Indonesia’s palm oil industry remains a dominant force in the global market, contributing to economic growth and employment. While challenges exist, embracing sustainable practices and innovation can ensure long-term success.
Image courtesy of gapki
Indonesia stands as the world’s largest producer and exporter of palm oil, playing a crucial role in the global vegetable oil market. With vast plantations, favorable climate conditions, and government support, Indonesia dominates the industry, contributing significantly to its economy. However, the sector also faces challenges related to sustainability, regulations, and fluctuating global demand.
Indonesia produces over 45 million metric tons of crude palm oil (CPO) annually, accounting for more than half of the world's supply. Major plantation areas are located in Sumatra, Kalimantan, and Sulawesi, where large agribusinesses and smallholder farmers cultivate oil palm. The industry directly and indirectly employs millions of Indonesians, making it a cornerstone of economic development in rural areas.
Indonesia exports palm oil to various countries, with key markets including:
The Indonesian government has implemented several policies to regulate and support the palm oil industry:
Major palm oil companies in Indonesia, focusing on their business scale, plantation size, production capacity, and global presence:
Wilmar International Limited. Plantation Size: ~230,000 hectares globally (majority in Indonesia). Processing Facilities: Over 160 processing plants worldwide. Production Capacity: One of the world’s largest CPO refiners—millions of tons annually. Global Presence: Operates in 50+ countries, including China, India, and the EU. Owns consumer brands (e.g., Fortune cooking oil in Indonesia). Supplies major food and consumer goods companies worldwide. Notable: Vertical integration from plantation to branded retail products, biodiesel, and oleochemicals
Golden Agri-Resources (GAR) / PT SMART Tbk. Plantation Size: ~536,000 hectares in Indonesia (including smallholder partnerships). Processing Capacity: Over 40 palm oil mills; several refineries in Indonesia and globally. Annual Production: Over 2.4 million tons of palm products. Global Reach: Integrated supply chain from Indonesia to China, India, Europe, and the US. Export-focused with refineries in major consumer markets. Actively expanding downstream into biodiesel and specialty fats. Notable: Operates one of the largest proprietary palm oil research centers
PT Astra Agro Lestari Tbk. Plantation Size: ~285,000 hectares in Indonesia (Sumatra, Kalimantan, Sulawesi). Annual Production: Approx. 1.5 million tons of CPO. Global Footprint: Strong export base, particularly to Asia and Africa. Affiliated with the wider Astra Group (heavy industries, finance, etc.). Notable: Focus on precision agriculture and digital plantation management
Musim Mas Group. Plantation Size: ~133,000 hectares in Indonesia. Refining Capacity: Over 6 million metric tons annually. Processing Facilities: Owns 15 refineries and over 35 processing facilities globally. Export Reach: Ships to over 80 countries. Strong presence in Europe, India, and China. Notable: One of the largest global suppliers of RSPO-certified palm oil; vertically integrated from plantations to global logistics and branded products
Asian Agri (Part of Royal Golden Eagle – RGE Group). Plantation Size: ~100,000 hectares (plus 60,000 hectares with smallholders). Annual CPO Output: Over 1 million tons. Global Reach: Supplies to major global buyers in China, India, and Europe. Integrated with RGE’s broader resource-based businesses (pulp, paper, energy). Notable: Pioneer in smallholder partnership models (Plasma schemes), sustainability leader.
Despite its economic benefits, Indonesia’s palm oil industry faces criticism and regulatory challenges:
In response, many producers are adopting RSPO (Roundtable on Sustainable Palm Oil) certification and sustainable agricultural practices to meet global standards and maintain market access.
Global Palm Oil Export & Import Regulations
Indonesia (Exporter)
1. Export Levies and Taxes. Progressive Export Levy: Based on the international price of CPO; higher prices trigger higher levies. Export Tax: A separate tax applied when CPO prices exceed a set threshold. Objective: To stabilize domestic supply and fund replanting, biodiesel subsidies, and sustainability programs.
2. Mandatory Domestic Market Obligation (DMO). Exporters must allocate a percentage of their palm oil production for domestic use before exporting. Tied to food security and cooking oil affordability in Indonesia.
3. Biodiesel Policy (B35 Mandate). Mandates blending of 35% palm-based biodiesel into fuel. Increases domestic demand and can influence export volumes.
4. Sustainability Certification Requirements. ISPO (Indonesian Sustainable Palm Oil): Mandatory for all producers and exporters. RSPO (voluntary, international standard) is often required by foreign buyers for market access.
European Union (Importer). EU Deforestation Regulation (EUDR) – Effective by end of 2024. Palm oil must be deforestation-free and traceable to the plantation of origin. Applies to all companies importing palm oil into the EU. Penalties include market access bans for non-compliance. Renewable Energy Directive (RED II / RED III). Limits the use of palm oil-based biofuels unless they meet strict sustainability criteria. Deems palm oil as a high indirect land-use change (ILUC) risk feedstock.
United States (Importer). US Customs and Border Protection (CBP) Withhold Release Orders (WRO). Bans imports of palm oil products suspected of being linked to forced labor or poor labor practices. Importers must provide proof of ethical sourcing. Food Safety Modernization Act (FSMA). Applies to all imported food-grade oils; focuses on traceability, safety, and labeling compliance.
India (Importer). Tariff-Based Policies: India adjusts import duties on crude and refined palm oil to control inflation and protect domestic refiners. Non-Tariff Barriers: Labeling and quality standards must be met. India is the world's largest importer of palm oil, with Indonesia and Malaysia as top suppliers.
China, Pakistan, Bangladesh, Middle East (Importers). Generally less restrictive compared to the EU or US. Focused on price competitiveness and supply security. Increasing interest in sustainably certified palm oil, particularly from multinational food companies operating locally.
Key Trends Exporters Must Prepare For
1. Traceability & Transparency – Buyers now demand plantation-level data and supply chain visibility.
2. Sustainability Certification – RSPO, ISPO, and soon EUDR-compliant certification are increasingly non-negotiable.
3. Labor and Human Rights – Ethical labor practices are under scrutiny, especially in US and EU markets.
4. Digital Supply Chain Reporting – Blockchain and traceability tech are being piloted to ensure compliance.
5. Volatile Export Taxes – Export policies in Indonesia and Malaysia shift rapidly to protect domestic markets.
Businesses looking to invest in this sector must navigate regulatory changes, sustainability demands, and evolving consumer preferences to remain competitive.
Sources: Indonesian Ministry of Agriculture. GAPKI (Indonesian Palm Oil Association). Wilmar International. Golden Agri-Resources. Musim Mas. European Commission, EUDR Policy Brief. U.S. CBP, Withhold Release Orders on Palm Oil. RSPO. Reuters & Bloomberg. World Bank, Indonesia Agricultural Trade Brief.
