JAKARTA – The Indonesian Palm Oil Association (GAPKI) has proposed a development program of a specially dedicated area for energy, which is operated by the government to supply the raw material for the national mandatory program of biodiesel. GAPKI has also proposed an additional income for oil palm smallholders to help them dealing with their loss of income during their joining of replanting program until they can have their own palm harvests.
GAPKI Executive Director Mukti Sardjono revealed the proposal during a public discussion of Forum BIG Downstream Insight 2026 in Jakarta on Tuesday (6/10/2026). His proposal is included in his presentation titled “Palm Oil Industry’s Readiness in Supporting Down-streaming”.
According to Mukti, the two proposals are needed to ensure that the programs of biodiesel 50 percent (B50) and palm oil down-streaming can proceed sustainably without sacrificing the needs for foods and exports.
Consumption rises, exports suppressed
Mukti began his presentation by emphasizing the strategic role of palm oil in the national economy. In 2025, Indonesia produced 51.66 million tons of Crude Palm Oil (CPO) and 4.89 million tons of Palm Kernel Oil (PKO). The value of palm oil exports reached US$35.87 billion, or approximately IDR 538 trillion. The industry employs 4.2 million people directly and supports 12 million indirect jobs. In terms of energy, palm-based biodiesel displaced 13.15 million kiloliters of fossil fuels and saved IDR 147.5 trillion in foreign exchange.
However, palm oil production and productivity have remained relatively stagnant in recent years, while domestic consumption continues to rise. Palm oil usage for biodiesel surged from 7.2 million tons in 2020 to 12.7 million tons in 2025. During the same period, exports fell from 34 million tons to 32.3 million tons.
This pressure is expected to intensify in 2027. GAPKI projects a production decline of approximately 2–4 million tons compared to 2026, partly due to the impact of El Niño. Conversely, domestic consumption is expected to rise by about 3 million tons to 30.2 million tons, driven primarily by the implementation of the B50 mandate. Consequently, exports are projected to drop by 4–5 million tons to around 26.5 million tons.
“A decline in exports could lead to reduced government revenue from taxes and export levies, which have historically served as a crucial funding source for biodiesel subsidies,” he stated in the presentation.
Special energy plantations operated by government
Multi assesses that Indonesia’s current CPO production is essentially sufficient to support the B50 mandate and downstreaming initiatives. However, for the long term, productivity improvement—specifically through replanting efforts using superior seedlings—must be implemented effectively and earnestly. If necessary, the government could develop state-managed oil palm plantations specially dedicated to energy production.
During the discussion, Mukti noted that B50 remains a sound policy option, particularly given the rise in global oil prices caused by disruptions in the Middle East. B50 reduces the subsidy burden, and the price of unsubsidized industrial diesel can also be lower than it would be without the biodiesel blend. A consequence of this is that a portion of production must be allocated for domestic use, thereby reducing exports. Therefore, he argued, there is a need for planning to boost productivity, including the development of dedicated plantation areas specifically intended to supply the raw material need of biodiesel production.
Mukti stated that with such planning, the demands of biodiesel production and exports could be better balanced. In the long run, export levels will be maintained, domestic energy security ensured, and subsidy efficiency improved. He added that the various components of this policy need to be viewed comprehensively, with their economic impacts calculated in their entirety.
Additional income during TBM period
The second proposal concerns smallholders’ oil palm plantations, which cover an area of 6.9 million hectares—representing 41% of the total national oil palm acreage. GAPKI identifies smallholder plantations as key to supplying raw materials for the industry. However, these plantations face various challenges, including aging trees with low productivity, limited access to certified seeds, financing constraints, land tenure issues, a lack of extension support, and marketing hurdles.
One of the major obstacles is the loss of income during the implementation of replanting programs. Farmers earn no revenue from their plantations while the trees are in the immature stage (TBM). This situation is a contributing factor to the persistently low implementation rate of the Oil Palm Replanting program (PSR) for smallholders.
To address this, GAPKI proposes the following measures:
- accelerating the PSR program for both partnered and non-partnered farmers;
- providing grants and long-term credit;
- offering supplementary income for farmers during the immature stage (TBM);
- using superior seeds and Good Agricultural Practices (GAP);
- integrating the supply chain.
Legal certainty and business certainty
Beyond productivity issues, Mukti highlighted the lack of legal and operational certainty. More than 31 ministries and agencies are involved in regulating the palm oil industry, creating a high risk of regulatory overlap. Policies are also prone to frequent changes. Furthermore, the seizure of oil palm plantations identified as falling within forest zones threatens to reduce total plantation acreage and undermine business confidence in the government.
He cited the mandatory requirement to facilitate the development of community plantations (covering 20% of the area) and regulations regarding maximum land size as examples. Although both were already addressed in Law No. 39 of 2014 concerning Plantations, they have resurfaced in new regulations with differing provisions. In his view, such rules need to be harmonized to ensure business certainty.
Mukti also addressed changes to the licensing authority for palm oil mills (PKS) introduced through Government Regulations (PP) and the Online Single Submission (OSS) system. Previously, licensing for everything from plantations to mills fell under the purview of the Ministry of Agriculture. GAPKI insists that the establishment of any new mill must be backed by a clearly defined source of raw materials. Without this safeguard, a new mill situated near existing partner plantations could disrupt established partnership arrangements with smallholders.
B50 saves on subsidies; supply balance must be maintained
At the same forum, Septian Hario Seto, Executive Secretary of the National Economic Council (DEN), explained that the B50 mandate is crucial for energy resilience and the state budget. According to DEN’s calculations, the B50 blend saves approximately Rp1,500 in subsidies per liter of subsidized diesel while simultaneously reducing diesel imports.
He recalled the mechanism implemented following the 2022 crude palm oil (CPO) export ban. At that time, the Domestic Market Obligation (DMO) was linked to export rights—for instance, one ton of domestic supply entitled a company to four to five tons of export rights. This mechanism was deemed successful in keeping CPO prices relatively stable within the range of USD 900–1,000 per ton. Looking ahead, the challenge lies in ensuring that the additional demand generated by B50—estimated at 1.5–2 million tons of CPO—does not disrupt the price balance of cooking oil in the domestic market. (Fetry Wuryasti)
