Palm Oil, Indonesia’s Trump Card, Enters Its Hardest Test

JAKARTA, Investortrust.id — Few people realize that palm oil is the only Indonesian export commodity that dominates the global market. Fewer still understand that palm oil is Indonesia’s “trump card” in its ambition to become a developed country with per capita income of $32,000 by 2045, compared with $4,960 today.

Palm oil plays an exceptionally strategic role in the national economy. Beyond reducing poverty and unemployment, the commodity serves as a major source of foreign exchange and state revenue, while also supporting national energy and food security.

The palm oil industry employs about 16.2 million people, with total economic value from upstream to downstream activities reaching Rp 750 trillion per year. That figure is equivalent to 3.5 percent of Indonesia’s gross domestic product.

Palm oil also contributes Rp 90 trillion to Rp 100 trillion annually to state revenue, comprising taxes, non tax revenues, and export levies.

Exports should not be underestimated. Through August this year, palm oil and its derivative products generated $24.78 billion, or about Rp 406 trillion, accounting for roughly 10 percent to 12 percent of Indonesia’s total non oil and gas exports.

Palm oil also underpins food security through products such as cooking oil and margarine, while supporting cleaner fuel programs. Biodiesel usage has saved up to $40.71 billion in foreign exchange over the past five years by reducing diesel imports, a figure expected to rise as the B40 mandate moves toward B50.

Indonesia, together with other CPOPC member countries, controls 84.14 percent of global palm oil production and 87.71 percent of exports. These numbers explain why the government places such strong emphasis on the commodity, including plans to develop palm oil plantations in Papua to supply raw materials for the B50 program.

In the coming years, the government and industry players are targeting crude palm oil production of 100 million tons by 2045, coinciding with Indonesia’s centennial of independence. In parallel, downstream development is being accelerated to multiply value added.

The Ministry of Industry has designed the “Golden Palm Oil 2045” roadmap, envisioning Indonesia as the world’s largest producer and consumer of sustainable palm oil and ultimately a global price setter.

Indonesia has been the world’s largest palm oil producer for 17 consecutive years, with a market share of about 60 percent. Last year, total production of crude palm oil and palm kernel oil reached 52.76 million tons, with export value of $27.76 billion, or around Rp 440 trillion.

Indonesia produces roughly twice as much palm oil as Malaysia, which ranks second globally, followed by Thailand, Colombia, Nigeria, Guatemala, Papua New Guinea, Honduras, Ivory Coast, and Brazil.

Total national palm oil plantation area currently stands at 16.38 million hectares. Private estates control 53 percent, state owned plantations about 6 percent, and independent smallholders 41 percent.

Critics Emerge after Floodings

However, the industry is under test. Floods and landslides that struck parts of North Sumatra, Aceh, and West Sumatra between Nov 22 and Nov 27, 2025, killing more than 1,000 people, have revived concerns over environmental damage, land governance, and plantation practices.

Environmental activists and civil society groups have voiced sharp criticism of plantation management, targeting not only environmental impacts but also licensing, oversight, and law enforcement.

The government has long required palm oil companies to apply sustainability principles, including mandatory Indonesian Sustainable Palm Oil certification. Public companies are also required to implement environmental, social, and governance standards.

At the international level, Indonesian producers are encouraged to obtain certifications such as RSPO and ISCC. “Almost all GAPKI members already have ISPO certification. This is mandatory. Some members, especially exporters, also have RSPO and ISCC,” said Eddy Martono, chairman of the Indonesian Palm Oil Association, in an interview on Sunday, Dec 21, 2025.

“With ISPO or RSPO certification, it is impossible to violate river basins, conservation areas, protected forests, and so on,” Eddy said.

He added that palm oil companies, particularly GAPKI members, no longer open or expand plantation land because the government has imposed a moratorium on new permits. “The moratorium has been in place since 2011. Under Presidential Instruction No. 5 of 2019, no new permits are allowed. That means companies cannot open new land because there are no new permits, except for communities, which are not prohibited,” he said.

Eddy said GAPKI had not received reports of members being investigated for forest destruction or poor environmental governance. On the government’s plan to assign state owned enterprises to develop palm oil plantations in Papua for B50, he said the policy had been carefully considered. “This is specifically for energy, and it should not be too large,” he said.

GAPKI supports stricter enforcement against forest destruction and sustainability violations. “GAPKI is ready to safeguard the realization of a sustainable palm oil industry,” Eddy said.

The government has responded swiftly to disaster concerns. It reviewed all land use permits for plantations and mining, including forestry concessions, mining licenses, plantation concessions, and industrial forest permits, and issued no new licenses or extensions in 2025.

“This year, the Minister of Forestry, the Minister of Agrarian Affairs, and the Minister of Energy and Mineral Resources did not issue or extend a single permit. Not one, whether forestry concessions or mining licenses,” President Prabowo Subianto said during the closing of a cabinet meeting on Monday, Dec 15, 2025.

The permit review is grounded in Article 33 of the Constitution, which states that land, water, and natural resources are controlled by the state and used for the greatest benefit of the people. “If something does not benefit the people, we must not hesitate. I stand firmly by Article 33,” the president said.

The government has reclaimed about 4 million hectares of palm oil land from companies deemed non compliant. “If concession holders misuse their rights, take profits abroad, and harm national interests, that is unacceptable. We need corporations, but they must not control or defeat the state,” Prabowo said.

Law enforcement actions have included the destruction of 98.8 hectares of illegal palm plantations inside Berbak Sembilang National Park in Jambi. “I have instructed investigators to intensively develop this case to pursue other parties involved, including financiers,” said Hari Novianto, head of forestry law enforcement for Sumatra.

Authorities have also relocated residents from Tesso Nilo National Park in Riau, combining environmental restoration with social justice through social forestry schemes and land reform.

Meanwhile, the Ministry of Environment sealed plantation and mill operations linked to flooding in North Sumatra. “This step shows the government recognizes that non compliant land clearing has altered landscapes and threatened public safety,” said Environment Minister Hanif Faisol Nurofiq.

Demand for palm oil will continue to rise with biodiesel expansion. The Energy Ministry said biodiesel use from 2020 to 2025 saved $40.71 billion in foreign exchange. Since early 2025, the B40 mandate has reached 10.57 million kiloliters, generating Rp 14.7 trillion in added value and cutting emissions by 28 million tons.

The B50 mandate, set for the second half of 2026, will require an additional 5.3 million tons of crude palm oil. To meet demand, the government is considering productivity gains through replanting, selective land expansion, or reducing exports through domestic market obligations.

Downstream processing remains key. While crude palm oil yields only 20 percent to 50 percent value added, refined olein can generate 130 percent, and advanced products such as biodiesel, oleochemicals, and specialty chemicals can deliver value added of up to 580 percent.

Demand for palm based food products and oleochemicals is projected to reach nearly $296 billion by 2035, reinforcing palm oil’s role as a pillar of Indonesia’s industrial future.

Former Industry Minister Saleh Husin summed it up in his book Palm Oil Downstreaming Prevents the Middle Income Trap: “If implemented consistently, palm oil downstreaming can prevent Indonesia from falling into the middle income trap.”