Navigating Global Palm Oil Demand

Considering changes in global demand for palm oil and the competitive price of palm oil compared to other oils, how do you envision the future of the Indonesian palm oil industry? What opportunities and challenges do you foresee?

As we all know, palm oil is a multipurpose oil. Palm oil prices tend to be volatile in the global market because the supply and demand of other vegetable oils influence them. In general, in the competitive global vegetable oil market, palm oil is still an alternative to meeting global needs because of its high productivity, lower land use, and versatility compared to other vegetable oils.

I am sure that the market share of palm oil in the global market will continue to increase. GAPKI and the government are also active in making trade agreements and opening up new market share opportunities. The challenge is trade and non-trade barriers from palm oil importing countries. EUDR, for example, is one of the steps taken by European Union countries, which for decades has discriminated against the palm oil industry through various policies. Palm oil exports to Europe are only around 8% of Indonesia's total yearly exports, namely 30 million tons. However, the impact on the image and black campaign against the palm oil industry is disturbing. Nevertheless, we are confident that with advocacy and education, as well as improving palm oil governance in Indonesia, which is currently being carried out, we can gain other export markets.

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Indonesia's Evolving Role

Indonesia has always been an essential player in the global palm oil market. As Head of GAPKI's Foreign Affairs Department, how do you see Indonesia's role developing in the coming years, especially with changes in supply and demand dynamics?

Indonesia is the largest producer and exporter of palm oil globally. Indonesia supplies 58% of palm oil on the global market or 40% of the world's total vegetable oil supply. This is a very significant figure and has a big impact on world food stability. Even though Indonesia's production potential has not been optimal, national production tends to be flat within five years, namely around 51 million tons. Even though there is a moratorium on opening new land, the government, through various programs, continues to increase national production, one of which is through a replanting program for oil palm farmers. So, Indonesia can still be a mainstay in meeting global needs for vegetable oils.

If you look at the dynamics of supply and demand in the global market, the decline in consumption occurred only during the COVID-19 pandemic, and even then, palm oil was still superior because it is widely used for oleochemical products. Apart from the weather affecting the production of other vegetable oils, what needs to be anticipated is geopolitical escalation. The supply of sunflower oil from Russia and Ukraine, hampered by the war between the two countries, hit the global vegetable oil market and caused prices to increase. 

Domestically, the Indonesian government and entrepreneurs continue to carry out constructive dialogue regarding improvements to the palm oil industry and policies that are good for this industry. Last year's export ban policy was an essential lesson for all Indonesian palm oil industry stakeholders. Risk mitigation with various scenario planning continues to be created to sustain the Indonesian palm oil industry business.

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Sustainability in Focus

Sustainability has become a focal point for many industries, including palm oil. How does GAPKI address the balance between sustainable practices and the growth of the Indonesian palm oil industry? What initiatives exist to ensure a harmonious mix of economic growth and environmental responsibility?

This sustainability practice aligns with efforts to grow the Indonesian palm oil industry. As I explained, Indonesia is now seriously organizing its palm oil industry to make it sustainable. The Government has imposed a moratorium on granting permits for land clearing for oil palm plantations. It focuses on increasing national palm oil production, which still needs to be higher due to the productivity gap between company-managed plantations and smallholder plantations. There is also a replanting policy for oil palm farmers with a target of around 185 thousands hectares annually.

Even in the oil palm replanting program, the Government provides financial assistance of 30 million per hectare and invites companies to provide service and help oil palm farmers carry out replanting well through the transfer of technology and knowledge so that they do not burn forests. Apart from that, the Government issued the Indonesian Sustainability Certification (ISPO), which companies must have and is currently being disseminated to farmers.

The Government's efforts and the support of palm oil stakeholders are consistent and support the sustainable growth of the Indonesian palm oil industry. Indonesia will achieve remarkable improvement in the future.

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