PALMOILMAGAZINE, JAKARTA – The implementation of the B40 biodiesel policy, which began earlier this year, poses a high risk of causing a national palm oil deficit, ultimately impacting food supply, particularly cooking oil. This is due to an estimated 5.1% decline in national palm oil production in 2025, driven by reduced land productivity as many oil palm trees have reached non-productive ages and require replanting. Meanwhile, domestic demand for palm oil is expected to rise due to the expansion of biodiesel production and other national initiatives, such as the Free Nutritious Meal Program.
The push for biodiesel development should not come at the expense of expanding palm oil plantations, which could lead to increased deforestation. Civil society organizations note that achieving a 40% biodiesel blend (B40) would require an additional 138,000 hectares of palm oil plantations. However, alternative solutions exist that would allow the government to meet demand without resorting to land expansion.
“The implementation of B40 will significantly increase domestic demand for crude palm oil (CPO), especially as the government simultaneously enforces the Free Nutritious Meal Program, further boosting the need for palm oil in the food sector. Our calculations show that the raw material demand for B40 will reach 14.8 million metric tons (MT) of CPO, a 31.3% increase from 2024,” said Marselinus Andry, Head of Advocacy at the Palm Oil Smallholders Union (SPKS).
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With B40, the national biodiesel quota will rise to 15.6 million kiloliters (kl), up from 12.98 million kl under the previous B35 program. SPKS warns that the mandatory 40% biodiesel blending policy could lead to a national palm oil deficit. The combination of declining production and rising domestic demand could result in a shortfall of 1.04 million MT of palm oil.
“The government must be cautious in implementing policies to maintain balance and avoid a repeat of the early 2022 cooking oil shortage crisis, which was followed by a sharp drop in fresh fruit bunch (FFB) prices due to the CPO export ban,” Andry added in a statement to Palmoilmagazine.com.
Solutions for Meeting Palm Oil Demand in Biodiesel Production
To ensure sufficient raw material supply for the domestic industry, the government has introduced stricter export controls on palm oil mill effluent (POME), high acid palm oil residue (HAPOR), and used cooking oil (UCO). These measures are outlined in Minister of Trade Regulation No. 2/2025, which amends Regulation No. 26/2024 on the export of palm oil derivative products. Effective January 8, 2025, the policy was introduced in response to unusually high POME and HAPOR export volumes, surpassing CPO exports in 2023 and 2024.
However, limiting POME, HAPOR, and UCO exports does not address the root cause of the domestic palm oil deficit. Instead, it negatively impacts independent smallholder farmers, as palm oil mills also rely on loose fruit supplies from these farmers.
“In terms of production and quality, CPO sourced from independent smallholders has the potential to meet domestic demand, particularly for biodiesel production. The government must regulate the supply chain for independent smallholders, including loose fruit harvested from their farms and processed in palm oil mills. This is crucial for securing raw materials for biodiesel while also ensuring fair benefits for independent farmers, who have long been excluded from the CPO supply chain for downstream industries, including biodiesel,” Andry explained.
The current biodiesel industry supply chain does not allow independent palm oil Smallholders to gain added value. The supply chain remains dominated by large corporations, their subsidiaries, and third-party suppliers. No partnership programs currently exist between biodiesel suppliers and farmer cooperatives.
Indonesia has approximately 5.31 million hectares of independent oil palm plantations. Assuming an annual productivity rate of 2.8 MT of CPO per hectare, independent smallholders could produce up to 14.87 million MT of CPO, equivalent to 15.94 million kl of biodiesel—enough to meet B40 production needs. The largest independent palm oil plantations are located in Sumatra and Kalimantan.
Another untapped potential is used cooking oil (UCO), which could serve as an alternative raw material for biodiesel. However, UCO is currently underutilized and lacks subsidy support from the Palm Oil Plantation Fund Management Agency (BPDPKS). “Including independent Smallholders in the supply chain and utilizing UCO are key solutions to addressing the palm oil deficit for domestic biodiesel production,” Andry emphasized.
Will Cooking Oil Shortages and Price Spikes Return as Palm Oil Is Diverted to Biodiesel?
The anticipated palm oil deficit has raised concerns among downstream industry players. The cooking oil shortage and price surge that occurred between 2022 and 2023 could potentially recur. Recent trends indicate that the government-subsidized “Minyak Kita” cooking oil has already seen a sharp price increase, rising from IDR 14,000 to IDR 18,000 per liter in November 2024.
One critical issue is the distribution of CPO between food and energy sectors. If forced to choose between cooking oil and biodiesel, CPO supply will naturally favor the sector offering higher economic returns—biodiesel.
“The root of the problem is the dual pricing system for CPO, which encourages sales for biodiesel production. Additionally, the absence of clear regulations distinguishing CPO allocations for food and energy fuels competition between the two sectors,” said Achmad Surambo, Executive Director of Sawit Watch.
A study by Sawit Watch, Satya Bumi, and the Clean Transition Coalition, published in the book “Cooking Oil Crisis: The Impact of Biofuel Policies on Palm Oil Supply,” suggests several measures to resolve the cooking oil issue:
- Regulating CPO consumption patterns to improve cooking oil industry governance
- Evaluating and monitoring the cooking oil distribution system
- Ensuring price stability through a well-regulated retail price policy
- Establishing a comprehensive palm oil industry policy from upstream to downstream
- Implementing asset reforms that allow smallholder Smallholders to own micro-scale palm oil mills and cooking oil refineries
“Indonesia must focus on intensification efforts to increase palm oil yield and productivity rather than expanding plantations, which contradicts emission reduction goals. The B40 policy should not trigger another cooking oil crisis and price surge in 2025,” Achmad warned. (P3)
