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Indonesia’s palm oil finds silver lining in biofuel, China
As Indonesia, the world’s top palm oil producer and exporter, commits to fighting the European Union’s ban on the use of palm oil for its member countries’ biodiesel, it may find solace near home
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s Indonesia, the world’s top palm oil producer and exporter, commits to fighting the European Union’s ban on the use of palm oil for its member countries’ biodiesel, it may find solace near home.
President Joko “Jokowi” Widodo has asked stakeholders to speed up the mandatory proportion of diesel blended with crude palm oil (CPO) from 20 (B20) to 30 percent (B30) by January next year, and 50 percent (B50) by the end of 2020, hence pushing up the domestic use of palm oil.
Coincidentally, China will remove import tariffs for palm oil in a move that will open up new markets for Indonesian palm oil.
“We need to anticipate pressures on CPO [by driving up] domestic demand and so that we can have good bargaining positions, whether with the European Union or other parties that try to weaken our bargaining position,” President Jokowi told a press briefing on Tuesday.
Palm oil, a top plantation contributor for tropical Indonesia, is a significant foreign exchange revenue generator for the country and has contributed 1.5 to 2.5 percent to gross domestic product. Smallholder palm oil farmers account for more than 3 million hectares of land in the country.
The European Commission decided in March to completely phase out the use of palm oil by 2030 as it is considered a high-risk vegetable oil over deforestation concerns, sparking a trade spat between the EU, one of the world’s top importers of palm oil, and producing countries Indonesia and Malaysia.
During a bilateral meeting in Malaysia last week, President Jokowi and Malaysian Prime Minister Mahathir Mohamad agreed to “fight against palm oil discrimination”, Indonesian Foreign Minister Retno LP Marsudi said.
“We are keeping an open approach. Let’s cooperate. However, if we face constant discrimination, then Indonesia and Malaysian will certainly not stay silent. We will fight,” Retno said.
The agreement came after the latest spat with the EU over biodiesel, a CPO derivative, in which the 28-member bloc had accused the Indonesian government of subsidizing biodiesel producers such as through the Indonesian Oil Palm Estate Fund (BPDP-KS) incentive as well as export financing from Indonesia Eximbank. As a consequence, the EC proposed imposing temporary duties on biodiesel imports produced by Indonesian companies.
By speeding up of the adoption of B30 and B50, the government is aiming at jacking up local demand for palm oil at a time when India, the top importer of Indonesian palm oil, increases duties on the commodity while demand from the EU dwindles. It is also expected to reduce imports of fossil fuels that have pressured Indonesia’s trade balance.
According to Statistics Indonesia (BPS), the country’s diesel imports during the January-October period of 2018 reached 12.9 million kiloliters which is valued at $2.87 billion.
Speaking after the Cabinet meeting on Monday, Coordinating Economic Minister Darmin Nasution said the Energy and Mineral Resources Ministry was conducting tests over the usage of B30, which was expected to be finished by mid-September. He added that so far, there were no serious issues found in the tests.
Furthermore, the government is now studying the possibility of using B100. A trial for the use of B100 was conducted by the Agriculture Ministry in April involving 50 of the ministry’s official cars and tractors.
“We are conducting evaluations on the road tests while they are going on,” Energy and Mineral Resources Deputy Minister Arcandra Tahar said separately on Monday.
As the government is trying to jack up domestic consumption of palm oil, news surfaced last week from China that the Chinese Commerce Ministry removed palm oil — among other commodities — from its import tariff quota.
As a repercussion of Chinese companies deciding to stop buying United States agricultural products in light of the ongoing trade war with the US, the move is expected to boost Indonesian palm oil exports to China, the only major export destination of the commodity that showed positive growth in the first half in comparison to other palm oil export destinations such as the EU and India.
“Their willingness to lower this barrier is a positive development and the effect is big because this highly relates to China’s staple needs,” said Lakshmi Sidarta, secretary-general of the Indonesian Palm Oil Association (GAPKI). “They consume a huge amount of vegetable oils but palm oil comprises only a small part of it.”
