Indonesia’s palm oil industry is set to surge

Found in one in 10 food products, the palm oil industry remains a booming industry, despite growing pressures from companies to find alternative sources within a multitude of industries. Indonesia remains the largest exporter of palm oil, where one oil palm tree products 40kg of oil a year.

The global demand for palm oil has reached exponential heights. From 17.7 million tonnes in 1997, the country produced 32 million tonnes in 2012, with an estimated demand of 77 million tons by 2050, according to Palm Oil Research and Indonesian Investments.

To this effect, Indonesia is planning to produce up to 42 million tons by 2020, in order to retain its position within the global market, according to The Jakarta Post. Last year, the industry supported over 5 million workers, and contributed up to $20 billion in exports.

Just a couple of days ago, the Indonesian Palm Oil Association (GAPKI) attended a summit surrounding the growing industry in New York, where the growing production of palm oil was discussed, in alignment with improving the productivity of the plantations within Indonesia.

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In 2014, large plantations took up 60% of the market, alongside 28% organised smallholders and 12% independent smallholders. However, this is no doubt risen in the last three years, with GAPKI chairman Joko Supriyono informing the Jakarta Post that the productivity of smallholder plantations now account for over 40 percent of palm oil production.

This growth will also see the adoption of further sustainable practices within its production activities in a new program, named the Good Growth Partnership Program. Incorporating areas such as palm oil, soy and beef products, the program is set to be funded through the Global Environmental Facility (GEF). In Indonesia, Riau, North Sumatra and West Kalimantan have been the areas of increased interest surrounding palm oil production.

Despite such advances, the country is facing increased opposite form Europe, where EU regulations surrounding palm oil production has faced extreme scrutiny within the last five years.

With agreed plans to phase out the import of unsustainable palm oil in Europe, one of Indonesia’s biggest markets, the country is facing increased pressures both nationally and internationally, and are likely to resist such demands, of which such harder regulations will be increasingly difficult for smaller shareholders to adopt. To this effect, the country has previously stated it would consider consulting the World Trade Organisation if such regulations become strictly enforced.

Business Review Asia Magazine - September issue