JAKARTA – The Indonesian Palm Oil Association (GAPKI) has warned that Indonesia risks to experience a shortage of Crude Palm Oil (CPO) production if the country fails to accelerate the implementation of the replanting program for smallholders’ oil palm plantations (PSR). The risk of shortage is even bigger due to the threat of El Nino, which is seen potential to bring negative impacts to national harvest of palm plantations.
Such warning was voiced by GAPKI Chairman Eddy Martono during his presentation about the latest condition and projection of Indonesia’s palm oil industry recently.
“The main issue weighing down our production is actually the obstacles facing the program of replanting smallholders’ oil palm plantations (PSR). Our production last year could have exceeded 60 million tons had the PSR program succeeded. The primary hurdle lies in the process of licensing. Although funds from the plantation fund management board (BPDP) have been made available, they remain inaccessible due to the extremely slow pace of PSR implementation,” said Eddy Martono.
Threatening stock resilience and domestic need
According to Eddy, unless the implementation of the program of replanting smallholders’ oil palm plantations (PSR) is accelerated, national production capacity will be unable to withstand the decline caused by extreme weather. GAPKI notes that the threat of a strong El Niño and a positive Indian Ocean Dipole (IOD) conditions leading to prolonged drought through the end of the year could significantly slash Crude Palm Oil (CPO) production next year.
“Without El Niño, our projected production for next year could rise to 59.5 million tons. However, due to the impact of El Niño, we project a production decline of 9.85% a loss of approximately 5 million tons bringing total production down to 53 million tons,” Eddy explained.
This projected drop in production to 53 million tons is considered highly concerning, as it fails to keep pace with the surge in domestic consumption. Domestic consumption continues to rise as the biodiesel sector alone is estimated to require a CPO allocation of 16.5%, amounting to over 17.4 million tons.
Implications to exports and prices of smallholders’ FFB
As a consequence of the threatened production shortfall, Indonesia has been forced to sacrifice export allocations to secure domestic supplies. The volume of CPO exports, which reached 32 million tons last year, is projected to drop to 27 million tons—a decline of 5 million tons.
This drop in export volume risks reducing the funds managed by the BPDP to support biodiesel subsidies, affecting both volume and financial capacity.
Furthermore, limited stocks could potentially put pressure on domestic CPO prices, ultimately having a negative impact on prices of Fresh Fruit Bunch (FFB) at the smallholder level.
Therefore, GAPKI welcomes the government’s move to ease licensing hurdles for the Smallholder replanting program (PSR). GAPKI emphasizes that accelerating the PSR program is imperative for rapidly boosting the productivity of national oil palm plantations and ensuring the future security of Indonesia’s CPO supply. (Fetri Wuryasti)
