Govt encourages escalation of palm oil production

  • 17 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.

Investor Daily - Pemerintah mendorong eskalasi produksi sawit

By Tri Listiyarini

Jakarta, ID – The government continues to encourage the escalation of national palm oil production to support the advanced downstream optimisation of this commodity. The effort to increase the production, among others, is by expediting the Smallholder Oil Palm Rejuvenation (PSR) programme which has only realised 280,620 hectares (ha) or 56% of the first phase target of 500 thousand ha until mid-2023. The national palm oil downstream is currently performing well although the production is still dominated by the second phase product in the form of refined oil.  

Moeldoko, the Chief of Presidential Staff (KSP) and the Chairperson of Supervisory Board of the Indonesian Oil Palm Farmers Association (Apkasindo) Central Executive Board, said that palm oil industry plays a major role in the country's economy, as evidenced by its contribution to the country's foreign exchange earnings. In 2022, 73.83% of all national agricultural product exports came from palm oil industry and such contribution to the national development in the future will be potentially higher, particularly through downstream development. “Currently, downstream is still dominant in the second phase for refined oil. Further downstream such as biodiesel is still limited, especially if it is related to oleochemicals. Some research results reveal that the current downstream is only at 20-30% of the available potential,” said Muldoko in Menata Masa Depan Sawit Indonesia discussion, which was streamed online on Thursday (16/11/2023).

Moeldoko explained that Indonesia was conducting downstream strengthening, where one of the efforts was through the mandatory biodiesel programme which has started since 2015, from B15, B20, B30, and currently toward B35. In the future, Indonesia will implement B40, B50 up to B100 with the composition of fatty acid methyl ester (FAME) and green fuel which are the advanced downstream products from palm oil for renewable fuel. In addition, Indonesia also plans to develop palm pellets as fuel from waste.

This effort is expected to increase biomass renewable energy mix to achieve the Net Zero Emission target by 2060. “In order to maximise the future development of palm oil industry, including downstream, there are three challenges that we have to solve, among others, the low productivity of smallholder oil palms,” he added.

Low productivity

The most recent total area of national oil palm plantation is 16.4 million ha, with 42% or 6.87 million ha being smallholder plantation businesses that involve 16 million farmers in their agricultural business. “This is incredibly large and even more so in the downstream industries and their trade,” Moeldoko said. However, smallholder oil palm productivity remains low in general, the status of many oil palm farmers' land still overlaps with forest areas, and the business sustainability needs to be improved. The productivity of fresh fruit bunch of smallholder oil palm plantations currently is only 2.8-3.4 tonnes of crude palm oil (CPO) per ha per year, while corporate plantations can produce 4.2-4.5 tonnes per ha per year. “Meanwhile, Indonesia’s CPO production is projected to reach 100 million tonnes by 2040 from currently only 46.9 million tonnes,” said Moeldoko.

The primary effort for increasing smallholder oil palm productivity is to replant the old and unproductive plants. President Joko Widodo himself paid special attention to such efforts by declaring the PSR programme. “Until mid-2023, the realisation of PSR was only 280,620 ha or 56% of the first stage target of 500 thousand ha. The biggest obstacle to the programme is that there are still many smallholder oil palm plantations that are in the forest areas,” Moeldoko explained. To resolve the palm oil plantations in the forest area issue, the government has formed the Palm Oil Task Force whose duties, among others, are to correct and update the data as well as improving the governance and verifying business license as part of the administrative process.

Furthermore, Moeldoko stated that the Palm Oil Task Force is taking measures to resolve the oil palm plantations in forest area issue, as well as to improve the administration and settle the legality of oil palm plantations in forest areas, with the goal of ensuring the future sustainability of the palm oil industry in Indonesia as marked with the issuance of Indonesian Sustainable Palm Oil (ISPO) and Roundtable on Sustainable Palm Oil (RSPO). Since the implementation of the ISPO policy, smallholder oil palm plantations that have been ISPO certified are 0.33% or the equivalent of 22,600 ha, while corporate plantations that have been ISPO certified are 4,490,254 ha or 43% of the total oil palm plantations managed by corporations.

Major role of palm oil

On another occasion, Harvick Hasnul Qolbi, Deputy Minister of Agriculture, stated that, according to Statistics Indonesia (SI), agriculture export value in 2022 was Rp640.56 trillion or increasing by 3.93% from 2021. Plantation sub-sectors, including palm oil, became the largest contributor to agricultural exports, amounting to Rp622.37 trillion or 97.16%.  Therefore, he appreciates oil palm plantation business players for their achievement in helping Indonesia to become the world's largest producer. Indonesia’s oil palm plantation covers 16.83 million ha and produces 45.1 tonnes of CPO. Exports of CPO and its derivatives amounted to 27 million tonnes worth US$28 billion or Rp456 trillion, surpassing oil and gas. “We are so proud and grateful to the oil palm plantation business players for this accomplishment,” said the Deputy Minister.

He also said that the absorption of oil palm plantation labour reached 16.2 million people, with 4.2 million direct workers and 12 million indirect workers. Palm oil has also substituted approximately 2.3 million kilolitres of fossil fuel for sustainable energy. However, it cannot be denied that national palm oil industry performance will face some development challenges in the future, not only related to productivity but also the demands to continuously increasing the consistency of quantity, quality, and continuity.

Another challenge is strengthening ISPO standardisation, which has been widely highlighted by the world in fulfilling sustainability aspects as well as special efforts related to legality and licensing, business disruption and conflicts, increasing market access, added value, supply chains, distribution channels, and global price dynamics. These factors may have an impact on Indonesian palm oil's international competitiveness. "From several challenges in the oil palm plantation industry, the government sees opportunities that need to be optimised from the upstream. A serious leap forward is necessary, not just acceleration, the area of oil palm plantations can be utilised in an integrative manner by optimising land with food crops such as corn or other seasonal crops," said Harvick.

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