Indonesia’s Palm Oil Sector Faces Structural Hurdles Despite Economic Promise, Officials Say

Yeka Hendra Fatika, Chair of Indonesia’s Ombudsman, highlighted the core challenges facing the country’s palm oil industry. FB: YHF.

Jakarta | May 15, 2025 —  Sawit Asia: 

Indonesia’s palm oil industry remains a key pillar of the national economy, playing a crucial role in supporting food security and the country’s transition toward renewable energy. Its contributions make it one of the most strategically important sectors for Indonesia’s development.

However, its long-term viability is increasingly under threat. Experts at a closed-door policy roundtable hosted by the National Development Planning Agency (Bappenas) in Jakarta on Wednesday pointed to deep-rooted challenges such as institutional fragmentation, falling productivity, and intensifying global scrutiny of environmental and labor practices.

Speaking at the event, Yeka Hendra Fatika, a commissioner with the Indonesian Ombudsman, warned that systemic inefficiencies—rather than market fluctuations—are hampering the sector’s progress.

“We are dealing with poor farmer productivity, limited replanting programs, and a widespread lack of understanding of sustainable agricultural practices,” Yeka said, citing low awareness of certification systems like the Roundtable on Sustainable Palm Oil (RSPO) and the Indonesian Sustainable Palm Oil (ISPO) standard.

Many smallholders, he added, perceive such certifications as costly and bureaucratically burdensome, making them inaccessible to grassroots farmers.

Internal Pressures and External Headwinds

Domestically, the sector contends with climate volatility, pest outbreaks, and waning interest among younger generations in plantation farming. But global dynamics pose an equal—if not greater—challenge. 

Yeka pointed to increasingly stringent international sustainability regulations, such as the EU’s Forced Labor and Human Rights legislations, which he said risk marginalizing small-scale producers.

“Divergent sustainability standards and non-tariff trade barriers are making it harder for our farmers to stay competitive,” he noted.

Lack of interagency coordination also undermines national replanting initiatives and data collection efforts. According to the Council of Palm Oil Producing Countries (CPOPC), strengthening farmer cooperatives and inter-farmer networks will be key to driving future resilience.

Structural Reforms on the Table

The discussion identified several priority reforms—many still under government review—including:

• Resolving Land Overlaps: The government is urged to address overlapping land claims between smallholder plantations and state forest zones. Legally recognized smallholder plots should be removed from disputed forest areas immediately.

• Streamlining Permits and Governance: Licensing systems must be modernized, and administrative frameworks restructured to accelerate the registration of smallholder farms and ensure full ISPO compliance across the value chain.

• Integrated Mill Licensing: The permitting process for palm oil mills should be harmonized between the Ministry of Industry and the Ministry of Agriculture to reduce bureaucratic bottlenecks.

• Market Governance Overhaul: Authorities are encouraged to enact a unified policy framework for domestic and export trade, including mechanisms to stabilize fresh fruit bunch (FFB) prices and enforce compliance among corporate players. An equitable export levy scheme is also under consideration.

• Formation of a National Palm Oil Authority: To ensure unified oversight, officials proposed the creation of a centralized national agency reporting directly to the President. This body would coordinate all upstream and downstream industry functions, from land use to trade policy.

The policy forum is part of a broader effort to draft a medium- and long-term institutional strategy for Indonesia’s palm oil sector.

Above all, stakeholders stressed the importance of protecting smallholder interests.

“Regulatory realignment must be paired with stronger political will to support independent farmers,” one official noted, underscoring that the future of Indonesia’s palm oil industry rests not just on global markets—but on domestic equity.

Despite the economic weight of the palm oil industry—one fiercely contested by many nations—facing mounting challenges, Yeka Hendra Fatika, a commissioner with the Indonesian Ombudsman, stands out for his apparent alignment with the interests of smallholders and the Indonesian people. We await his concrete actions.

-- Rangkaya Bada/SawitAsia.com