T

he Indonesian Palm Oil Producers Association (Gapki) last week reelected its chairman, Joko Supriyono, without fanfare. Serving the lobby group for the next five years, Joko is facing an uphill battle to maintain palm oil as the biggest contributor to Indonesia’s exports.

The palm oil industry relies on exports. As the world’s largest palm oil producer, Indonesia exported 31 tons of palm oil last year, or 75 percent of its total output, bringing US$22.9 billion in foreign exchange revenue.

The commodity has become a more important part of the economy because smallholders own 42 percent of around 11 million hectares of oil palm plantations. In addition, the sector directly employs 4 million people, and 12 million people indirectly depend on the sector.

However, the challenges are daunting as more and more markets of Indonesian palm oil are raising trade barriers, starting from the European Union, India and lately the United States. The US Commerce Department last month imposed more punitive import duties on biodiesel from Indonesia and Argentina.

Indonesia exported 350,000 tons of palm oil-based biodiesel to the US in 2016. The duties will make it impossible for Indonesia’s biodiesel to enter the US market, with combined rates of up to 341 percent. The US insists that Indonesia subsidizes its biodiesel.

The US apparently misunderstood the disbursement of the hundreds of millions of dollars fund from the semi-government agency, the Oil Palm Plantation Fund Management Agency (BPDP Kelapa Sawit), to biodiesel producers as a subsidy.

BPDP Kelapa Sawit chairman Dono Boestami has argued that the funds the agency gives out to biofuel producers are collected from palm oil exporters, not from the government.

The government plans to challenge the US ruling at the World Trade Organization. It could be a futile effort, though, considering the attitude of the US president to international trade.

In addition to the US, Indonesia has long lost its biodiesel market in the EU after the grouping raised dumping duties of between 8.8 and 20.5 percent in 2013. A year earlier, Indonesia exported 1.2 million tons of biodiesel to Europe worth almost $1 billion. After the duties, exports of Indonesia’s biodiesel plunged to $14.7 million in 2015 before inching up to $29.8 million in 2016.

In January, the European Parliament voted on the revision of its renewable energy directive, which seeks to replace food-based biofuels with more advanced ones. Although it is just one step in the complex EU legislative procedure, it sends a strong signal that palm oil products have a bleak future in Europe.

Indonesia now needs to find other export markets for its biodiesel because it has a large installed capacity of around 11.36 million tons of biodiesel per annum, and yet the market — both domestic and international — absorbs far less than half that number.

Some industry players mention that the only hope for Indonesia comes from China. The country is now considering whether to adopt a B5 policy, requiring biodiesel to be mixed with 5 percent renewable elements. If China moves ahead with the plan, this will create a potential demand for 9 million tons of biodiesel, a huge opportunity given the loss of markets in the EU and now the US.

Unlike the EU and the US, China is considered friendly to Indonesia’s palm oil industry. China imported 3.2 million tons of palm oil products in 2016, the third-biggest buyer after India and the EU.

Finding alternative markets such as China is becoming more important now, considering the trade barriers in traditional markets and mass campaigns by non-governmental organizations (NGOs) against palm oil.

As well as facing higher trade barriers overseas, the commodity is also suffering from mounting negative campaigns against the product. If not handled well, people in developed countries would eventually think that palm oil is destroying forests and worse of all, is unhealthy.

Speaking at the Gapki national gathering last week, Trade Minister Enggartiasto Lukita revealed that his trade attaché stationed at the Indonesian Trade Promotion Center in Lyon, France, is facing a lawsuit for a campaign that stated palm oil was a healthy edible oil.

Enggartiasto said he would deploy his ministry’s resources to defend the attaché, saying a loss in the legal battle would have negative consequences for the future of the commodity in Europe.

While international NGOs tirelessly campaign to protect the environment, which has contributed to the strengthening of government and business commitment to sustainably manage palm oil, the campaign that palm oil is unhealthy is killing the industry.

The only way to counter such a campaign is through more aggressive campaigns, supported by studies, that palm oil is healthy, just like other edible oils. Joko, Gapki and the government have to start the campaign now. Otherwise, it will be too late.
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