PALMOILMAGAZINE, JAKARTA – The development of palm oil plantations on a national scale has become a cornerstone of Indonesia’s economy, driving increased crude palm oil (CPO) production. As the world’s largest producer of vegetable oil, Indonesia has seen significant growth in both CPO downstream industries and smallholder production.
The expansion of palm oil plantations has led to annual increases in CPO production, averaging 5% to 11% per year. According to the Indonesian Palm Oil Association (IPOA), CPO production has been consistently growing by around 10% annually. In 2023, CPO production reached 50.07 million tons, marking a 7.15% increase from the previous year. This growth was attributed to higher CPO prices, improved seed quality, and plantation expansion.
The rise in CPO production paralleled the increase in domestic consumption, which reached 23.13 million tons in 2023. A key driver of this consumption growth was the biodiesel program, specifically the B35 mandate, which mixes 30% biodiesel with diesel fuel. This program boosted biodiesel consumption beyond the country’s food oil needs. By the end of 2023, CPO stock levels stabilized at around 3.14 million tons.
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Though CPO production got escalated in Indonesia, CPO selling price did tend to be stagnant and decreased the export value. If in 2022, CPO and its derivative product value reached US$ 39,07 billion, in 2023, the exports just reached US$ 30,32 billion. The main factor derived from cheaper CPO and its derivative products in the globe.
It also happened from the decreasing export demands on vegetable oils. The countries in the globe had uncertain condition. This triggered the competition of other vegetable oil selling price, including palm oil. As the result, CPO selling price tended to be stagnant for some time.
This got worse by the cheaper American dollar. In 2022, American dollar exchange was at about IDR. 15.731. But in 2023 1 US$ was about IDR. 15.416 in average. The cheaper American dollar made palm oil business in Indonesia worse.
This happened because CPO and its derivative product business from Indonesia still oriented to export activity. CPO and its derivative product selling price would make American dollars. The stagnant selling price for some time got pressed from the cheaper American dollar to the previous year. As the result, the business got more pressure in 2024.
CPO business in 2024 would face uncertain climate issue. Besides, the unstable geopolitics that happens in many countries, could be the wide description about business challenges this year.
That is why CPO increasing production should also encourage palm oil downstream sectors in this country. By having downstream products, there would be main profits by consuming environmental and renewable products from palm oil.
Besides, the increasing downstream industries should take smallholders to get the same profits. The smallholders would massively play their roles to develop the future sustainable palm oil business. Hopefully. (*)
