Treating Palm “Constipation” Symptoms

At the beginning of this year, the export of crude palm oil (CPO) and its derivative products weakened due to the trend of declining prices and sluggish demand. According to the Central Statistics Agency (BPS), the export of CPO and its derivatives in February 2024 was worth 1.1 billion US dollars, a monthly decrease of 30.39 percent and an annual decrease of 39.58 percent.

The export volume of CPO and its derivative products also decreased from 2.06 million tons in January 2024 to 1.42 million tons in February 2024. Under normal conditions, its export volume is around 2.5-3 million tons per month.

The production of crude palm oil (CPO) and palm kernel oil (PKO) is also relatively stagnant from 2019 to 2023, averaging around 52 million tons. This average production is still far from the 2045 production target of 78.35 million tons.

Also read: The Palm Oil Industry is Suffering from Three Big Challenges

The rejuvenation of oil palm plants is also far below the target. From 2017 to 2023, the average realization of rejuvenation is around 50,000 hectares per year, or 29 percent of the target of 180,000 hectares per year.

The same goes for the consumption of crude palm oil and its derivative products within the country, which is estimated to continuously increase until 2045 to reach 45.99 million tons. Domestic consumption includes food, oleochemical industries, and biodiesel programs or the blending of diesel with palm oil derivative products.

In 2024, for example, the Indonesian Palm Oil Entrepreneurs Association (Gapki) stated that consumption is estimated to increase to 25.4 million tons. This requirement is a 9.08 percent increase from 23.28 million tons in 2023.

The increase in biodiesel consumption is predicted to dominate with absorption of as much as 11.6 million tons assuming the B35 program is fully implemented. If B40 is implemented, domestic palm oil consumption will increase by 2 million tons to 27.4 million tons.

Also read: Maintain Food and Energy Balance

In the midst of these conditions, world CPO prices in the last two months of this year were higher than other vegetable oils. At the same time, the implementation of the Renewable Energy Direction (RED) II policy and the European Union's Deforestation-Free Products Act (EUDR) continues to haunt.

Gapki stated that the consumption is estimated to increase to 25.4 million tons. The requirement has risen by 9.08 percent from 23.28 million tons in 2023.

Palm oil rejuvenation

The government is making efforts to take a number of crucial steps during the National Coordination Meeting of the Sustainable Palm Oil National Action Plan 2019-2024, which was held in a hybrid manner in Jakarta on Thursday (28/3/2024). Some of these steps include accelerating the rejuvenation of palm oil plants, legalizing palm plantations in forest areas, strengthening certification and traceability of sustainable palm oil, and opening up alternative export markets.

Main Director of the Palm Oil Plantation Fund Management Agency (BPDPKS) Eddy Abdurrachman said that the acceleration of the People's Palm Oil Rejuvenation (PSR) program would continue. PSR submissions were cut from six stages to three stages, while verification was accelerated to 15 days.

Palm oil farmers in forest areas who have received land legalization under the Agrarian Reform program can now apply for PSR funds managed by BPDPKS. Apart from that, the PSR funds, which were originally IDR 30 million per hectare, will be increased to IDR 60 million per hectare.

According to Eddy, a fund of Rp 30 million per hectare can only finance the needs of smallholder palm oil farmers up to planting seedlings. Beyond that, they have to spend their own money for maintenance until the plants start producing.

"With a budget of Rp 60 million per hectare, smallholder palm oil farmers can finance palm rejuvenation, from seedlings to productive plants. The increase in funding relieves the burden of smallholder palm oil farmers," he said.

Based on data from BPDPKS, from 2017 until March 24, 2024, the government has disbursed PSR funds amounting to Rp 9.25 trillion. These funds were used to rejuvenate oil palm plants on a land area of 331,007 hectares.

With a funding of Rp 60 million per hectare, smallholder palm oil farmers can finance the rejuvenation of their palm trees, starting from seedling to production.

Meanwhile, the handling of palm plantations in central forest areas is ongoing. This is based on Article 110A and Article 110B of the Job Creation Law (UU Ciptaker) Number 6 of 2023, utilizing two mechanisms, namely Article 110A and 110B.

Referring to the results of the national palm oil reconciliation identification in 2019, the palm oil plantations in Indonesia cover an area of 16,381 million hectares. Of that area, 13,009 million hectares are located outside of forest areas and 3,372 million hectares are within forest areas.

Director General of Land Dispute and Conflict Management at the Ministry of Agrarian and Spatial Planning/National Land Agency (ATR/BPN), Iljas Tedjo Prijono, stated that the legalization of palm oil plantations in the middle of forest areas is currently underway. In the process, the ATR/BPN Ministry is coordinating with the Ministry of Agriculture and the Ministry of Environment and Forestry.

Out of 3,372 million hectares of palm oil land in forest areas, 2,659 million hectares have not yet been processed or requested for processing. Meanwhile, those in the process of settlement based on Article 110A of the Omnibus Law on Job Creation cover an area of 713,299 hectares.

"The government has also issued 75 ministerial decrees regarding the release of forest land for palm oil plantations covering an area of 362,820 hectares," he said.

Also read: Cleaning Palm Oil Ownership in Forests Needs to be Transparent

Palm defense system

During the meeting, the government also committed to developing sustainable palm oil. This is especially to face the EU which will fully implement EUDR in 2025. This regulation requires a number of commodities, including palm oil, entering the EU market to be certified by verification or due diligence.

Geolocation-based or satellite image-based certificates, as well as Global Positioning System (GPS) coordinates, are required to prove that certain commodities do not come from deforested land. Large companies are given 18 months and small companies 24 months to comply with various requirements under regulations that have been in effect since June 29, 2023.

Also read: European Union: EUDR Due Diligence Requirements Are Irreplaceable

Director General of America and Europe at the Ministry of Foreign Affairs, Umar Hadi, stated that the export market of CPO and its derivative products is still relatively good despite the decrease in demand from several countries. Indonesia's biggest task is to face several EU policies, including EUDR.

"The discussion on the palm oil issue is still challenging, especially in the negotiation of the Indonesia-European Union Comprehensive Economic Partnership Agreement (IEU CEPA). Indonesia is trying to anticipate it by seeking alternative palm oil export markets in South Asia, the Middle East, Africa, and Latin America," he said.

Coordinating Minister for Economic Affairs, Airlangga Hartarto, added that Indonesia is preparing the Indonesian Palm Oil Defense System in response to the EU's policy. The system includes the legalization of palm oil land in forest areas, sustainable palm oil certification through ISPO, and tracing the location of oil palm trees.

The legalization of palm oil plantations in forest areas is currently being developed and the implementation of ISPO certification is also increasing. ISPO also includes tracing the origin of palm oil plants, so this can be used as a basis for considering EUDR requirements.

"The tracing system will be improved by the Ministry of Agriculture, Geospatial Information Agency, Ministry of Land and Spatial Planning, Ministry of Environment and Forestry, and BPDPKS. If possible, we will prepare it within three months so that it can be announced and become an echo for EUDR, which will be fully implemented in 2025," said Airlangga.

Based on data from the Ministry of Agriculture, as of March 2024, the number of ISPO certificates issued was 1,050, consisting of 969 company certificates and 81 cooperative/smallholder certificates for palm oil plantations. The certified palm oil plantation area (ISPO) covers 5.6 million hectares of the total palm oil land in Indonesia.

Also read: Sustainable Palm Oil