The Indonesian government is considering to stop exports of crude palm oil (CPO) to Europe from 2014 onwards as domestic CPO demand in Southeast Asia's largest economy is rising, brought on by the country's biofuel industry which is expected to grow 70 percent next year to 5 million tons. To curtail oil imports, the government stimulates the production of crude palm oil-based biofuel by raising the mandatory content of fatty acid methyl ester (which is made from palm oil) in biodiesel products from 7.5 percent to 10 percent.
Next year, two of Indonesia's state-owned companies, Pertamina - the nation's oil and gas company - and Perusahaan Listrik Negara (PLN) - the country's electricity distributor - will buy a combined total of five million tons of CPO to be used for biofuels as well as an energy source for the generation of electricity. Total CPO production in 2014 is forecast at about 30 million tons. At the start of the 9th Indonesia Palm Oil Conference (IPOC) in Bandung (West Java) on 28 November 2013, President Susilo Bambang Yudhoyono stated that the government is devoted to support domestic consumption of CPO. By placing more focus on palm-oil based biofuels, the country can reduce its expensive oil imports. Indonesia's trade deficit in the oil and gas sector is largely to blame for the country's wide trade deficit and current account deficit. Moreover, when Indonesia consumes more CPO on the domestic market, it will have a positive effect on the global CPO price. Due to economic turmoil, global CPO demand has fallen significantly in recent years and thus caused prices of CPO to fall sharply.
CPO exports to Europe will stand at about 2.5 million tons only in 2013. Export volumes to Europe have declined due to several trade barriers that have been imposed. In November 2013, the European Commission imposed controversial punitive five-year anti-dumping duties (18.9 percent) on biodiesel imports from Indonesia in order to protect producers in the Eurozone. The Eurozone also engaged in negative campaigning against Indonesian CPO. This situation caused reduced competitiveness of Indonesian palm oil exports on Europe's market and explains the declining volume of CPO exports to Europe.
However, the Indonesian Palm Oil Association (Gapki) stated that if the government wants to stimulate more domestic consumption, the regulatory framework (including the pricing policy) should be improved first.
Indonesia's Palm Oil Production and Export
(million metric tonnes)
(million metric tonnes)
(in USD$ billion)
¹ indicates forecast
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture