El Nino potentially suppressing palm oil production next year
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 - El Nino bisa tekan produksi sawit tahun depan
4 October 2023
Jakarta - The Indonesian Palm Oil Association (IPOA) stated that El Nino this year has the potential to suppress national palm oil production next year. Palm oil production in 2024 is estimated at only 51-53 million tonnes, or lower than the 2023 target of 54 million tonnes. The lack of rain due to the long dry season caused by El Nino has delayed the maturity of palm fruits.
IPOA Head Eddy Martono explained that the current El Nino does not directly affect palm oil production in 2023. The lack of rain due to El Nino this year has delayed the maturity of palm fruits, but the impact on production will only be felt next year, and that is only if the plantation maintenance and care, such as fertilisation, are not carried out properly. “This year's El Nino is unlike those in 2015 and 2019. The influence of El Nino at that time could last for two years. This year, rain still falls in almost three months in Kalimantan and two months in Sumatra. This means, despite a long dry season, if maintenance such as fertilisation is carried out, that is good. It will not affect palm oil production significantly,” said Eddy.
Eddy stated this during a press conference on the readiness to hold the 19th Indonesian Palm Oil Conference and 2024 Price Outlook (IPOC 2023) by IPOA on Tuesday (03/10/2023). On that occasion, IPOA Secretary General M. Hadi Sugeng added that, thus far, the achievement of the performance parameters of the Indonesian palm oil industry remains positive. As of July 2023, production of crude palm oil (CPO) and palm kernel oil (PKO) grew 17% to 32 million tonnes, domestic consumption for food, oleochemicals, and biodiesel grew 11% to almost 13 million tonnes, and export volume rose significantly by 33% to 19.8 million tonnes. “The parameter that is not improving is the export value which fell 18% to Rp260 trillion from last year, which exceeded Rp300 trillion,” explained Sugeng.
According to Sugeng, several IPOA members reported that, in the last two months, there have been production delays due to the impact of El Nino. However, this has not affected production this year. IPOA is still optimistic that palm oil production in 2023 will grow 5-10% to 54 million tonnes (CPO and PKO) and domestic consumption will increase to 23 million tonnes due to the effect of the B35 programme, while supply at the end of this year will be 3.2-3.3 million tonnes. “For 2024, palm oil production, both CPO and PKO, will be around 51, 52 or 53 million tonnes. Why? We are sensing a few problems, such as delays in smallholder palm oil rejuvenation (PSR) considering that 41% of Indonesia's palm oil land belongs to smallholders. Together with the relevant ministries/institutions, we continue to make breakthroughs to make PSR run properly so that our production would not be in trouble in the future, stagnate, or even decline,” he explained.
Meanwhile, IPOA General Treasurer Mona Surya said that the palm oil market situation tends to be uncertain. Even though palm oil prices have become more normal this year, the influx of sunflower oil from Russia and Ukraine as well as the increasing production of other vegetable oils on the global market have resulted in the high supply of vegetable oils in India. India is one of the largest importers of palm oil. Oil World mentioned that supply in India is currently at its highest position in history amid the recovery of palm oil production in Malaysia. Apart from issues of supply and demand, the palm oil industry continues to face negative campaigns outlined in policies that create trade barriers on the global market, including the European Union Deforestation-Free Regulation (EUDR). The implications of the EUDR is feared to have a big impact on the palm oil industry, especially farmers, because the supply of palm oil is now dominated by farmers, namely 42% in Indonesia and 27% in Malaysia.
Discussing EUDR
Facing this uncertain market, IPOA once again will hold the 2023 IPOC international conference from 1-3 November 2023 at the Bali International Convention Center (BICC), Westin Resort, Nusa Dua, Bali, with the theme “Enhancing Resiliency Amid Market Uncertainty”. Mona Surya, who is also Chair of the 2023 IPOC Committee, explained that the event would be opened by the Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto and attended by the State-Owned Enterprises (SOE) Minister and the Trade Minister, who would give a special address regarding government policies and strategies in increasing the sustainable competitiveness of the Indonesian palm oil industry. “The 2023 IPOC will also discuss EUDR,” explained Mona.
The 2023 IPOC offers an analysis of the world vegetable oil market situation concerning the latest global regulations and their impact on the palm oil industry, Indonesian palm oil policy, and market perspectives from importing countries. In addition, the global supply and demand situation for palm oil and the price outlook for 2024 will be discussed by senior world vegetable oil experts, such as Thomas Mielke (Oil World), Nagaraj Meda (Transgraph), and Dorab Mistry (Godrej International Ltd). “IPOC is a forum for national and international stakeholders to jointly discuss strategic issues surrounding the palm oil industry. We are sure that there will be more than 1,500 participants from all over the world,” said Mona.
