Indonesia’s efforts to maintain strong palm oil production growth is challenged by low productivity of smallholders and spatial planning disagreements between central and local governmental authorities.
THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY
USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT
Required Report - public distribution
GAIN Report Number: ID1139
Oilseeds and Products Update
Jonn Slette/Ibnu Edy Wiyono
Post predicts that Indonesian palm oil exports will reach 16.95 million metric tons in marketing
year 2010/2011. This is a decrease over the initial estimates of 17.15 million metric tons.
The Indonesian feed industry used 2.945 million metric tons of soybean meal in marketing year
2010/2011. Post estimates that soybean meal usage will increase to 3.1 million metric tons
during the next marketing year.
Indonesia?s soybean production dropped by 6.47 percent to 655,000 metric tons in marketing
year 2010/2011 due to decreased harvested areas and stagnant yields.
Indonesia produced 23.6 million metric tons (MMT) of palm oil in marketing year (MY) 2010/2011.
Post predicts that Indonesia?s palm oil production will continue to grow by an additional 1.8 MMT in
the next marketing year due to an increased harvested area and moderate yield improvements.
Indonesia?s efforts to maintain strong palm oil production growth is challenged by low productivity of
smallholders and spatial planning disagreements between central and local governmental authorities.
A recent survey conducted by Ministry of Agriculture showed that the average production of
smallholder oil palm plantations stand at 15 ? 16 metric tons (MT) of Fresh Fruit Bunches (FFB) per FFB (Ton/Ha) OER (%) CPO (Ton/Ha)
hectare. As well, a survey conducted by the Indonesian Oil Palm Research Institute (IOPRI) found an
average oil extraction rate of 20.69 percent for FFB harvested from smallholder plantation in the
provinces of North Sumatra, Lampung, Jambi, South Kalimantan, and Papua. The data from those 1960 DxD, DxT, TxD 23.1 18.8 4.3
studies suggests that smallholder palm oil production ranges from 3.1 to 3.3 MT per hectare per year.
The use of low quality seeds, poor agricultural practices, marginal land and premature harvesting are 7 T, TxD, D P .9 22.6 5.4
some of the main factors that lead to lower levels of productivity in smallholder plantation.
From the perspective of quality and availability of planting material, smallholder planters should not
have too many challenges in obtaining certified oil palm seed. Potential performance of oil palm 1980 DxP 27.2 3.5 6.
planting materials in Indonesia is actually improving as reflected in both higher potential FFB
production and better potential OER (please see the table below).
9 9.8 2 .8 7.1
2000 DxP 30.6 5. .9
1 2.0 26.0 8.3
The production capacity of certified oil palm seed at 223 million seeds per year is also higher than
domestic seed demand at 80 to 120 million seeds during the normal planting periods. A general lack of
knowledge among smallholders is a primary challenges, as planters are unable to differentiate legitimate
seeds from the illegitimate ones. Also, distribution problems have occurred due to centralization of seed
producing companies in Northern part of Sumatra, which prevents smallholders from having easy
access to certified seeds.
Spatial Planning Disagreements
The Indonesian forest moratorium will likely not stop oil palm planting and area expansion, as the
moratorium will respect the planting permits that have been issued by the Ministry of Forestry (MoF).
The data shows that seven provinces on the islands of Kalimantan and Sumatra 11.38 million hectares
of land has been allocated for oil palm. 58 percent of the allocated land (6.6 million hectares) is not yet
under production. The data suggests that the Indonesian palm oil sector has the capacity to maintain its
normal land expansion rate for years to come.
The MoF recently sent a letter to Corruption Eradication Commission (KPK) to prosecute companies
and local District Heads in Kalimantan for their alleged involvement in the issuance of illegal plantation
and mining permits from 2000 to 2007. According to the MoF, the licensing process was illegal
because District Heads allowed plantation and mining activities in forest areas without the proper
approval from the MoF. The MoF, based on recent investigation conducted in early 2011, reported
nearly 6.8 million hectares of land that that was allocated for plantation in Kalimantan is illegal and
subject to revocation.
In 2007, the Government of Indonesia has enacted Law No.26/2007 on spatial planning, which was
supposed to provide a way solve the conflict between MoF and local governments. The law requires
every provincial governors and District Heads to submit a spatial planning draft to Ministry of Public
Work (MoPW). The drafts then will be discussed with MoF, MoPW, local government representatives
and parliament. Once the drafts are approved by parliament, local governments can legalize the draft
and enforce them as a local law on spatial planning.
Thus far, 30 out of 33 provinces, and 198 districts out a total of 497 districts, have filed their drafts with
the GOI. The parliament has approved drafts for 10 provinces, and the governors from these provinces
are in various stages of adoption. Those 10 provinces are Bali, Banten, Yogyakarta, Jakarta, Central
Java, West Java, Lampung, East and West Nusa Tenggara, and South Sulawesi. None of spatial
planning at district level requires approval from the parliament. Disagreements on green open areas
have become a factor that delays approval for other provinces and districts, particularly in regions with
large forests such as Kalimantan and Papua.
The Indonesian Statistical Agency (BPS) data shows that industrial palm oil consumption by medium
and large scale industries tends to fluctuate. According to BPS the average annual consumption grew
at 6.02 percent within 1999-2009 timeframe. If consumption continues growing at that historical rate,
the industry to include food, feed, and biofuel producers will require 6.305 MMT and 6.535 MMT of
palm oil in MY 2010/2011 and MY 2011/2012 respectively.
Post predicts that Indonesian palm oil exports will reach 16.95 MMT in marketing year 2010/2011. This
is a decrease over Post?s previous prediction of 17.15 MMT. India and Europe were primary drivers
behind weaker levels of Indonesian palm oil exports. The ongoing global economic downturn is the
primary reason for Europe?s reduced demand, which is down by almost 38 percent. India?s lower
demand for Indonesian palm oil is mostly because of a new (as of August 2011) Indonesian export tax
scheme. Indonesia recently cut export taxes by 50 percent on refined palm oil. The goals of this policy
are to raise incentives for downstream industries, secure domestic supplies and reduce volatility in
cooking oil prices. India is less interested in importing refined palm oil and wishes to import crude
palm oil for its own refineries. Last year?s data indicates that Indonesia?s refined palm oil exports to
India decreased by 15 percent in MY 2009/2010. It is possible that refined palm oil exports to India
could decrease by an additional 32 percent by the end of the current marketing year. The growing
capacity of Indian palm oil refineries, which currently stands at 15 MMT, supports India?s domestic
stocks of refined palm oil. India is signaling that it intends to increase its import duties on refined palm
oil with the intent of protecting its refiners from Indonesia?s cheaper refined palm oil exports. This may
lead to further Indonesian palm oil export declines to India.
Post predicts that Indonesia?s palm oil exports are likely to increase in MY 2011/2012 to 18.95 MMT.
Post expects this jump as Indonesia will likely begin to export additional palm oil to Pakistan following
the signing of the Pakistan-Indonesia Preferential Trade Agreement (PTA). Post expects Indonesian
exports to Pakistan to be upwards 800,000 MT in the next marketing year. China and other global
markets will also increase their imports of Indonesian palm oil.
Possible rise in Indian Palm Oil Import Duty
Indonesia has reduced export taxes applied to processed and refined products and has raised export
taxes for crude products. The objective is to promote expanded downstream processing of palm oil.
Indian refiners have urged their government to raise import duties on Indonesian refined palm oil
products, which currently stand at 7.7 percents. The refiners argue that Indonesia?s new export tax
policy will put the survival of Indian palm oil refineries at risk. The new tax regime may encourage
processing plants in Indonesia to produce and to export more refined products to India.
India remains Indonesia?s largest palm oil export market for both crude and refined products (33% of
total Indonesian palm oil export). The Indian Ministry of Trade (MoT) is currently still reportedly on
the sidelines with regard to aspiration of country?s palm oil refiners. The growing pressure from the
industry, however, may push the Indian MoT to take measures to protect country?s domestic palm oil
Indonesia-Pakistan Preferential Trade Agreement
Nearly 100 percent of palm oil supply to Pakistan comes from Indonesia and Malaysia. After gaining
growing market share within 2003 ? 2006 periods, Indonesia?s share in Pakistan?s palm oil market
declined significantly since 2007 due to Preferential Trade Agreement (PTA) between Malaysia and
Pakistan. The PTA gradually cut the import duty that was previously imposed on Malaysian palm oil
from 15 percent to zero percent. Consequently, Indonesian palm oil that is still subject to a 15 percent
import duty is less competitive compared to that of Malaysia.
The signing of PTA between Indonesia and Pakistan on September 2011 that will become effective in
2012 is expected to provide room for Indonesia to revive the country?s palm oil exports to Pakistan.
The PTA will cut the import duty imposed on Indonesian palm oil from 15 percent to zero percent in
2012. Reciprocally, Indonesia has to cut import duty imposed on Pakistani Kino citrus oranges from 20
percent to zero percent.
Pakistani palm oil imports have grown annually by 7.06 percent since 2003. Should the growth rate
stay constant, the country is expected to import 2.5 MMT of palm oil in MY 2011/2012. If Indonesia
can quickly increase its market share from current level at approximately 12 percent to 25-40 percent in
the next marketing year, the country can have additional 425,000-800,000 MT of palm oil export in MY
An estimated ending stocks stands at 642,000 MT in MY 2010/2011. Estimated stock levels are higher
than that of Post?s previous estimate, which are due to a possible drop in exports. Ending stocks in MY
2011/2012 are predicted to slightly decline to 617,000 MT.
The Minister of Finance recently enacted a new decree on palm oil export taxes in August 2011 to
replace Ministry of Finance Decree No. 23/2008. The main differences between the old and new
decrees are illustrated in the table below. See appendix 1 for a detailed illustration on the new export
Comparative Items Old Export Tax New Export Tax
Number of palm oil based products
15 products 29 products
that subject to tax
Tax-free palm oil price threshold Less than or equal to US$ Less than or equal to US$
700 per ton 750 per ton
Tax Rate Range (min to max)
Crude products 1.5 ? 25 percent 7.5 ? 22.5 percent
Pure Refined Products 1.5 ? 23/25 percent 3 ? 15 percent
Mixed Refined Products 1.5 ? 21/23 percent 2 ? 10 percent
Biodiesel (FAME) 2 ? 10 percent 2 ? 7.5 percent
Source: Ministry of Finance of Republic of Indonesia (summarized)
Information on the above table suggests that the new decree will produce a greater tax spread between
crude and refined palm oil products. The increased margin is designed to provide stronger economic
incentives for palm oil industry to develop downstream products.
The new decree, however, may not transform the Indonesian palm oil sector from being dominated by
crude products to refined products in the near future. India and China account for 46 percent of total
Indonesian palm oil exports and both countries have well-established palm oil refinery industries.
Development of Indonesian palm oil refinery industry may face tough challenges resulting from
measures taken by those two countries to protect their domestic refinery industry.
PS&D Table, Palm Oil
2009/ 2010 2010/ 2011 2011/ 2012
M ark et Year Begin: Oc t 2009 M ark et Year Begin: Oc t 2010 M ark et Year Begin: M ay 2011
U SD A Of f ic ia l N ew Pos t U SD A Of f ic ia l N ew Pos t U SD A Of f ic ia l N ew Pos t
Area Planted 0 0 0 0 0 0 (1000 HA)
Area Harvested 0 6,430 0 6,820 0 7,210 (1000 HA)
Trees 0 964,500,000 0 1,023,000,000 0 1,081,500,000 (1000 TREES)
Beginning Stocks 190 190 242 242 442 642 (1000 MT)
Production 22,000 22,000 23,600 23,600 25,400 25,400 (1000 MT)
MY Imports 49 49 15 55 60 60 (1000 MT)
MY Imp. from U.S. 0 0 0 0 0 0 (1000 MT)
MY Imp. from EU 0 0 0 0 0 0 (1000 MT)
Total Supply 22,239 22,239 23,857 23,897 25,902 26,102 (1000 MT)
MY Exports 16,573 16,573 17,150 16,950 19,150 18,950 (1000 MT)
MY Exp. to EU 2,950 2,950 4,000 3,000 4,500 3,500 (1000 MT)
Industrial Dom. Cons. 1,165 1,165 1,310 1,350 1,310 1,400 (1000 MT)
Food Use Dom. Cons. 4,110 4,110 4,785 4,785 4,795 4,915 (1000 MT)
Feed Waste Dom. Cons. 149 149 170 170 185 220 (1000 MT)
Total Dom. Cons. 5,424 5,424 6,265 6,305 6,290 6,535 (1000 MT)
Ending Stocks 242 242 442 642 462 617 (1000 MT)
Total Distribution 22,239 22,239 23,857 23,897 25,902 26,102 (1000 MT)
CY Imports 47 0 55 0 65 0 (1000 MT)
CY Imp. from U.S. 0 0 0 0 0 0 (1000 MT)
CY Exports 17,500 0 18,000 0 19,500 0 (1000 MT)
CY Exp. to U.S. 0 0 0 0 0 0 (1000 MT)
TS=TD 0 0 0
Comments To Post
The Indonesian feed industry is the major consumer of soybean meal (SBM) in Indonesia. The
Indonesian Feed Millers Association (GPMT) predicts that animal feed production will reach 10.3
MMT in MY 2010/2011. Soybean meal accounts for 20-25 percent of total feed ingredients, and the
feed millers usually keep two months of SBM in inventory. The industry, therefore, needs to procure
2.945 MMT of SBM in the current marketing year. GPMT also indicates that domestic SBM
consumption will increase to 3.1 MMT in the next marketing year as Indonesia is expected to produce
11.025 MMT of animal feed.
Trade & Ending Stock
Indonesia?s SBM supply totally comes from imports, as the country has no soybean crushing facilities.
Importers set their import planning based on an estimated animal feed production and inventory
turnover of SBM managed by large feed millers. The importers commonly maintain SBM stock at
around two handy-size bulk carrier of 35,000 ? 50,000 tons. That information suggests that Indonesia is
projected to import approximately 2.975 MMT in MY 2010/2011 and 3.1 MMT in MY 2011/2012.
PS&D Table, Soybean Meal
Meal, Soybean Indonesia 2009/2010 2010/2011 2011/2012
Market Year Begin: Oct 2009 Market Year Begin: Oct 2010 Market Year Begin: May 2011
USDA Official New Post USDA Official New Post USDA Official New Post
Crush 0 0 0 0 0
Extr. Rate, 999.9999 0 0 0 0 0 0
Beginning Stocks 65 65 45 45 45 75
Production 0 0 0 0 0 0
MY Imports 2,507 2,507 2,875 2,975 3,000 3,100
MY Imp. from U.S. 225 225 175 175 175 175
MY Imp. from EU 1 1 1 1 0 0
Total Supply 2,572 2,572 2,920 3,020 3,045 3,175
MY Exports 0 0 0 0 0 0
MY Exp. to EU 0 0 0 0 0 0
Industrial Dom. Cons. 0 0 0 0 0 0
Food Use Dom. Cons. 0 0 0 0 0 0
Feed Waste Dom. Cons. 2,527 2,527 2,875 2,945 3,000 3,100
Total Dom. Cons. 2,527 2,527 2,875 2,945 3,000 3,100
Ending Stocks 45 45 45 75 45 75
Total Distribution 2,572 2,572 2,920 3,020 3,045 3,175
1000 MT, PERCENT
Indonesia?s soybean production dropped by 6.47 percent to 655,000 tons in MY 2010/2011 due to a
7.76 percent reduction in harvested areas. Low yields have become another factor that contributes to
country?s soybean production loss. The Indonesian Agency for Agricultural Research and Development
(IAARD) has produced several high yield soybean varieties. The majority of farmers, however, still use
non-certified soybean planting materials due to the following reasons
1. Low soybean prices provide economic disincentives for farmers to purchase certified seeds.
2. Availability of certified commercial soybean seed is inadequate due to the following factors
a. Government (IAARD and other seed research stations at national and provincial level)
concentrate their resources to produce breeder, foundation, and stock soybean seed
instead of commercial ones.
b. Most of certified commercial soybean seed are produced by small-scale seed producers
which have limited production and distribution facilities.
c. Private seed companies have no economic incentives to produce certified commercial
soybean seed due to uneconomical selling price and soybean farmer?s seed saving
Figure I: Soybean field owned by farmers which beans will be used as seed. Farmers receive or buy source seed from Seed
Research Station managed by central and local government.
Figure II: The farmers manually dry soybean seed (left), unsorted soybean seed (right)
Figure III: manual sorting process of soybeans for seed
Indonesian soy consumption is unique as almost 99 percent of total domestic consumption goes directly
into producing food for people. Home/cottage industries are major players in producing soy-based food
products such as tempe, tofu, and soy-milk. Big-scale industries have so far focused on producing soy
sauces like Heinz ABC, Wings Group, and Unilever. However, the largest share of domestic soybean
consumption - 2.375 MMT in MY 2010/2011 - is by cottage industries.
Our previous update suggested that Indonesia will import 1.655 MMT of soybeans in MY 2010/2011.
The recent development that indicates soybean production loss, however, provides room for higher
import volume of soybean. As a result, Post forecasts Indonesia?s soybean import figures at 1.705 MMT
in MY 2010/2011. Indonesia already imported nearly 1.6 MMT of soybeans, of which 92 percent are
procured from United States, within Oct?10 ? July?11 timeframe.
As domestic production is predicted to continue slowing down over the next marketing year, Post also
forecasts that Indonesian soybean import figures will increase. More specifically, Post expects
Indonesia to import 1.78 MMT of soybeans in MY 2011/2012.
Ending stocks of soybeans in MY 2010/2011 are predicted to be lower than that of previous marketing
year, and it will increase to 75,000 MT in MY 2011/2012.
PSD Table, Soybean
Export Tax Rate (%)
Benchmark Prices Branded
Fresh Fruit Bunch Crude Products Pure Refined Mixed Refined Biodiesel
(US$/Ton) Palm Meal Pack ged RBD
& Palm Kernel (2 items) Prod cts (11 items) Products (12 it ms) (FAME)
< = US$ 750 40 20 - - - - -
> US$ 750 - US$ 800 40 20 7.5 3 .0 - - -
S 80 - S 5 40 20 9.0 4 . - - -
> US$ 50 - US$ 900 40 20 1 0.5 5 .0 2 - -
S 90 - S 5 40 20 2.0 6 . 3 - -
> US$ 950 - US$ 1000 40 20 1 3.5 7 .0 4 2.0 2
> US$ 1000 - S$ 1050 40 20 5.0 8 . 5 .
S 5 - US 10 40 20 1 6.5 9 .0 6 2.0 2
> US$ 1100 - S$ 1 50 40 20 8.0 1 0.5 7 . 3
S 5 - US 20 40 20 1 9.5 2.0 8 5.0 4
> US$ 1200 - S$ 1 50 40 20 2 1.0 1 3.5 9 . 5
> US$ 1250 40 20 2.5 5.0 1 0 7.5 6