Indonesia Palm Oil Industry Outlook (2017-2030): Based on Origin, Based on Product, Based on End-use with COVID-19 impact

Indonesia Palm Oil Industry Outlook

Indonesia palm oil industry has seen a robust growth over the decade. Palm oil is one of the world’s most produced and consumed oils. This oil is cheap, production efficient and highly stable oil, which is used in variety of food, cosmetic and hygiene products, and can be used as source for bio-fuel or biodiesel. Global palm oil production is dominated by Indonesia and Malaysia. These two countries, together account for 85-90% of total global palm oil production. Indonesia is the largest producer and exporter of palm oil worldwide. From a very long time, Indonesian palm oil demand shows an increasing trend as an expanding population in the country, gives rise to rising consumption of food and cosmetic products that contain some sort of material that is derived from palm oil. Meanwhile, government in the country also encourage the use of biofuel.  

Indonesian Palm Oil Production and Export

Few Indonesian industries have shown robust growth as the domestic palm oil industry during the past 20 years, owing to the country’s rapidly rising production and export figures as well as by the growing quantity of its palm oil estate area. In 2018, there was an output of around 40.6 million tons of palm oil, out of which 29.3 million tons of volume was exported by the country. Driven by increased global demand and higher yields, palm oil cultivation has been expanded significantly by Indonesian farmers and conglomerates. The majority of Indonesia’s palm oil output is exported, as in 2016, out of total production of 32 million tons, approximately, 27 million tons of palm oil, which was valued around USD 18.6 billion, exported from the country. The most important export destination countries are China, India, Pakistan, Malaysia, and the Netherlands. However, Indonesia also imports some palm oil, primarily from India, but the numbers are very insignificant. Further, production of palm oil has grown rapidly in Indonesia over the last decade. In 2016, the plantation size of country was valued around 11.8 million hectares. Almost 70% of Indonesia’s oil palm plantation are located on Sumatra, and the remainder 30% is largely found on the island of Kalimantan. The Indonesian Palm Oil association (Gapki), said its target is to see Indonesia producing at least 40 million tons of CPO (Crude Palm Oil) per year from 2020. In terms of agriculture, palm oil is the most important industry of Indonesia contributing between 1.5% - 2.5% of the nation’s gross domestic product (GDP).

Who own the palm oil plantations in Indonesia?

State owned enterprises play a very modest role in the Indonesian palm oil sector as they own relatively few plantations. Meanwhile, big private enterprises, such as, the Wilmar Group and Sinar Mas Group, are dominant, producing over half of total Indonesian palm oil output. Whereas, smallholder farmers account for around 40% of total production. However, most of these smallholder farmers are highly vulnerable to global downswings in palm oil prices as they cannot enjoy the cash reserves or bank loans, that big planters have at their disposal.

Factors that influence palm oil prices

• Supply & demand
• Prices of competing vegetable oils (especially soybeans)
• Weather conditions
• Import policies of importing countries
• Changes in taxation and export-import duties
• Major Players of Palm Oil Industry

The Government’s Palm Oil Tax Policy

To spur growth in the downstream palm oil industry, the export tax on refined palm oil products has been slashed in recent years. Meanwhile, the export tax for CPO ranges between 0 and 22.5% depending on the international palm oil price. Indonesia has an ‘automatic mechanism’ that when the government benchmark CPO price, based on both the international and local CPO prices, drops below USD 750 per metric ton, the export tax is cut to 0%. As this 0% export tax for CPO meant the government missed out on a big chunk of much-needed tax revenue from the palm industry, so it decided to introduce the palm oil export levies in mid-2015. And through this new policy the government imposed a USD 50 per metric ton levy on crude palm oil exports, and a USD 30 per metric ton levy exports of processed palm oil products.

Indonesia Palm Oil Market Segmentation

Based on Origin

• Organic
• Conventional

Based on Product

• Crude Palm Oil
• RBD Palm Oil
• Palm Kernel Oil
• Fractionated Palm Oil

Based on End-use

• Food & Beverage
• Personal Care & Cosmetics
• Biofuel & Energy
• Pharmaceutical
• Industrial (Surfactants, Lubricants, etc.)

Factors driving the long-term growth of the Indonesia palm oil industry

• Big profit margins, as the product is simple to produce
• Large and increasing international demand
• Crude palm oil (CPO) production costs in Indonesia are the lowest worldwide
• Higher rates of productivity compared to other edible oil products
• Bio-fuel is expected to increase its significance at the expense of gasoline

Factors that hamper development of Indonesia’s palm oil industry

• Awareness of the need for more environment friendly policies
• Land disputes with local communities due to lack of clarity regarding land ownership
• Indonesia is known for its legal and regulatory uncertainty
• High logistics cost due to the lack of quality and quantity of infrastructure

Overview of Indonesia Palm Oil Industry

In 2019, the palm oil in Indonesia amounted to around USD 46 million metric tons. The production volume in 2020 was expected to remain flat, due to low fertilizer usage and dry weather. In 2019, the country’s total palm oil exports amounted to 30 million metric tons, and this is projected to increase in 2020, despite reduced demands in a key market, India. The value of Indonesia’s total palm oil exported around 29.5 million metric tons, which amounted to approximately USD 15.8 million, in 2019. The country exported around 4.6 million metric tons of palm oil to India in 2019, while China being the largest export market for Indonesian palm oil. Further, the country has the domestic consumption of palm oil of around 12.7 million metric tons out of the approximately 35 million tons of crude palm oil (CPO), produced in 2018, which is expected to increase in the coming years, due to the planned expansion of palm usage in biodiesel. In 2018, the total export volume of CPO in Indonesia was approximately 28 million metric tons.

First-half of 2020 contraction in palm oil output due to ‘domino-effect’

Indonesia, the biggest palm producer in the world, saw production and exports of the commodity contract in the first half of the year due to economic impacts of the pandemic as well as rolling impacts of drought and a price crash from the previous years. The half year production of crude palm oil (CPO) and palm kernel oil (PKO) had declined 9.2% year-on-year to around 23.5 million tons. While COVID-19 health crisis played a role in this decline in oil production, but the main cause of the decline is not really COVID-19, but rather, the domino effect of the palm oil price crash, which pushed down palm oil cultivation and fertilizers sales. With the decline in palm oil production in the first half of 2020, exports also fell by 11.5% year-on-year to 15.6 million tons from 17.6 million tons. Further, palm oil exports to all major destinations had declined except for exports to India, the United States, and Pakistan, which grew by 23%, 7% and 1%, respectively. Also, the domestic consumption of the palm oil, in the first half of 2020 posted a slight y-o-y increase of 2.85% to 8.7 million tons mainly due to increased production of oleochemicals during the pandemic.

Major players of Indonesia Palm Oil Industry

• Cargill
• Wilmar International
• PT Salim Ivomas Pratama Tbk
• Astra Agro Lestari Tbk PT
• PT SMART Tbk
• Tunas Baru Lampung Tbk
• London Sumatra Indonesia Tbk
• PT Socfin Indonesia
• Asian Agri

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Key questions answered in this Indonesia Palm Oil Industry Outlook Report

• What is the total market size by 2030 and what would be the expected growth rate of market?
• What is the total revenue per segment and region in 2016-17 and what would be the expected revenue per segment and region over the forecast period?
• What are the key market trends?
• What are the factors which are driving this market?
• What are the major barriers to market growth?
• Who are the key vendors in this market space?
• What are the market opportunities for the existing and entry level players?
• What are the recent developments and business strategy of the key players?

Reasons to buy this market study

• Facilitate decision-making based on strong historic and forecast data for Indonesia Palm Oil Industry
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• Respond to your competitors’ business structure, strategy and prospects
• Strategically analyze micro-markets with respect to individual growth trends, future prospects, and their contribution to the market
• Analyze competitive developments such as expansions, investments, mergers & acquisitions, new product developments
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• To strategically profile key players and comprehensively analyze their market shares and core competencies