Indonesia was by far the world’s leading producer and exporter of palm oil. Together with Malaysia, they made up almost all the world’s production and exports of palm oil. Unlike Malaysia, however, which exported the majority of the palm oil it produced, Indonesia was also one of the world’s biggest consumers of palm oil, using it as both an edible oil and in biofuels.
Palm oil production in Indonesia
Palm oil production in Indonesia is concentrated on two of its five major islands: Borneo and Sumatra. In 2019, the five leading provinces for palm oil production on these two islands accounted for around two-thirds of all palm oil produced in Indonesia.
Palm oil plantations there are largely divided into three types of administration: government-owned; independent and nucleus estate smallholders; and large private-owned plantations. Among the companies involved in palm oil production, Wilmar International and Golden Agri-Resources make up two of the largest players in the industry. Its biggest palm oil export market is India, the world’s largest consumer of edible oils.
h3>The use of palm oil in Indonesia’s biodiesel
Palm oil production is land-intensive, and much of Indonesia’s rainforest had been cleared to make way for plantations. The environmental impact of oil palm cultivation has in recent years come under increased scrutiny. As of 2019, only a fraction of the palm oil produced in Indonesia was certified sustainable. The growing awareness of the environmental cost of palm oil has led to some consumer backlash in the Western market.
As part of the European Green Deal, the European Union (EU) planned to introduce ‘certified palm oil free’ labels on consumer goods, as well as to cut out the use of palm oil in EU biofuels by 2030. As a result, Indonesia filed a dispute complaint with the World Trade Organization (WTO) against the EU regarding its biofuels directive.
The phasing out of biodiesel-containing palm oil from the EU market would have an impact on Indonesia, the world’s largest biodiesel producer. Crude palm oil is the main feedstock for biofuel in Indonesia. To ensure a steady market for its palm oil, as well as to improve its energy independence, the Indonesian government had rolled out a plan to gradually increase the biofuel mix in its biodiesel.
Biodiesel is also heavily subsidized by the Indonesian government, to encourage drivers to use them. This has led to an increase in domestic biodiesel consumption. However, plans to increase the current B30 mix, consisting of 30 percent crude palm oil, to a B40 mix in 2020, have been postponed due to the decrease in biofuels demand and low palm oil stocks during the COVID-19 pandemic.
Facts About Indonesian Palm Oil
- Indonesia and Malaysia dominate the world market, supplying some 85 percent of global supply.
- Indonesia has the most oil palm plantations in the world with more than 700 plantations across Indonesia.
- The total area of oil palm-planted land in Indonesia is around 16.78 million hectares.
- The oil palm plantation sector and the national palm oil industry are the biggest contributors to the Indonesian economy.
- In 2019, foreign exchange earnings from the export of palm oil products reached around Rp. 246 trillion
- Throughout 2019, crude palm oil (CPO) output reached 51.8 million tonnes
- Forty percent of the total area of Indonesia’s oil palm plantations, or 5.72 million hectares, are smallholder plantations
- There are 1,731 oil palm plantation companies consisting of 162 large state-owned companies and 1,569 large private companies, spread across 25 provinces in Indonesia.
- Some 50 percent of the world’s vegetable oil needs, come from palm oil
- Meanwhile, 50 percent of the world’s other vegetable oils come from sunflower, soybean, coconut, peanut, and cottonseed oil