Palm oil trade for Indonesia is very important considering its role and contribution to the Indonesian economy. In Indonesia, as many as 17 million farmers depend on the palm oil industry so that the decline in palm oil prices can directly affect their welfare.
Therefore, stated by the General Chairman of the Indonesian Palm Oil Association (Gapki) Joko Supriyono, as the largest producer and exporter of palm oil, Indonesia needs to strengthen its position in the global market. Estimated production of crude palm oil (CPO) in 2019 is 45.7 million plus palm kernel oil (PKO) 4 million tons, exports 35 million tons, and domestic consumption is 16 million tons.
“This is important because as the largest producer and exporter, besides being still dependent on the export market, Indonesia’s position is relatively weak especially when the market fluctuates and prices decline,” Joko said in his remarks at the 15th Indonesian Palm Oil Conference (IPOC) 2019 and 2020 Price Outlook in Nusa Dua, Bali, Thursday (10/31/2019).
He suggested several strategic steps as a joint national effort. First, increase productivity. Indonesia has implemented a palm moratorium since 2011 until now so increasing production by expanding plantations is no longer a solution.
“What we must do now is to maximize the use of existing land by means of intensification, increasing productivity, and accelerating the rejuvenation program of oil palm nationally. The priority that we encourage in accelerating the improvement of community plantation productivity is how to accelerate the realization of partnerships between companies and farmers,” said Joko.
He considered, the company with all available resources will be able to help farmers increase production through rejuvenation and improvement of cultivation. On the other hand, farmers need to improve institutions so that the partnership runs smoothly.
Second, according to Joko, the crucial step is to create a new demand. Indonesia has great potential for energy demand, especially renewable energy. Palm oil is proven to be a source of renewable energy raw materials. The use of palm oil for biodiesel also opens up new opportunities for the industrialization era.
At present, Indonesia has implemented an mandatory biodiesel that has been effective since 2015. It starts from 7.5 percent, is now in B20 and is targeted to be B30 next year.
“This mandatory biodiesel policy has a double effect, in addition to increasing industrialization followed by additional economic impacts, at the same time it has the effect of improving Indonesia’s trade balance because the steps to reduce imports of fossil fuels can be significantly reduced,” he said.
Third, in an effort to increase exports, Indonesia needs to continue to increase competitiveness. Indonesia is the largest exporter of palm oil, 70 percent of palm oil production is currently exported to various countries. This means that Indonesia still needs a global market so that in any situation Indonesia must have a strong and competitive position.
On the one hand, he argues, demand for palm oil from emerging markets shows an upward trend and will continue to increase due to increasing world population. “These emerging markets such as India, the Middle East and African countries are potential markets with wide-open opportunities.”
He also saw that the European market requirements for sustainable palm oil were getting tougher, trade barriers and restrictions were inevitable. In this situation Indonesia has a choice of markets or does not have to depend on certain markets such as Europe.
“In order to support the implementation of the program as described above, the Indonesian government needs to create a conducive investment climate and business climate by ensuring that there are no harmonious regulations between ministries or between the center and the regions. In other words, the business world is yearning for an atmosphere of business and investment: calm, comfortable, cool. Not always overshadowed by legal uncertainty,” he added.