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The plan to double palm oil production is still environmentally, technically and commercially feasible because there are still large areas outside the natural forests that are fit for oil palm estate expansion
Among all the perennial crops grown in Indonesia, oil palm plays the most vital role in the country’s economy in terms of income generation, foreign exchange earnings, regional development, poverty alleviation in rural areas, employment, and the sustainable source of numerous kinds of consumer goods in the long term
Yet more promising is that palm oil will play an increasingly important role as a sustainable source of biofuel as well. President-elect Prabowo Subianto’s campaign promise to accelerate Indonesia’s transition to renewable energy includes a plan to expand biofuel production by upgrading biodiesel 35 or B35 from palm oil to B50
Even now palm oil has become the second-largest non-oil export after coal, which earned US$303 billion last year, or 12 percent of total exports. As the world’s largest producer of palm oil with a total output of 55 million tonnes in 2023, Indonesia supplied 54 percent of the global palm oil market and one-third of the total global vegetable oil supply. Palm oil also now supplies for more than 45 percent of the global vegetable oil consumption
Still more encouraging amid climate change, is that palm oil is the most productive among all vegetable oils. In addition to their exceptional productivity, oil palm trees also demand much less work and production inputs per unit than other oil crops. Therefore, palm oil is by far the cheapest oil to produce
This commodity contributes significantly to poverty alleviation in rural areas because 40 percent of the estimated 165 million hectares of oil palm estates across the country are owned by 67 million smallholder farmers and the palm oil industry directly and indirectly employs 16 million people
But the biggest concern over Prabowo’s ambitious biodiesel production program is its impact on the environment because even now, many green NGOs have been blaming the commodity as one of the main causes of deforestation. Another concern is the likely fiercer competition between the demand for food and fuel which could cause inflation pressures. Consumption of palm oil for biodiesel in Indonesia last year amounted to 232 million tonnes, 46 percent of total national consumption, with food making up 44 percent and oleochemicals 10 percent
However, we still think the plan to double palm oil production is still environmentally, technically and commercially feasible because there are still large areas outside the natural forests that are fit for oil palm estate expansion. This crop also is most suitable and at best to be cultivated in the regions around the equator such as Indonesia
The global market will never be saturated even if Indonesian production, for example, is doubled to over 100 million tonnes a year because the demand for palm oil as a source of food and biofuel will continue to increase. Palm oil is so versatile that it is found in more than half of the packaged consumer goods in supermarkets around the world, according to the World Wildlife Fund (WWF)
There are, however, several key prerequisites to realizing the ambitious planThe program should be based on a long-term development roadmap, which requires better governance, expanded research and development to produce high-yield seeds, integrated downstream and upstream processing policy and environmental, social and governance (ESG) sustainability standards
The first is to create regulatory and policy framework conducive to sustainable growth of palm oil. It is essential that the government strengthen policy certainty by revisiting all laws and regulations related to palm oil and to amend those detrimental to the palm oil industry
The industry is now facing self-inflicted governance issues, particularly related to misguided policies in the upstream and downstream processing industries and market intervention. Despite its vital role, the palm oil industry has been suffering from a series of stringent antimarket policies such as export quotas, a domestic market obligation and fixed prices introduced since early 2022 to stabilize the price of cooking oil at the government-fixed level after the prices of palm oil skyrocketed due to the massive disruption in the global supply of edible oils
The policies regulating the use of palm oil for a range of purposes, notably biodiesel and cooking oil for both domestic consumption and exports, must be aligned and synchronized with national production capacity to prevent unnecessary competition. In this context, the production target for biodiesels using crude palm oil (CPO) should be examined thoroughly to prevent disruption to palm oil supplies for other domestic and export purposes
The government must also improve its institutionalization and governance of palm oil by reducing red tape and strengthening business predictabilityThere should be good ministerial coordination in making the long-term palm oil development road map because without good coordination, it is not possible for the government to design an integrated development policy for such an important industry
One of the most important elements of the road map should be the removal of overlapping regulations and institutions, which have been the main cause of the rising wave of land conflicts with indigenous communities, deforestation and other practices of reckless natural resource extraction
There are now nine national agencies that directly and indirectly govern the palm oil industry. But coherent policies can be made only if all policies related to the palm oil industry are formulated and implemented by a single government agency
Lastly, it is inevitable that palm oil production growth must be sustained, through both concerted efforts to increase tree yield (productivity) and expand estates in adherence with applicable sustainability standards. The government should give incentives to palm oil companies to expand their research and development to innovate more high-yield seeds
There are now more than 10 certified oil palm seed producers already operating across the country. Research from several big plantation companies has led to the development of seeds that can double the average yield up to eight and even nine tonnes per ha. Such positive outcomes must be cascaded to and used to improve smallholders’ productivity and the overall national palm oil production
The replanting of smallholder plantations with high-yield seeds should be accelerated with funds from the Oil Palm Plantation Development Fund (BPDPKS). If the estimated 65 million ha smallholder plantations can be replanted with high yields, the program to double Indonesian production to 100 million tonnes would not need vast estate expansion.
Source: The Jakarta Post
