When Indonesia Should Learn about Palm Oil from Malaysia

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Palm oil plantation. Photo by: Sawit Fest 2021 / Hendra

PALMOILMAGAZINE, JAKARTA – Indonesia and Malaysia, the world’s two largest palm oil producers, have been engaged in a competition to secure the leading position in the palm oil sector. Both countries boast a rich history that reflects changing dynamics, strengths, and challenges.

While Indonesia successfully surpassed Malaysia as the primary palm oil producer since 2016, the variations in their approaches and strategies offer valuable lessons for the future development of the palm oil industry. Malaysia exhibits superiority over Indonesia in certain key factors, as acknowledged by Derom Bangun, the former Chairman of the Indonesian Palm Oil Association and Indonesian Palm Oil Board.

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These critical aspects include productivity, research, promotion, governance, attention to smallholders, downstream activities, and the efficiency of one-stop service management.

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Malaysia significantly has had superiority in plantation productivity. The harvest in the country reached 4 – 6 tons per hectare. This has something to do with intensive research, focus on fresh fruit bunch increasing production per tree, multiplying weigh in every bunch, and superior seed research development. Research institutions, such as, Porim (Palm Oil Research Institute of Malaysia) and MPOB (Malaysian Palm Oil Board) have played central roles to encourage innovation and efficiency in every production phase and palm oil application.

In wider scale, Malaysia firmly showed its plantation governance and attention for smallholders. The organizations, for instance, FELDA (Federation Land Development Authority) gathered every smallholder to plant palm oil. The government realized it is significant to encourage them. The banks in the country proactively involved to make sure that the smallholders would have financial access needed to develop their palm oil plantations. The approach, that is usually known as ‘talent scouting’ delivered the positive and made smallholders capable to cultivate and expand their plantations.

Besides, Malaysia has responsive system known as price stability scheme. It used fund from the tax and regular payment from stakeholders to solve unstable palm cooking oil price in the country. This made palm cooking oil stable in price for the consumers to buy and support economic sustainability for palm oil industries.

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Downstream palm oil industries are important point for Malaysia. By producing 100 CPO derivative products in the country, Malaysia successfully got additional values from its palm oil. This is contradiction with Indonesia that just produced 47 CPO derivative products. In globalization era and close market competition, the capability to process palm oil to be higher value – consumption products would be the successful key.

Besides the factors, Malaysia also has developed supporting institutions strongly including MPOC (Malaysian Palm Oil Council) that focuses on palm oil promotion in international scale. The fund from CESS and the whole supports from the government created supporting environment that encouraged the innovation and development in these sectors.

On the other hand, Indonesia should take important lessons from what Malaysia achieved. In palm oil industrial handover, the successful key should be by having coordination and consolidation with the government. Ministry of Plantation and Commodity Malaysia clarified and delivered effectiveness in palm oil industrial management in a whole.

It is also significant to fully encourage smallholders. Indonesia should adopt it. Encouraging smallholders to participate in palm oil industries, delivering them access to natural resource would escalate the plantation productivity and welfare.

Besides, it needs to escalate research and innovation in Indonesia to escalate effectiveness and productivity. Establishing research institutions strongly, such as, Porim in Malaysia would be the positive to encourage new innovations that would stimulate the progress in these industries.

Indonesia should be proactively promoting its palm oil derivative products to many countries. The establishment of the same organization, such as, MPOC would be the strategic one to support palm oil expansion and competition from Indonesia.

By having deep understanding to these factors that differentiate the successful industries in Malaysia, Indonesia would have the chance to improve and develop its palm oil industries. Adopting effective strategies, involving stakeholders and smallholders in Indonesia would maintain and even escalate its position as one main actor in palm oil industries globally. (*)

Source: Memoar Duta Besar Sawit Indonesia, 2010

By: Maruli Pardamean/Palm oil practitioner and author

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