Palm Oil Is Not Indonesia’s Shortcut to Food and Energy Security

By Irene Bougenville Martin *)

INVESTORTRUST - Indonesia stands at a crossroads. Under President Prabowo Subianto, the country has set an ambitious target: 8 percent annual economic growth, driven by large-scale investment in food, energy, and downstream industries. To achieve this, the government has identified priority regions beyond Java — including Papua, Kalimantan, Sulawesi, and parts of Sumatra — as new growth engines for agriculture, energy, and resource-based development.

Palm oil has once again emerged as a central pillar of this strategy. Recent statements framing plantation expansion — including in Papua — as a pathway to food and energy security reflect a familiar policy reflex. Palm oil is indeed one of Indonesia’s most important commodities. But treating it as a strategic keystone risks repeating old mistakes: sacrificing ecosystems, sidelining local communities, and locking the economy into extractive models that generate short-term gains but long-term costs.

Indonesia’s challenge today is not a lack of capital or commodities. It is about how investment is structured, who benefits, and whether growth is resilient, inclusive, and climate-proof.

Palm oil’s economic weight — and its limits

Indonesia is the world’s largest producer and exporter of palm oil, accounting for more than half of global supply. In 2025 alone, palm oil exports generated over USD 20 billion, making it a major source of foreign exchange. The sector also underpins biodiesel mandates such as B40 and the planned B50, contributing to domestic energy security.

Yet palm oil is not a staple food crop, nor does it address nutritional security. Expanding plantations does little to improve food affordability, diversify diets, or stabilize local food systems. Food security depends on resilient supply chains, diversified production, and strong local economies — not monoculture expansion.

More critically, palm oil expansion has long been associated with deforestation, biodiversity loss, peatland degradation, and increased disaster risks. Even “certified” monocultures cannot replicate the ecosystem services of intact forests.

The hidden price of environmental degradation

The costs of environmentally risky land-use decisions are no longer theoretical. In late 2025, severe floods and landslides in Aceh, North Sumatra, and West Sumatra caused widespread damage to housing, infrastructure, and livelihoods. Official estimates placed rehabilitation and recovery costs above Rp 50 trillion, with total economic losses exceeding Rp 68 trillion once disrupted supply chains and lost productivity were included.

At the World Economic Forum in Davos, President Prabowo spoke confidently about Indonesia’s trajectory toward food and energy self-sufficiency, presenting stability and resilience as defining features of the country’s growth model. Yet back home, climate-related disasters tell a more fragile story. Extreme flooding and landslides are no longer isolated events; they are reminders that environmentally risky land-use decisions translate directly into fiscal losses, disrupted livelihoods, and weakened food systems. The contrast is not about intent versus reality, but about pace: global narratives of resilience are moving faster than domestic safeguards on the ground.

These figures dwarf the costs of preventive, sustainable investment. Every rupiah spent rebuilding after disasters is a rupiah diverted from education, healthcare, and productive development. Treating forests as expendable assets is not just an environmental gamble — it is a fiscal one.

Growth requires smarter investment, not more extraction

President Prabowo’s growth agenda relies heavily on investment, with the government targeting over Rp 13,000 trillion in total investment over the next five years. Downstreaming (hilirisasi) has been positioned as a core strategy — and rightly so.

Investment in downstream industries accounted for around 30 percent of total realized investment in 2025, with agriculture, plantations, and fisheries among the priority sectors. The Investment Coordinating Board (BKPM) has identified around 20 priority commodities for downstreaming, including fisheries, coconut, cocoa, coffee, spices, seaweed, and selected plantation products — sectors with strong value-added potential and significantly lower environmental risk than large-scale land expansion.

Concrete best practices already exist. Programs under the Ministry of Agriculture, often supported by UN agencies, have shown that when smallholders gain access to processing facilities, finance, and export standards, commodity values can increase three to five times. Similar outcomes have emerged in fisheries, where cold-chain infrastructure and local processing hubs enable fishers to access premium export markets rather than relying on volatile intermediaries.

Amid growing public concern over why Indonesia continues to pursue large-scale investment during climate-related disasters, this is where responsible financing matters. Multilateral platforms such as the Tropical Forests Forever Facility (TFFF) — launched at COP30 in Belém by countries including Brazil, Indonesia, Norway, France, and Germany — are relevant not as funding shortcuts, but as channels for knowledge sharing, technical assistance, and capacity building to strengthen local value chains before scaling up investment.

CEPA and alternative livelihoods

Indonesia’s downstreaming strategy is reinforced by its expanding network of Comprehensive Economic Partnership Agreements (CEPA), which provide market access for value-added goods and create opportunities for MSMEs and smallholders.

Key milestones include CEPA agreements with Australia (2019) and South Korea (2021), the implementation of RCEP (2022), and new CEPA signings with Peru, Canada, and the European Union in 2025. By 2023, exports to FTA partners already accounted for over 71 percent of Indonesia’s total exports.

When aligned with downstreaming, CEPA enables alternative livelihoods in processed agriculture, fisheries, agro-forestry, and food manufacturing. These sectors reduce pressure on forests, distribute value more evenly, and build resilience by diversifying income sources to both food and energy products, outcomes that large-scale plantation expansion has historically failed to deliver.

A strategic choice

Indonesia does not need to choose between growth and sustainability. But it does need to choose between old extractive habits and modern, inclusive development models. Palm oil will remain an important commodity — but it cannot be the default answer to every economic challenge.

If Indonesia is serious about food security, energy resilience, and high-quality growth, the priority should be downstreaming, CEPA utilization, diversified livelihoods, and responsible financing — not the expansion of monocultures into ecologically sensitive regions.

Global confidence is important. But resilience is ultimately tested at home — by whether communities are protected from preventable disasters, whether food systems withstand shocks, and whether growth reduces vulnerability rather than redistributing it. Indonesia’s credibility on the global stage will increasingly depend on how well these risks are governed domestically.

The political will exists. The capital exists. The policy tools already exist. What is needed now is the discipline to deploy them wisely — ensuring that growth truly improves lives, strengthens communities, and protects the ecosystems on which Indonesia’s future depends.

And by the way—do we remember the Just Energy Transition Partnership? The US$20 billion commitment made specifically to Indonesia, still on the table years later, meant to mobilize solar, wind, and grid transformation? If that capital exists for building clean energy systems, why are we still reaching for land-intensive shortcuts? Is palm oil really a solution to food and energy security—or just the easiest answer to tell on international stages?

By Irene Bougenville Martin, Program Associate Kadin Indonesia Institute