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Jun 27, 2024

Market Insights of Indonesian Palm Oil

Indonesia is the world's largest producer and exporter of palm oil. In 2023, palm oil production is estimated at around 46.82 million metric tons. The production volume in 2024 is expected to remain stagnant due to extreme wet weather conditions at the beginning of the year.


Influence of the Palm Oil Sector

The Middle East tensions are escalating, potentially affecting the performance of companies, including the palm oil sector or crude palm oil (CPO). Recently, CPO prices have been declining. The CPO price for July 2024 delivery on Friday (April 19) was corrected by 1.46% to USD 820.65 per ton. Within a week, it has eroded by 7.01%.

According to the World Bank, the rise in palm oil prices reflects a decrease in production from major producing countries in Southeast Asia. "Palm oil prices are expected to rise in 2024 due to weakening production in Southeast Asia and tightening stocks," the World Bank said in its April 2024 Commodity Markets Outlook report. "However, palm oil prices are predicted to decline in 2025 as supply improves following the weakening of the El Nino weather phenomenon," it added.

The World Bank projects that the average price of refined, bleached, and deodorized (RBD) palm oil could reach USD 905 per ton in 2024. This represents a 2.1% increase compared to 2023 but is still lower than the average price in 2021-2022.

Supply and Demand

According to Kadin, the total demand for Indonesian palm oil for both domestic consumption and exports reached 53 million tons in 2023. The demand for Indonesian palm oil is expected to continue increasing in the next two decades. However, the supply potential is likely to fall short. The volume is then projected to increase to 71 million tons by 2035 and 98 million tons by 2050.

Kadin predicts that, given the current conditions, the growth in Indonesian palm oil supply has yet to match the rise in demand. They estimate that the national palm oil supply will only reach 66.2 million tons by 2035 and 89.9 million tons by 2050, which is lower than the demand levels.

Domestic palm oil consumption has been steadily increasing in recent years, especially for biodiesel production. According to GAPKI data, throughout 2023, total domestic palm oil consumption reached 23.21 million tons. This consumption increased by around 2.07 million tons or grew by 9.8% compared to 2022 (year-on-year).

Breaking it down, the consumption is primarily used for biodiesel production, followed by food. In 2023, palm oil consumption for biodiesel reached 10.65 million tons or 45.9% of the total national consumption, while palm oil consumption for food was approximately 10.3 million tons or 44.4% of the total national consumption.

In addition to food and biodiesel, in 2023, palm oil was also consumed by the oleochemical industry, with a volume of 2.27 million tons or 9.8% of the total national consumption.

In the oleochemical industry, palm oil is utilized to produce compounds such as fatty acids and fatty alcohols, which are then used as raw materials for surfactants, soaps, cosmetics, detergents, and more.

Palm Oil Plantation Company list

No Company Name Plantation Location Plantation Area (Ha) Revenue (Billion Rupiah)
1 PT Perkebunan Nusantara III (PTPN III) Sumatera, Jawa, Kalimantan 733,378 37,390
2 Golden Agri-Resources Ltd. (Singapore Base) Kalimantan, Sumatera, Papua 532,000
3 PT Astra Agro Lestari Tbk Sumatera, Kalimantan, Sulawesi 285,387 20,750
4 PT Salim Ivomas Pratama Tbk Sumatera, Kalimantan , Jawa, Sulawesi 244,337 16,000
5 First Resource Limited (Singapore Base) Sumatera, Kalimantan 213,421
6 Musim Mas Group Sumatera, Kalimantan 199,154
7 Bumitama Gunajaya Agro Group Kalimantan 190,000
8 PT Triputra Agro Persada Tbk Sumatera, Kalimantan 160,500 8,320
9 PT Bumitama Gunajaya Agro Kalimantan 140,000
10 PT Sinar Mas Agro Resources and Technology Tbk Sumatera, Kalimantan 134,177 66,500
11 PT Sawit Sumbermas Sarana Tbk Kalimantan 115,849 10,703
12 PT Dharma Satya Nusantara Tbk Kalimantan 112,000 9,400
13 PT Tolan Tiga Indonesia Sumatera 98,606
14 PT PP London Sumatra Indonesia Tbk Sumatera, Kalimantan 91,759 4,189
15 PT Eagle High Plantations Tbk Sumatera, Kalimantan, Papua 87,000 4,204
16 PT Tunas Baru Lampung Tbk Sumatera, Kalimantan 79,000 15,317
17 PT Bakrie Sumatera Plantations Tbk Sumatera 69,713 2,405
18 PT Austindo Nusantara Jaya Tbk Kalimantan, Sumatera, Papua 53,521
19 Wilmar Group Sumatera, Kalimantan 36,642
20 PT Incasi Raya Sumatera, Kalimantan 8,304
21 PT Provident Agro Tbk Sumatera, Kalimantan 6,295
22 PT Inti Indosawit Subur Sumatera 1,951
23 PT Mahkota Group Tbk Sumatera, Kalimantan 968 5,425

Government Challenges and Plans

The Indonesian Palm Oil Association (GAPKI) has urged the newly elected president from the 2024 election, Prabowo Subianto, to immediately establish the Indonesian Palm Oil Agency if he is inaugurated.

GAPKI's Deputy Chairman III, Satria B Wibawa, believes that the Indonesian Palm Oil Agency could be a solution to improve the management of the palm oil industry from upstream to downstream. Through this agency, it is hoped that the issue of production stagnation can be addressed. GAPKI reminds that the government's target to increase crude palm oil (CPO) production to 100 million tons by 2045 as part of the Golden Indonesia vision can be achieved.

There are four main obstacles currently facing the palm oil sector, highlighting the importance of supporting the establishment of the Indonesian Palm Oil Agency.

First, there is no additional land available for new palm oil plantations. Second, a significant portion of existing palm oil plantations requires replanting. Third, there is the potential reduction of plantation land due to the Job Creation Law, which mandates the reforestation of palm oil plantations. Fourth, the limitations in the production of land are also accompanied by rampant land disputes and theft of palm oil.

Impact of palm oil production

In recent years, palm oil production has come under increasing global scrutiny and criticism due to its detrimental environmental impact. In Indonesia, many plantations practice slash-and-burn agriculture to quickly clear land for new planting. This has resulted in annual air pollution problems that spread to neighboring countries like Singapore and Malaysia. Additionally, Indonesia has lost a significant portion of its rainforest cover due to palm oil monoculture, particularly in Kalimantan and Sumatra.

Several measures have been implemented to ensure sustainable and environmentally friendly production practices. In 2008, the Roundtable on Sustainable Palm Oil (RSPO) introduced specific criteria that producers must adhere to in order to produce Certified Sustainable Palm Oil (CSPO). However, in 2021, Indonesia only produced approximately 11 million metric tons of certified sustainable palm oil.

Sustainable Palm Oil Certification

The realization of sustainable palm oil certification, or Indonesia Sustainable Palm Oil (ISPO), remains low. This is primarily because only a few palm oil companies have adopted sustainable plantation management practices. Consequently, Indonesian palm oil products are vulnerable to boycotts from global markets due to concerns over forest and environmental degradation. The Directorate General of Plantations at the Ministry of Agriculture (Kementan) reported that only 5.68 million hectares (ha) of palm oil plantations have been ISPO certified, representing 37% of the total 16.381 million ha of palm oil plantations in Indonesia. "The realization of ISPO certification since the issuance of Presidential Instruction No. 6 of 2019 concerning the National Action Plan for Sustainable Palm Oil Plantations 2019-2024 has reached 1,050 certificates covering an area of 5.68 million ha," explained Andi Nur Alam Syah, Director General of Plantations at Kementan, during the online National Action Plan Coordination Meeting for Sustainable Palm Oil Plantations on Sunday (March 31).

Of the certified area, 969 companies and 81 palm oil plantation institutions have obtained certification. The certification targets are 5 million ha for companies and 3.9 million ha for smallholders. Andi explained that in the effort to implement ISPO, the government has revised Presidential Regulation No. 44 of 2020 concerning the ISPO Certification System, which integrates upstream and downstream sectors by involving several ministries and agencies, including the Ministry of Energy and Mineral Resources (ESDM).

Coordinating Minister for Economic Affairs, Airlangga Hartarto, emphasized that the ISPO program aims to accelerate sustainable certification of palm oil plantations. According to him, ISPO is one of the government's efforts to ensure that Indonesia's palm oil industry remains competitive in global markets, which are increasingly focusing on environmental and sustainability issues. "The Presidential Regulation has been revised, and ISPO also includes the palm oil supply chain or traceability, by strengthening the concept of downstream processing. This is important as a response to the EU Deforestation Regulation (EUDR) policy," Andi explained.

Oil Palm Farmers Replanting Fund Increase Program

Coordinating Minister for Economic Affairs Airlangga Hartarto has proposed an increase in replanting funds for palm oil farmers. Currently, the replanting funds are set at IDR 30 million per hectare. According to Airlangga, based on academic studies and communication with farmers, replanting only yields results in the fourth year. If the replanting fund remains at IDR 30 million, it is only sufficient for farmers to purchase seedlings and cover living expenses for the first year. "If it is increased to IDR 60 million, living costs of about IDR 15 million per year can be covered, allowing farmers to intercrop or cultivate other plants to support their livelihood. This proposal is currently under further discussion," explained Airlangga at the Presidential Palace Complex on Tuesday (February 27).

The Chairman of the Indonesian Palm Oil Farmers Union (SPKS) revealed that independent farmers have long been marginalized. Therefore, the palm oil rejuvenation program (PSR) can provide a sense of justice for palm oil farmers in Indonesia. This is especially important given the use of palm oil funds collected by the Palm Oil Plantation Fund Management Agency (BPDPKS), which has been unfairly distributed among farmers.

In practical terms, the cost of replanting palm oil plantations ranges from IDR 60 million to IDR 70 million per hectare. Since 2021, SPKS has been continuously advocating for better management of smallholder palm oil plantations by increasing replanting funds and reducing bureaucratic barriers.

  • Market Insights of Indonesian Palm Oil