Chairman of Oil Palm Business Association Joko Supriyono saod Indonesian Palm Oil Industry Needs to Strengthen Political Trade - Photo by GAPKI

JAKARTA (TheInsiderStories) – Indonesian palm oil industry is currently facing concern due to the negative campaign of the European Union (EU) and the United States (US). The discriminatory of Indonesia’ largest export destination triggered main problems in the domestic palm oil industry, ranging from price fluctuations, production swelling to the sustainability of the oil palm trade.

Chairman of Indonesian Oil Palm Business Association Joko Supriyono noted, despite the turmoil, this industry has survived, unlike commodities such as cloves, spices, tea or sugar. Until now, the palm oil industry has even contributed significantly to foreign exchange (forex) revenues, creating jobs for 17 million farmers and workers, as well as developing remote economies.

With an area of ​​14 million hectares planted, consisting of 8.4 million company areas and 5.6 million farmers’ areas, Indonesia produces 45 million tons of crude palm oil (CPO). Of these, 10 million tons are consumed domestically (30 percent) and 31 million tons (70 percent) are exported, and the remainder is domestic reserves.

The Vice President of PT Astra Agro Lestari Tbk (IDX: AALI) said, facing the challenges of the global market, both the European Union (EU) campaign and price fluctuations, gave four keynotes on how Indonesia should take policy, not only by producing various regulations, but the extent to which the regulation products effectively respond to various challenges become a foothold for the sovereign palm oil industry.

First, the development of Indonesian palm oil no longer emphasizes land expansion, but is focused on intensification in order to achieve an optimal increase in oil palm productivity, especially for oil palm plantations owned by farmers. At present the farmer’s productivity is only 12 tons per hectare per year or equivalent to 2.1 tons of CPO a hectare per year.

Even though large companies that become benchmarks only reached a minimum of 30 tons/hectare per year, equivalent to seven tons of CPO/hectare per year.

The most appropriate way is to rejuvenate old plants and replace them with new plants from superior seeds. The government, through the Palm Oil Plantation Fund Management Agency, provides a Rp25 million per hectare grant to accelerate the rejuvenation of farmers’ farms which are targeted to reach 185.000 ha per year.

However, the grant is considered far from the effort to build a good oil palm plantation, because in the fourth year the farmers must need additional funds. The government’s efforts through the provision of People’ Business Credit are still far from expectations, while financing from government banks is not easy.

Second, the development of downstream industries to maximize the value chain of the oil industry is controlled and developed domestically. One of the important downstream products is biodiesel which is expected to be able to replace the role of diesel fuel up to 20 percent.

Biodiesel is considered important and match to market needs, especially when the fuel continues to decline. Amid the rising fuel demand every year, where in 2025 is predicted to reach 60 million kiloliters (KL) from the current only 3.8 million KL, its clear that imports are unhealthy for Indonesia’s trade balance. If it to be developed, palm oil can be used as a fuel, for example B100 (green diesel), biovatur, even gasoline.

Third, strengthening the export market management. Currently Indonesia controls 54 percent of the global palm oil market share and global vegetable oil exports by 31 percent. This is because 73 percent of Indonesian palm products are sold to the export market. In 2025, production will reach 60 million tons with half exports (30 million tons). It means, the export market is still important for Indonesia, amid a surplus of palm oil production.

However, with barriers trade, both tariffs and non-tariffs, Indonesia must also strengthen its trade politics, especially strategies to develop priority areas or export destination countries that must be maintained or developed. Europe, for example, as a producer of rapeseed and sunflowers will maintain the existence of these commodities by campaigning for crude palm oil and creating regulatory barriers. Therefore, Indonesia needs to strengthen the palm oil trade through diplomacy, negotiation and retaliation.

Fourth, the implementation of a sustainable palm oil production system. Indonesia must remain consistent in showing the sustainability of the palm oil industry and not need to be too discouraged because of the sustainability scheme of Indonesia Sustainable Palm Oil (ISPO) which is considered not credible.

Because, he said, there is no global sustainability standard; there are only country standards or markets. With more oil palm plantations obtaining ISPO certificates should be a tool for diplomacy and trade negotiations at the international level.

At the end of his notes, Supriyono stressed the need for harmonization of regulatory products that had been scattered in various ministries and institutions. Therefore, he proposed that the government needs to establish a agency that specifically manages policies, makes road map, outlines programs and evaluates achievements so that the regulation becomes an enabler.

With the government role to control the domestic market mechanism, when the price of CPO in the world market falls, businessman and domestic farmers no longer scream or panic because Indonesian palm oil is increasingly competitive.

Written by Daniel Deha, Email: daniel@theinsiderstories.com

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