Palm oil commodity: FFB price improvement needed

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 - Komoditas kelapa sawit: Perbaikan harga TBS diperlukan

25 October 2023

By: Arif Gunawan

Palembang - The wide gap between the price of fresh fruit bunches (FFB) of oil palm domestically and globally often left a bitter taste for farmers. Improvements to the FFB pricing mechanism are also proposed to better reflect the real situation in the export market.

The South Sumatra Indonesian Oil Palm Farmers Association (Apkasindo) stated that oil palm FFB prices set in several producing areas have not been profitable for independent farmers. Until now, there is still a gap between the FFB prices set and those received by farmers. 

Muhammad Yunus, Deputy Chair of South Sumatra Apkasindo, said that the price of FFB received by independent farmers is often around Rp200-Rp300 per kilogram lower than the price set by the regional government. 

"If the FFB price for plasma farmers in partnership with companies, for example, is set at Rp2,300 per kilogram, for independent farmers it can be Rp1,900 or Rp2,000 per kilogram," he said to Bisnis on Tuesday (24/10). 

Yunus revealed that FFB pricing in South Sumatra, which is carried out twice a month, also causes significant differences from developments in the price of crude palm oil (CPO) on the global market. As a result, the prices obtained by farmers are increasingly far from what they should receive. 

He also hopes that the FFB pricing there can follow the example of the Riau Provincial Government, which is carried out every week. That way, the gap between the set FFB price and real CPO price is not too significant. 

The FFB pricing in South Sumatra is carried out by the Pricing Team which consists of the Plantation Agency, around 10 oil palm companies, and the oil palm farmers association or Apkasindo. 

In the process, FFB prices are determined based on international CPO prices which usually refer to prices in Malaysia and Amsterdam. 

"The price is released in Jakarta, and that is used as a reference by companies in making CPO sales contracts to buyers," he explained. 

In addition, there are several costs incurred for processing FFB into CPO, and the total costs will also affect the company's purchase price of FFB. 

"This is also expressed in written reports by the companies participating in the pricing. So, after subtracting the cost, we get the K index and multiply it by the international CPO price, after that we produce the FFB purchase price at the oil palm farmer level in each company," he said. 

On the other hand, the Head of the Riau Province Plantation Agency Zulfadli announced that the highest FFB price increase was in the 9-year age group by Rp78.94 per kilogram or 3.21% from last week's price. 

"So the purchase price of farmers' FFB for the next week period will increase to Rp2,535.37 per kilogram, and is valid for the next one week," he said on Tuesday (24/10). 

Then the shell price valid for the next one month is set at Rp19.39 per kilogram. In this period, the K index used for the next 1 month is 91.61%. 

Infrastructure 

On the other hand, the Aceh Indonesian Palm Oil Association (IPOA) is encouraging the activation of the main CPO export port in Aceh Province to improve the welfare of oil palm farmers. Aceh IPOA Head Denny Ramadhan Nasution said that the development of the palm oil industry in Aceh was not as brilliant as North Sumatra and other provinces, even though Aceh was the location for the first oil palm plantations in Indonesia since 1911. 

The price of oil palm FFB in Aceh is also among the lowest because the province does not yet have a main port for direct transport of CPO. 

Moreover, the absence of factories that process palm oil into finished goods, including cooking oil, is also considered one of the reasons why Aceh's palm oil production must be brought outside the region. 

"There is no main port for CPO export in Aceh, so Aceh's palm oil production so far is delivered via Belawan or Dumai. So, our logistics costs definitely increase, because our products are delivered to North Sumatra first," he said. 

Denny explained that the transportation costs for delivering CPO to North Sumatra and Riau meant that the purchase price of FFB from farmers could not be high. Currently, the average price of oil palm FFB in Aceh is around Rp2,100-Rp2,200 per kilogram. 

The construction of a main port in Aceh is also considered absolutely necessary to revive the palm oil industry in the province. The current port, said Denny, is still not optimal for shipping CPO.