Unified Agency Needed to Fully Harness Palm Oil Potential

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Unified Agency Needed to Fully Harness Palm Oil Potential

PALMOILMAGAZINE, JAKARTA – President-elect Prabowo Subianto has pledged to focus on transforming Indonesia’s abundant natural resources into high-value products for both domestic use and export. Among the resources he often highlights as especially promising is palm oil.

This commitment is not only highly appropriate but also strategically sound for the long term.

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Firstly, palm oil is a renewable commodity, unlike coal—currently Indonesia’s second-largest export—and other non-renewable minerals, which cause significant pollution during their extraction and processing. The palm oil industry provides direct employment to approximately 17 million workers and supports over five million smallholders.

Second, palm oil, with an annual export of US$30 billion, already contributes 12 percent of total non-oil exports and four percent of the country’s gross domestic product. Palm oil will continue to play an increasingly vital role in the economy because the production of this commodity is relatively inexpensive. This commodity also is highly versatile and fulfills 40 percent of the global demand for vegetable oil but uses less than 6 percent of all the land cultivated globally to produce vegetable oils.

Also Read: EU Boycott Palm Oil, Prabowo Subianto: We’ll Utilize it for Biodiesel

However, we will never be able to fully develop the potentials of this commodity to empower the national economy if the government does not improve the governance of the whole palm oil industry value chain.

We still painfully remember the damages inflicted by the series of erratic palm oil market intervention measures launched in the first semester of 2022 such as fixed price ceilings, domestic market obligation (DMO) and even total palm oil export ban to cope with the skyrocketing prices of cooking oil. The cooking oil debacle that occurred even when Indonesia has become the world’s largest palm oil producer strongly confirmed the extreme lack of cooperation and coordination within the government.

The bitter experience with the cooking oil crisis in 2022 simply reiterates the vital need of a single authoritative governing body to manage and oversee the whole palm oil industry, especially because of the expansion of its use as inputs both for food and biofuel to cope with the climate change. Managing the competition between the demand for food and for biofuel and the industry which involves over 16 million hectares of plantations owned by hundreds companies and an estimated 5 million oil palm smallholders will require effective policy coordination.

If Prabowo, who will assume power in October, is really serious about his commitment to further develop the palm oil industry he should review all the policies and the institutions which directly or indirectly regulate and manage the commodity.

The primary challenge is there are now at least eight ministries and dozens other institutions which directly or indirectly manage and oversee the palm oil industry. Among the ministries which directly regulate the industry are those of the economy, agriculture, industry, forestry and environment, land and spatial planning, trade, investment and energy and mineral resources.

It is extremely difficult to maintain policy consistency and predictability and to design an integrated development policy for such an important industry under the involvement and oversight of so many institutions. One of the main problems inherent within the government bureaucracy is lack of coordination and cooperation.

Hence it is most imperative for Prabowo to totally reform the governance of the palm oil industry and put it under a single governing body authorized to handle and manage all matters related to palm oil. This governing body could, to a certain extent, use several elements of the model of the Malaysian Palm Oil Board which was set up by the Malaysian Parliament under a special law in May, 2000. Malaysia is the world’s second largest palm oil producer.

The single palm oil governing agency we recommend will report directly to the President and is fully authorized in policy-making, regulating, managing licensing, implementation of development programs, conducting or overseeing research and development and coordinating all activities related to palm oil and its derivatives.

The palm oil governing agency also should be mandated to develop, promote, commercialize research findings, provide technical advisory services to the palm oil industry from upstream to downstream, collaborate and coordinate with national and international organisations to strengthen the palm oil industry and trade.

Given its large mandate and function the head or chairman of the body should be directly appointed by the President and its executive board should consist of the representatives of the ministries whose jurisdictions cover the areas directly related to the palm oil industry such as agriculture, land and spatial planning, forestry and the environment, industry, trade, investment.

The palm oil governing body certainly should involve various stakeholders, including smallholders, plantation companies, non-governmental organizations (NGOs), and international bodies, in its policy-making process to ensure that diverse perspectives are considered and balanced.

And compliance with sustainability and environmental regulations is monitored through regular inspections and audits by relevant authorities. Non-compliance can result in penalties or revocation of licenses and certifications.

The planned governing body should certainly be supported with an adequate number of professionals with various expertise and sufficiently financed to implement its programs. Therefore, the Oil Palm Plantation Fund Management Agency (BPDPKS), which was set up in 2014 to collect fees from palm oil exports for financing oil palm plantation development, should be integrated into the planned governing body.

Another task that requires immediate attention of the governing body is the integration of farmer identification data into a traceability system that is simple, cost-efficient, and prudent in a bid to meet the terms and conditions imposed by the European Union Deforestation Regulation.

We think the governing body could use the complete data and map, which were collected under the comprehensive audit of the whole palm oil industry a few months ago, as a primary data base to coordinate all policies related to upstream and downstream palm oil industries at the central government and local administration levels.

The views in this article are personal

By: Eddy Martono, Chairman of the Indonesia Palm Oil Association (GAPKI).

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