Palm oil industry's strategy to dodge a narrow market
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
By: Indra Gunawan and Hendra Wibawa
The Indonesian palm oil market industry is currently facing two main challenges, namely demand decrease due to the global economic slowdown and competition from other countries.
Statistics Indonesia’s data recorded that Indonesian crude palm oil (CPO) export volume in September only reached 2.55 million tonnes or decreased by 29.16% per month.
The volume decrease is in line with the CPO export value that decreased by 35.13% per month from US$3.7 billion in August 2022 to US$2.4 billion in September 2022.
Amid the decrease in the national palm oil export volume, the palm oil industry is also facing heavy competition from other countries.
World Resources Institute (WRI) Indonesia Supply Chain and Livelihood Transformation Senior Manager Bukti Bagja said that several countries were actively campaigning sustainable palm oil to expand their access in the global market.
For example, he mentioned that Malaysia, a neighboring country, was actively introducing Malaysian Palm Oil Certification Council (MPOCC).
Besides Malaysia, India has launched a sustainable palm oil alliance called Sustainable Palm Oil Coalition for India (IndiaSPOC).
Moreover, China, which has been Indonesia’s main CPO export destination for the last 4 years, is also launching several green initiatives in the palm oil industry.
The incentives include China Sustainable Palm Oil Alliance, 2020 Green Value Chain Policy Proposal, and Palm Oil Consumption Guideline by China Chamber of Commerce of Foodstuffs and Native Produce released in 2022.
On the other hand, he reckoned that Indonesia had yet to optimise Indonesia Sustainable Palm Oil (ISPO) to be an attribute for global palm oil trade. Meanwhile, Bukti reckoned that ISPO was crucial in two of Indonesia’s main export markets, namely China and India.
Both countries are the largest importers of CPO from Indonesia. Statistics Indonesia recorded that Indonesia’s CPO export volume to India reached 2.47 million tonnes from January to August 2022 or increased by 3.67% compared to last year.
On the contrary, the CPO export volume to China from January to August 2022 reached 1.6 million tonnes or decreased by 48.18% from 3.2 million tonnes in 2021.
Until now, China has been the second largest export destination for palm oil from Indonesia. With 73.8% of imported palm oil in China coming from Indonesia, the green trend of the Asian market can be the opportunity to market national sustainable palm oil products globally.
Hence, he affirmed that the multistakeholder workshop titled Maintaining Access to the Mian Southeast Asian Palm Oil Market was crucial to maintain the trade relationship for Indonesian palm oil.
“The multiparty forum is expected to synergise the mutual effort of stakeholders in the palm oil industry to prepare Indonesian palm oil when large markets start to boost sustainable practices in the palm sector,” he said on Wednesday (9/11).
He also said that palm oil farmers must be ready to support the transformation of the palm oil industry to be more sustainable. Farmers play a crucial role as main actors in the upstream palm oil sector.
Acting Director of Plantation Product Processing and Marketing of the Agriculture Ministry Baginda Siagian also said that the contribution of palm oil export to the state’s foreign exchange reached around 80% to 90%. With that much contribution, palm oil is one of the strategic sectors of Indonesia.
However, Indonesian palm oil products have not been fully accepted in the international market, especially to respond to the greener trend of the palm oil industry.
“Indonesia is currently heading towards a more sustainable palm oil industry. This requires support from all parties, such as cooperatives, academicians, and businesses to build sustainability in Indonesia,” Baginda said who virtually attended.
He said that the Agriculture Ministry was ready to cooperate with other agencies to support Indonesian palm oil to be accepted internationally, especially in the Chinese market.
Indonesian Sustainable Palm Oil Farmers Forum (Fortasbi) Secretariat Head Rukaiyah Rafik said that palm oil farmers were ready to support the transformation of the palm oil industry to be more sustainable.
He realises that farmers play a crucial role as main actors in the upstream palm oil sector.
Hence, the active involvement of this group and its improvement must be continuously conducted.
“The involvement and strengthening of farmers can start by continuously boosting the fulfillment of the Indonesia Sustainable Palm Oil certification by independent farmers as one of the concrete proofs of Indonesia’s commitment to making the palm oil industry more sustainable,” Rukaiyah said.
On the contrary, Palm Oil Agribusiness Strategic Institute (Paspi) Executive Director Tungkot Sipayung reckoned that the Indonesian palm oil industry was more advanced in the sustainability aspect compared to other vegetable oil industries. Until now, palm oil has been the only main vegetable oil that has a system, standard, sustainability certification.
He said that other vegetable oils from soybean, sunflower, and turnip did not have a system and a sustainability certification.
Since 2011, Indonesia has already established ISPO before Malaysia established theirs in 2014.
According to him, the largest challenge for the Indonesian palm oil industry is the low productivity as well as the continuously increasing cost of production.
“Increasing productivity is the key for sustainability economically, socially, and ecologically. Our palm oil productivity is only around 40%,” Tungkot explained to Bisnis.
Palm oil cost of production is also continuously increasing if there is no innovation breakthrough. On the contrary, the competitiveness of Indonesian palm oil will continue to decline. “So, our palm oil sustainability is not yet reflected in productivity increase and cost of production efficiency,” Tungkot said.
He claims that the palm oil industry has implemented the sustainability aspect to achieve sustainable development goals (SDGs).
“From the 17 global SDGs, palm oil can contribute/participate in 15 goals. Moreover, in terms of ideologies and policies or Indonesia’s ecosystem, there are the Environment Law, Plantation Law, and Job Creation Law,” Tungkot said.
He also mentioned the implementation of Renewable Energy Directive (RED) II by the European Union that banned the use of palm oil for biodiesel.
“So, we searched for reasons why palm oil biodiesel was not included in RED II. So, the point is still business competition. Currently, due to the Russia-Ukraine war, the European Union is asking for palm oil from Indonesia and does not question the sustainability,” he said.
On another occasion, Trade Minister Zulkifli Hasan reckoned that export growth in the third quarter of 2022 reached 21.64% year-on-year (YoY), and it became the driving force for Indonesia’s economy that grew 5.72%.
Export performance improvement is affected by several factors, such as the increase in global export commodity prices.
“The prices of several commodities increased in 2022, such as coal, palm oil, nickel, and coffee,” he affirmed during a press conference.
According to him, the export value of Indonesia in the third quarter of 2022 was the highest quarterly export value in the last two years.
In the third quarter of 2022, Indonesia’s total export reached US$78.20 billion or increased by 27.30% YoY, sustained by non-oil and gas export that reached US$73.84 billion.
