PALMOILMAGAZINE, JAKARTA – The world was shaken by U.S. President Donald Trump’s policy, part of his “Make America Wealthy Again” campaign, which imposed high reciprocal tariffs on many countries, including palm oil-exporting nations like Indonesia.
This policy was a response to what the U.S. government sees as unfair trade practices harming its domestic economy. Although the tariffs have been temporarily suspended for 90 days, until June 2025, the potential impact remains significant.
Indonesia has been ranked eighth among countries affected, with a 32% reciprocal tariff — a figure notably higher than that faced by many other countries. This move could seriously impact the competitiveness of Indonesian exports in the American market, particularly palm oil.
Also Read: USDA Projects Indonesia’s Palm Oil Production to Reach 47 Million Tons in 2025/26
Indonesia has long enjoyed a trade surplus with the United States, thanks to key exports such as textiles, garments, footwear, and palm oil. The U.S. is Indonesia’s second-largest trading partner after China, accounting for about 10.5% of Indonesia’s total exports.
According to the United States Department of Agriculture (USDA), Indonesia dominates the U.S. tropical oil market. In 2023, Indonesia’s tropical oil exports to the U.S. were valued at USD 2.13 billion, far surpassing the Philippines (USD 359.9 million) and Malaysia (USD 258.9 million).
Indonesia commands over 70% of U.S. tropical oil imports — the highest share since 2010 and a significant increase from 2020, when exports were valued at only USD 945 million.
Tropical oils include palm oil and coconut oil, both crucial for over 50% of household products, from biscuits and soap to biodiesel.
In terms of volume, Indonesia’s palm oil exports to the U.S. have also grown, from 1.8 million tons in 2022 to 1.9 million tons in 2024 out of a total 27 million tons exported globally. The U.S. is now the fourth-largest buyer of Indonesian palm oil, helped by Indonesia’s aggressive push for sustainability standards through RSPO and ISPO certifications.
Also Read: Malaysia Keeps CPO Export Tax at 10% for May, Lowers Reference Price
However, should the U.S. proceed with its tariff increase, it would likely lead to higher prices for American consumers, who may then turn to cheaper substitute products.
A drop in palm oil exports would ultimately hurt smallholder farmers, as demand for fresh fruit bunches (FFB) would fall, leading to lower prices and unabsorbed harvests — impacting rural economies and farmers’ welfare.
It’s important to note: if Indonesian palm oil is subjected to these high tariffs, farmers could face increased tax burdens when selling their FFB, dampening their enthusiasm and weakening one of the country’s largest foreign exchange contributors.
This would ripple into broader economic slowdowns at both local and national levels.
Palm Oil Downstreaming: A Long-Term Solution
With the 90-day suspension window, Indonesia must act swiftly to negotiate with the U.S. to protect its palm oil sector and stabilize FFB prices, particularly for independent smallholders.
However, for the long term, the real strategy lies in accelerating the downstreaming of palm oil production — especially empowering smallholder farmers to add value beyond raw commodity exports.
This would ensure resilience against future protectionist measures from other countries and prevent dependency on volatile international markets.
Given the increasingly uncertain global environment, smallholders must be incentivized and supported to engage in downstream activities — no longer leaving it solely to large corporations.
Downstreaming palm oil products could be a pathway for farmers to withstand market pressures, maintaining growth and improving their welfare.
The government must actively support and simplify policies that help farmers move into downstream industries. Yet so far, no concrete government policy has been seen offering smallholders real opportunities for value-added production.
Current trade wars and reciprocal tariffs should be seen as an opportunity to reorient policies toward fast-tracking smallholder-level downstreaming — with incentives such as tax breaks and simplified regulations.
Thus, even if irrational economic policies emerge, the negative impact on FFB prices for smallholders can be minimized.
Smallholders are eager for the chance to independently build value through downstreaming, but they need government support to make it a reality.
There are many funding avenues the government can open up: grants from the Palm Oil Plantation Fund Management Agency, soft loans from the Revolving Fund Management Institution for Cooperatives and SMEs (LPDB-KUMKM), support from Microfinance Institutions (LKM), revenue-sharing funds (DBH) from palm oil, or even low-interest bank financing for farmer groups.
It’s not just about funding. Permitting simplification, regulatory deregulation, and trust in smallholder groups are crucial.
Well-organized cooperatives, associations, and farmer groups are more than ready for downstreaming — they just need the opportunity.
Remember: palm oil farmer groups have long been the backbone of rural economic growth. They deserve a chance to move up the value chain and not remain stuck as mere raw material suppliers.
The time to act is now, as global challenges only grow more complex. (*)
By: Sutiyana, Chairman of the Sustainable Palm Oil Farmers Forum Foundation (FORTASBI)
