JAKARTA – The palm oil industries play an important role in Indonesian economy, especially as a major contributor to exports and foreign exchange, and trade balance.
The country’s policy of palm oil exports and palm down-streaming has increased its foreign exchange from exports and resulted in trade surplus, especially in non-oil-gas sector. The use of palm oil-based biodiesel had decreased the deficit in oil-gas trade balance.
During the pandemic and weakening global economy, the palm oil industries had become the mainstay of Indonesian economy by contributing big trade surplus. Without the palm industries, Indonesia might see the risk of prolonged deficit that could burden the country’s economy.
The very important role of palm oil industries is also shown in employing around 16 million people, directly and indirectly across the archipelagic country. It has created a multiplier effect that had resulted in the improvement of Indonesian people’s welfare.
Contributor of RI’s Foreign Exchange
The exports of palm oil and derivative products have become the main contributor to Indonesia’s exports and foreign exchange. The facts have been proven in a number of empirical studies.
Rising Trend of Palm Exports
Since 2000 Indonesia’s policy on palm oil trade has been oriented to exports. With the export-oriented policy, the palm oil industries managed to continually increase foreign exchange from exports. Based on data from Statistics Indonesia (BPS), in 2000 foreign exchange from palm oil exports only reached US$1.08 billion. But in 2023 it reached US$31 billion.
Not only seeing a significant increase, palm oil exports have been also growing in quality. It was shown by the growing number of downstream products (processed palm and finished products of palm oil) in the composition of Indonesia’s exports of palm oil. The market share of downstream product exports reached 86 percent, while the rest is unprocessed crude palm oil. Such condition has also indicated the success of domestic program of down-streaming palm oil that has been pursued since 2011.
Palm Oil Saves RI’s Trade Balance From Deficit
The foreign exchange from Indonesia’s palm oil exports contributes significantly to its trade balance in non-oil-gas sector. It has even made it surplus, saving it from the possibility of trade balance’s deficit. Certainly, without the foreign exchange from palm oil exports, Indonesia’s non-oil-gas trade balance would only see small amounts of surplus or even deficit.
Besides contributing to Indonesia’s non-oil-gas trade balance, the palm oil industries have also brought positive impacts to Indonesia’s oil-gas trade balance through saving its foreign exchange as a result of the implementation of its mandatory program of biodiesel, which is blended with fatty acid methyl ester (FAME) from palm oil. The use of palm-based biodiesel reduces deficit in its oil-gas trade balance. Without palm-based biodiesel, the deficit in oil-gas trade balance would increase.
The contribution of the palm oil industries in the two sectors has enabled Indonesia to achieve a good performance in its trade balance. With the foreign exchange from palm oil exports and saving of foreign exchange through reduction of oil-gas imports due to the implementation of palm-based biodiesel mandatory program, Indonesia is able to reduce deficit in its trade balance and even managed to achieve big surplus. Conversely, without palm oil Indonesia’s trade balance will suffer from deficit.
The role of palm oil as a source of foreign exchange and trade surplus has even become more evident during the outbreak of Covid-19 pandemic from 2020 to 2021 and global economic recession in 2022.
The palm oil industries are able to earn big trade surplus, which help strengthen the Indonesian economy. Certainly, without the palm oil industries the trade balance of Indonesia would be worsening as a result of a prolonged trade deficit that would burden the Indonesian economy. (*)
Palmoilina.asia. Sawit Sumber Devisa [Infografis 2024]. https://palmoilina.asia/berita-sawit/sawit-sumber-devisa/. Februari 22, 2024
