Indonesia and Malaysia agree to address EU’s palm oil discrimination
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
10 February 2023
By: Arnoldus Kristianus
Jakarta - Indonesia and Malaysia have agreed to strengthen cooperation in protecting the development of the palm oil industry, including to address the European Union’s (EU) policy that discriminates against this commodity. The two countries agreed to immediately carry out a joint mission to the EU to communicate solutions and consequences of the EU Deforestation Regulation (EUDR) which was passed by the EU Parliament in December 2022.
This was conveyed by Indonesia’s Coordinating Minister for Economic Affairs Airlangga Hartarto when giving a press statement regarding the bilateral meeting between him and Malaysia’s Deputy Prime Minister and Minister of Plantation and Commodities, the Most Honourable Dato’ Sri Haji Fadillah bin Haji Yusof in Jakarta on Thursday (09/02/2023). According to Airlangga, the discussion concerned the issues of the palm oil industry as well as proposal for a joint approach and the possibility of coordinated action. “We agreed to continue protecting the palm oil sector by strengthening efforts and cooperation in addressing discrimination against palm oil. In response to the increasing unilateral policies affecting palm oil, the meeting also agreed to leverage on engagement with major importing countries through policy dialogue,” said Airlangga on the same day.
Coordinating Minister Airlangga said, in response to the political agreement on the EU’s Deforestation-Free Commodity proposal, it was agreed that a joint mission would be carried out to the EU to communicate solutions and consequences of the regulation. After the mission to the EU, a visit will also be made to India to promote the use of palm oil following the recognition of Indonesian Sustainable Palm Oil (ISPO) and Malaysian Sustainable Palm Oil (MSPO) by India through a joint initiative with the Indian Palm Oil Sustainability Framework (IPOS), as well as the introduction the Global Framework Principles for Sustainable Palm Oil (GFP-SPO). “We will visit India to leverage several potential opportunities there, and for promotion because India has accepted ISPO and MSPO,” said Airlangga.
Indonesia and Malaysia will also focus on developing smallholders by increasing the absorption of domestic products and encouraging accelerated downstreaming as part of the two countries’ efforts to boost the palm oil industry. The sustainability aspect of palm oil must continue to be strengthened as well through national certification schemes of ISPO and MSPO, especially now that the Secretariat of the Council of Palm Oil Producing Countries (CPOPC) has issued the GFP-SPO. “Farmers hope that the CPOPC could enhance its role to support crude palm oil (CPO) as part of poverty alleviation programs, both in Malaysia and Indonesia. Farmers will be encouraged to follow ISPO and MSPO best practices,” said Airlangga.
Profitable price
Airlangga also explained domestic stakeholders need to formulate a strategy to maintain palm oil remuneration price, considering that, as the world’s largest contributors to global palm oil supply, Indonesia and Malaysia should be able to obtain profitable price for various parties. Like price fixing, expanding market access while considering the selective principle is also important to optimise this profit. On this occasion, the CPOPC leadership for 2023 was also handed over to the Most Honourable Dato’ Sri Haji Fadillah bin Haji Yusof and strategies were discussed to expand CPOPC membership and consider the possibility of Honduras becoming CPOPC’s third member soon.
Meanwhile, Dato’ Sri Haji Fadillah bin Haji Yusof said that efforts to fight discrimination from the EU are not only in the scientific context of economic facts, but also in the social context. This is because the palm oil industry absorbs significant workforce from the factories to the farmer level. “We will bring together their representative smallholders to speak up and provide their views so that we can give true information to the EU about the actual practice in Malaysia and Indonesia,” he said. The two countries realise the importance of a joint commitment to protecting the environment, opening oil palm plantations while being committed to protecting the environment through sustainable forest logging.
“We are working on compliance based on something that is more just and more thorough and that better understands our situation in the two countries,” he explained.
In Indonesia, the agricultural sector in 2022 reached 6.53% export growth from Rp329.4 trillion in 2021 to Rp350.9 trillion in 2022. The solid performance of agricultural exports was dominated by palm oil commodity. Indonesia’s palm oil production reached 46.8 million tonnes in 2022, mostly to serve domestic consumption. The government continues to encourage the development of the national palm oil industry through various policies, including the launch of the B35 program. This initiative is expected to increase energy security and independence, save US$10.75 billion in foreign exchange, and reduce 34.9 million tonnes of greenhouse gas emissions.
Food-energy dichotomy
On the other hand, economist Bambang Brodjonegoro stated that the food and energy dichotomy can be solved by increasing national palm oil production. Indonesia still has the potential to increase palm oil productivity without having to expand the land area by providing superior seeds for farmers/smallholders. Currently, the fresh fruit bunch (FFB) productivity in smallholder plantations only reached 9 tonnes per hectare (ha), whereas that of large companies can reach 20 tonnes per ha. “The food and energy dichotomy can be solved if our palm oil production increases without the need to expand land. When we talk about increasing palm oil, foreigners think that Indonesia wants to clear forests again. The solution does not have to be land expansion, but rather enhancing the seeds so that the palm oil productivity increases. Hopefully this can help the oil palm public service agency in the future,” he said.
Bambang explained this during a public hearing with the subject Macroeconomic Snapshot Approaching 2023-2024 Political Year with the Indonesian House of Representatives (DPR RI) Budget Agency on Thursday (09/02/2023) morning. Bambang made the statement in response to the decline in the Ministry of Finance’s goods expenditure, in this case the Public Service Agency (BLU) of the Oil Palm Plantation Fund Management Agency (BPDPKS), which only reached Rp34.6 trillion in 2022, whereas it still reached Rp53.5 trillion in 2021. The revenue of the Ministry of Finance’s BLU in 2022 was only Rp82.8 trillion (78% of the target), which decreased mainly due to lower BPDPKS revenue as a result of the temporary ban on CPO exports and the CPO export levy tariff policy.
Bambang said, the key to securing BPDPKS’s existence in the future is palm oil production, namely increasing the productivity of oil palm plantations which are relatively low at the moment, especially smallholder plantations. “The smallholder plantation [condition] is concerning, many of them got genuine-but-fake seeds, half-genuine seeds, or downright fake seeds. Their productivity is only half that of the company-owned plantations,” he said. So, without land expansion, without destroying the environment while maintaining the green aspect, Indonesia still has room to increase production, especially that of smallholder plantations. “The key is to provide farmers with seeds that can double the current productivity. This can increase our palm oil production already, so that there would be no more concern about scrambling for palm oil for food and energy. Biodiesel is energy, we need it, we all need cooking oil as well. Now, if any issue of cooking oil scarcity arises, it would be blamed on biodiesel. We still maintain a dichotomy between food and energy, and the solution is that palm oil production must be increased,” said Bambang.
