T

he country may see a decline in palm oil exports mainly due to stagnant production and greater domestic consumption following a government regulation on increased biodiesel mix in diesel fuel, according to the Indonesia Palm Oil Board.

Derom Bangun, the board'€™s chairman, said the country needed to revise this year'€™s crude palm oil (CPO) production target as production would be stagnant due to inclement weather.

Aside from that, the country also needed to allocate a larger portion of the CPO output to biodiesel production causing export volumes to decrease.

Derom said that the country had previously aimed for 28 million tons of CPO production this year, but due to a prolonged rainy season, which hampered oil palm cultivation, Indonesia might only produce 26.7 million tons of CPO by the end of 2013.

Last year, the country produced 26.5 million tons of CPO, a 12.76 percent increase compared to 23.5 million tons in the previous year.

'€œIf the government'€™s policy of increasing the biodiesel mix to 10 percent in diesel fuel goes according to schedule in October, it will push national biodiesel consumption to 1.2 million kiloliters this year,'€ he said

'€œIt will further impact CPO exports, which might decline to 19 million tons this year compared to 20 million tons last year, considering the idle production.'€

Given the country'€™s annual diesel consumption of 33 million kiloliters, 10 percent means 3.3 million kiloliters of biodiesel or equal to 3 million tons of CPO.

The government is trying to reduce oil and gas imports by raising the proportion of biodiesel in diesel fuel from 7.5 percent to 10 percent, while also making the requirement to blend the fuel mandatory.

The policy is among a package of economic stimulus measures announced last month to spur economic growth and stabilize the weakening rupiah, and is expected to come into effect in October. It is projected to cut the country'€™s fuel imports by at least 100,000 barrels per day (bpd) for the rest of the year.

Derom said that there would also be a possible decline in palm oil exports next year, triggered by a new rule in the European Union (EU) that compels food makers to label their products with the ingredient if used.

As of December 2014, food producers in the EU will be obliged to announce on their labels whether they use rape oil, palm oil, soy oil or any other oil, which are all currently labeled simply as vegetable oil.

Palm oil imports to the EU account for 10 percent of global production, and nearly half is imported through the Netherlands, Reuters reports.

An EU study released last year found that extra demand for food crops such as palm oil for the production of biofuels could have a significant impact on climate change in terms of indirect land use change.

'€œWith such a rule being introduced, Europeans who are influenced by negative campaigns carried out by environmental groups may well think twice before purchasing a product with '€˜Palm Oil'€™ labeled on its packaging,'€ he said.

'€œPalm oil contributes greatly to the state budget and it is important for the government to allocate funds to counter the negative campaigns in that region by conducting green campaigning and research. We have the mandatory ISPO [the Indonesia Sustainable Palm Oil certification] that shows Indonesia is committed to sustainable agricultural practices,'€ he added.

Indonesia, the world'€™s largest palm oil producer, has been expanding its oil palm estates by 200,000 hectares a year.

Oil palm plantation expansion has long been blamed for rampant deforestation, while high demand for palm oil has driven rapid forest loss in several areas such as in Sumatra and Kalimantan.