Indonesia is set to strengthen its palm oil industry by encouraging stakeholders to comply with Indonesia Sustainable Palm Oil (ISPO) certification and strengthening the domestic market to anticipate lower demand from the European Union.

The ISPO certification could help the country’s palm oil sector in combatting negative campaigns, Vice President Ma’ruf Amin said during his remarks at the International Palm Oil Conference 2019 in Nusa Dua, Bali, on Oct. 31.

“We are hoping that through the ISPO, we can reduce negative sentiments about Indonesian palm oil. The campaign to put an end to misunderstandings about palm oil should be enhanced,” said Ma'ruf in Bali on Thursday.

The ISPO is a government certification scheme issued under a ministerial regulation and as such is legally binding, with all palm oil producers in Indonesia obliged to follow it. The content of ISPO is, in essence, a compilation of all government regulations applied to oil palm plantations such as the legality of plantation businesses and the protection of peatland and natural forests.

The government is encouraging stakeholders, including companies and smallholders, to comply with the ISPO to ensure the sustainability of local products. As of the third quarter, 566 companies had acquired the ISPO certificate covering more than 5 million hectares of plantations.

It has agreed to bear the costs incurred by smallholders in obtaining certification so that they can ensure good agriculture practices in their oil palm plantations and assure foreign buyers that all the palm oil exports meet environmental standards.

Palm oil, Indonesia’s top export commodity, has been facing challenges from abroad as the European Commission decided in March to completely phase out the use of biofuel by 2030, considering palm oil, one of the biofuel components, as high-risk vegetable oil due to deforestation concerns.

The EU is Indonesia’s second-largest importer of palm oil after India, with the former purchasing around 4.78 million tons in 2018.

The European Commission also slapped temporary duties of 8 to 18 percent in September on the import of biodiesel, a palm oil derivative produced by Indonesian companies, over allegations that palm oil companies in the country received various incentives and special subsidies from the government.

Despite the EU’s decision, Indonesian palm oil export reached 22.65 million tons as of August, an increase of 3.8 percent year-on-year (yoy), according to the Indonesian Oil Palm Association (GAPKI).

Palm oil is a key plantation crop for tropical Indonesia as it generates significant foreign exchange revenue for the country and has contributed 1.5 to 2.5 percent of GDP. Smallholder oil palm farmers own more than 3 million hectares of land in the country.

GAPKI chairman Joko Supriyono said the government would need to push for policies that could strengthen the palm oil industry’s domestic demand.

“We will need to create new demand by strengthening the domestic market as the country has enormous potential for renewable energy,” said Joko during the same event, which was the country’s biggest palm oil conference. He added that improving the domestic market would allow the country to reduce dependency on foreign markets.

The government has sought to boost domestic market consumption of palm oil by implementing the mandatory B30 biodiesel program early next year, aiming to reduce fossil fuel imports from other countries. The biodiesel will use 30 percent of palm oil in its content.

“The biodiesel 20 percent policy has absorbed more than 4 million tons of palm oil and we are projecting that it will absorb 6.4 million tons by the end of the year,” said Ma’ruf, adding that the B30 program was expected to absorb around 9 million tons by the end of next year.

GAPKI spokesperson Tofan Mahdi told The Jakarta Post that industry players were ready to anticipate the country’s rising demand for palm oil. “We are ready to supply the country’s palm oil for biodiesel.”

Tofan added that there were several other new potential markets for local palm oil products namely Eastern Europe, Middle East and Africa.

“We should also persuade China to switch from soybean oil to palm oil as the trade war with the US heightens,” he said.

Chinese companies have stopped buying American agricultural products and the Chinese government may also impose additional tariffs on United States farm products, including soybean oil, according to Reuters. This has led to hope that the export of palm oil to China will rise.

However, Council of Palm Oil Producing Countries executive director Yusof bin Basiron said that instead of increasing palm oil imports, China had turned to Brazil to fulfill its demand for soybean oil.

“However, soybean production in China has also decreased, so that means they have to import other oil to fulfill the country’s needs,” Yusof told the Post, adding that the situation had led to higher palm oil shipments to China from producers, including Indonesia, over the last few years.

In the first half of the year, China was the main importer of the country’s palm oil products, followed by India, Pakistan and the EU.

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