JAKARTA – The palm oil industries are still the mainstay of Indonesian economy. But during the last five years, the palm plantation sector has been dealing with the problem of stagnant production and declining productivity amid the continually rising trend of domestic consumption, especially because of the national mandatory program of biodiesel.

The Indonesian Palm Oil Association (GAPKI) Chairman Eddy Martono underlined the very importance of palm oil industries for Indonesian economy. “The palm oil industries have saved Indonesian economy during three times of crisis: 1998 crisis, global crisis 2008, and COVID-19 pandemic. During the pandemic period, the palm oil industries could still grow robustly, contributing significantly to the country’s foreign exchange income and absorbing new workers, while at the same time other economic sectors saw minus growth or even went bankrupt,” he said during an interview with CNN Indonesia Bisnis, as reported by the website of Gapki.id on Thursday (11/9/2025).

But despite its big contribution, during the last five years the palm oil industries have been facing a worrying condition. National production of palm oil had only averaged at around 50 million tons per year, without significant increase. The main cause is the slow implementation of replanting program for smallholders’ plantations.

“The oil palm trees are like humans. If they are already old, they are no longer productive, even if they are given fertilizers or inputs at any amount. They have to be rejuvenated with the replanting program. But unfortunately, the implementation of the replanting program had never reached the target,” said Eddy.

The obstacles of replanting program include the legality of plantation land areas, forest area status, and also the reluctance of smallholders to cut their oil palm trees as a requirement of replanting as they fear to lose their income. But in fact, if they join the replanting program, they will see their plantation productivity increase up to 2.5 times after 4–5 years.

Dilemma of Biodiesel and Export

Another challenge comes from the increase of biodiesel production. According to Eddy, actually national  production is still enough to support the biodiesel mandatory program up to the biodiesel 50 percent (B50). But there is a risk of export reductions to fulfil the need of palm oil for the energy production and increase of domestic consumption.

“If the palm export is reduced, the palm levy from palm export will also decrease. The fund from the collected export levy is not only used for biodiesel incentives, but also for financing the replanting program for smallholders’ palm plantations. If the collected fund decreases, it will cause a new problem that could in turn lead into a vicious circle that will engender negative impacts to the industry,” said Eddy.

Eddy said that the mandatory biodiesel program should be made flexible, adjusting to the conditions of global market and domestic need.

During the interview, Eddy also highlighted the European Union (EU) Deforestation Regulation (EUDR), which is seen burdening palm smallholders. Although Indonesian palm oil companies are relatively prepared to face the regulation implementation, their obligation to buy fresh fruit bunches (FFB) from smallholders is potential to cause problems as the smallholders are seen not yet ready to deal with the implementation of EUDR.

“If the smallholders have no clear and certain legal status, then their palm product can be considered as causing deforestation. This could hinder our palm oil exports. That’s why we hope that the smallholders should be exempted from the EUDR implementation,” he said.

Despite the fact, he emphasized that sustainability is now a must for palm oil industries. Around 600 member companies of the total 752 member companies of GAPKI have been certified with the Indonesian Sustainable Palm Oil (ISPO) certification. But on the other hand, only around 1.0 percent of smallholders can fulfil the sustainability standard.

Looking forward, GAPKI emphasized the importance of improving governance in the palm oil industries. Eddy reminded Indonesia to learn from its history so that it will not repeat the sad fate of other commodities, such as sugar and spice, which once superbly prospered but then faded.

“Indonesia has more than 16 million hectares of oil palm plantations, employing 16.2 million workers as heads of families. But the management of palm industries is still fragmented under the authorities of 37 ministries and institutions, which often cause overlapping conditions in their policies. “Ideally, as the mainstay of Indonesian economy the palm oil industries should be managed integrally under one special board of palm oil industries to make it more effective and efficient to compete at the national and global markets,” he concluded. (*)