JAKARTA: Indonesian plantation players say they can supply the additional crude palm oil (CPO) needed this year under the government’s latest biodiesel mandate but warn sustaining the policy will require significantly higher production in the years ahead.
The July 1 mandatory increase in palm-based biodiesel to a 50% blend from 40% is expected to lift domestic CPO consumption for biodiesel to between 16.3 million tonnes and 17 million tonnes annually.
Producers expect national CPO output of around 53 million tonnes in 2026, which should leave enough supply to fulfill the higher domestic demand for fuel.
“This year should be safe, because the additional 1.74 million tonnes needed for B50 can still be met from current production capacity,” Indonesian Palm Oil Association chairman Eddy Martono told The Jakarta Post last Friday.
Whether that remained the case next year would depend on production, Eddy said, noting that output could be affected if this year’s El Nino weather pattern weighed on harvests.
The country needed to raise annual CPO production to between 55 million tonnes and 60 million tonnes, he added.
Smallholder growers say the country does not need to expand oil palm plantations to support the B50 mandate as it could produce substantially more CPO simply by improving yields on existing farms through faster replanting.
Moreover, smallholders account for about 40% of the country’s oil palm area, but much of it is planted with aged, low-yield trees.
Replacing them with higher-yielding varieties through the government’s smallholder replanting programme would significantly increase output without opening new land, said Gulat Manurung, chairman of the Indonesian Oil Palm Farmers Association.
“The answer is productivity, not expanding plantation area,” Gulat told the Jakarta Post on Monday, adding that accelerating replanting should become mandatory, because progress had remained slow since the programme began in 2017.
However, financing the replanting effort could become more difficult as the B50 mandate expanded, he said.
The mandate would divert around 19 million tonnes of CPO into domestic consumption, potentially reducing exports by four million to five million tonnes.
As more CPO is diverted to the domestic market, exports are expected to fall, reducing proceeds from export levies that fund the Palm Oil Plantation Fund Management Agency (BPDP), the agency that finances biodiesel subsidies and smallholder replanting.
He warned weaker levy collections could leave the BPDP with less funding for both programmes just as the country needed higher plantation productivity.
Export levies are ultimately reflected in lower prices for fresh fruit bunches (FFB), the harvested oil palm fruit sold to mills, with growers estimated to lose around 445 rupiah per kilogramme sold under the current structure.
Even so, farmers remain supportive of B50 after stronger FFB prices under the previous B40 programme more than offset the levy burden, he said.
“We have to immediately carry out replanting and improve plantation productivity so exports are not disrupted.
“We cannot cut ourselves off from the export market,” Gulat said.
Indonesia, the world’s largest producer and exporter of palm oil, is expanding domestic use of the commodity as President Prabowo Subianto pushes to reduce diesel imports to achieve energy self-sufficiency.
Energy and Mineral Resources Minister Bahlil Lahadalia said B50 would boost domestic demand for CPO and provide market certainty while maintaining price stability at the farmers level.
The ministry had increased biodiesel allocation for this year by 12.5% to 17.6 million kilolitres from the original 15.64 million kilolitres under the B40 programme, Eniya Listiani Dewi, the ministry’s renewables director general, said.
The ministry estimates that B50 will increase avoided carbon dioxide emissions to 44.46 million tonnes this year from 39.66 million tonnes under B40.
To prevent greater biofuel demand from spilling over into cooking oil supply, the ministry has also tightened distribution rules through Trade Ministry Regulation No 20/2026.
The regulation requires producers to prioritise domestic supplies of packaged cooking oil, including the government’s subsidised Minyakita brand, regardless of global market conditions, while fulfilling biodiesel obligations.
Total CPO demand would rise to about 77 million tonnes under B50 from around 64 million tonnes under B40, with most of the increase coming from biodiesel consumption, according to a quarterly outlook by the Indonesia Palm Oil Strategic Studies published on July 8. -— The Jakarta Post/ ANN
