency, Ahmad Muzakkir, said that farmers organisations are an important aspect that must become a common concern to increase farmer productivity and welfare.

"Farmers organisations are currently not yet active or its role in advancing farmers is not yet visible. Therefore, farmers organisations need to be a common concern, both at the provincial and regency levels, in developing and assisting farmers and their organisations," he said.

He said that one form of farmers organisation that could make a large contribution was farmer-owned enterprises (BUMP).

According to him, by establishing BUMP, farmers can build partnerships with external parties, such as banks and markets, and get fast access to information.

"Farmer groups are usually able to make a memorandum of understanding [MoU] with certain parties in marketing their products, so that farmers do not need to hesitate to continue production and be afraid of low prices," he said.

Muzakkir hopes that farmer groups can unite their interests and problems, and collaborate with other stakeholders to realise the Agriculture Ministry’s vision of creating advanced, independent, and modern agriculture.

"All of this is realised through a continuous learning process carried out by farmer groups, through farmer empowerment activities, and farmer outreach/training assistance," he said.

On the other hand, Head of the Process Technology Division, Agricultural Industrial Technology Department, IPB University, Erliza Hambali, explained that the downstream of the palm oil industry is the processing of CPO and PKO into products with higher added value, both for export purposes and as a substitute for imported products.

"There are three large groups of downstream palm oil products, namely oleo-food, oleochemicals, and biofuel," she said in Balikpapan on Tuesday (7/11).

Oleo-food are food products derived from palm oil, such as cooking oil, margarine, shortening, and ghee. Meanwhile, oleochemicals are chemical products derived from palm oil, such as surfactants, soaps, detergents, shampoos, biolubricants, biomaterials, and bioplastics.

Meanwhile, biofuel is vegetable fuel derived from palm oil, such as biodiesel, bioethanol, and biogas.

She assessed that one of the downstream palm oil products that has great potential to be developed in Indonesia is oleochemicals.

"Oleochemicals industry converts palm oil into raw materials for various daily needs products, such as cosmetics, pharmaceuticals, healthcare, and agriculture products. Oleochemicals can also be a solution to reduce dependence on imported products derived from petroleum, such as plastic and lubricant," she explained.

According to her, oleochemicals also have a positive impact on the environment, because the products are more environmentally friendly and biodegradable.

"The effort to downstream the palm oil industry is expected to increase foreign exchange earnings from palm oil and the added value of palm oil products can be enjoyed by all stakeholders in Indonesia," she said.

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