Palm oil production in IndonesiaPalm oil production in Indonesia is concentrated on two of its five major islands: Borneo and Sumatra. In 2019, the five leading provinces for palm oil production on these two islands accounted for around two-thirds of all palm oil produced in Indonesia. Palm oil plantations there are largely divided into three types of administration: government-owned; independent and nucleus estate smallholders; and large private-owned plantations. Among the companies involved in palm oil production, Wilmar International and Golden Agri-Resources make up two of the largest players in the industry. Its biggest palm oil export market is India, the world’s largest consumer of edible oils.
The use of palm oil in Indonesia’s biodieselPalm oil production is land-intensive, and much of Indonesia’s rainforest had been cleared to make way for plantations. The environmental impact of oil palm cultivation has in recent years come under increased scrutiny. As of 2019, only a fraction of the palm oil produced in Indonesia was certified sustainable. The growing awareness of the environmental cost of palm oil has led to some consumer backlash in the Western market. As part of the European Green Deal, the European Union (EU) planned to introduce ‘certified palm oil free’ labels on consumer goods, as well as to cut out the use of palm oil in EU biofuels by 2030. As a result, Indonesia filed a dispute complaint with the World Trade Organization (WTO) against the EU regarding its biofuels directive.
The phasing out of biodiesel containing palm oil from the EU market would have an impact on Indonesia, the world’s largest biodiesel producer. Crude palm oil is the main feedstock for biofuel in Indonesia. To ensure a steady market for its palm oil, as well as to improve its energy independence, the Indonesian government had rolled out a plan to gradually increase the biofuel mix in its biodiesel. Biodiesel is also heavily subsidized by the Indonesian government, to encourage drivers to use them. This has led to an increase in domestic biodiesel consumption. However, plans to increase the current B30 mix, consisting of 30 percent crude palm oil, to a B40 mix in 2020, have been postponed due to the decrease in biofuels demand and low palm oil stocks during the COVID-19 pandemic. In August 2021, the Indonesian Palm Oil Association (GAPKI) stated that Indonesia's B40 biodiesel plan will be further delayed beyond 2022 due to the rising vegetable oil prices.