CIFOR/Yayan Indriatmoko

BOGOR, Indonesia (8 July, 2013) – High demand for edible palm oil in India, China and at home has made Indonesia the top global producer of crude palm oil, according to statistics compiled by scientists at the Center for International Forestry Research (CIFOR).

Here are some key facts about Indonesia’s palm oil:

INDONESIA AS OIL PALM PRODUCER

• In recent years, the oil palm plantation and palm oil processing sectors have become a key part of Indonesia’s economy

• The growing demand for edible oils domestically and internationally created conditions in which Indonesia has become the global leader in terms of the cumulative area of oil palm plantations and Crude Palm Oil (CPO) production

• In 2011, oil palm plantations covered 7.8 million hectares in Indonesia, out of which 6.1 million ha were productive plantations under harvest

• In 2010, these plantations produced 22 million tonnes of CPO, while in 2011 the yield was 23.5 million tonnes

• By 2020, Indonesia plans to double the current production of CPO to 40 million tonnes annually and expand its oil palm plantation portfolio by additional 4 million hectares

• High demand for edible oils from emerging economies in Asia such as India and China and high levels of domestic consumption are the main driving forces behind this growth

• Approximately half of Indonesia CPO production is exported in unprocessed form. Most of the remainder is processed into cooking oil and about half of this is exported as well, according to the World Bank. The rest is consumed locally

• About 75 percent of plantation estates and CPO production are located in Sumatra and Kalimantan, areas in Indonesia with a long history of oil palm cultivation, both in the form of large-scale estates as well as smallholder operations (Almost half of the overall plantation area is managed by smallholders and it is believed that smallholder operations have contributed significantly to the expansion of oil palm estates in recent years)

ECONOMICS AND THE OIL PALM SECTOR

• Weak law enforcement in the forestry and plantations sector is problematic. Despite anti-fire regulations, there has been little, or no prosecution in the law courts over detected violations. If plantation companies are found to be responsible for the current haze episode, they must be held accountable

• The oil palm sector, particularly CPO production, is an important source of government revenues. The main source of these revenues is the export tax; this ranges from 0 percent (if the export reference price is less than $500 per tonne) to 25 percent (when the domestic reference price exceeds $1,300 per tonne), according to the World Bank

• In 2008, CPO generated $12.4 billion in foreign exchange from exports; in the same year, the government earned at least $1 billion in export tax

• The oil palm sector in Indonesia is estimated to employ up to 0.4 persons per hectare, this means that nearly 8 million hectares of oil palm plantation estates established by 2011, provide direct employment to about 3.2 million people

• The job-generating potential is viewed as important for poverty alleviation in Indonesia, where about 30 million people (or 15 percent of the population) live under the poverty line

• The expansion of oil palm plantation estates is also seen as important for infrastructure development in rural Indonesia

• This is particularly true in the case in the hinterlands of the outer islands where public infrastructure (roads, electricity, telecommunications) is limited and its development expensive if borne by the government alone

ENVIRONMENT AND OIL PALM ESTATES

• Potential benefits come at the expense of Indonesia’s natural forests. At least half of the 8 million hectares of currently productive plantations have been developed through prior deforestation

• It is also clear the current smog crisis is at least in part caused by the clearing of land for plantation estates

• Land acquisition for oil palm estates frequently results in conflicts between customary land owners and plantation developers over the terms of land deals and levels of compensation

• These problems have led to difficulties for the Indonesian oil palm companies in marketing CPO in eco-sensitive markets such as the European Union

• The Indonesian government is responding to this by implementing the Indonesian ISPO scheme, which becomes mandatory for all oil palm companies in the country by end of 2014.

REFERENCES

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For more information on the issues discussed in this article, please contact Krystof Obidzinski at k.obidzinski@cgiar.org

This research was carried out as part of the CGIAR Research Program on Forests, Trees and Agroforestry.