Indonesian Palm Oil Production and Export:

    2007   2008   2009   2010   2011   2012   2013
(million metric tons)
  16.8   19.2   19.4   21.8   23.5   26.5   26.0
(million metric tons)
   n.a   14.2   15.5   15.6   16.5   18.1   21.2
(in USD billion)
   n.a   15.6   10.0   16.4   20.2   21.6   

Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture

The Indonesian government introduced a new biofuel policy in 2013 which raised the minimum bio content in diesel to 10 percent from 7.5 percent previously, while for power plants the minimum requirement was doubled to 20 percent. This policy aims to curtail imports of expensive oil (which is the main cause of the country's wide trade deficit). Chairman of the DMSI Derom Bangun said that domestic consumption of CPO in 2014 may exceed nine million tons (from 7.5 million tons last year) as a result of the government's mandatory biodiesel program. However, if the program experiences setbacks, for example due to problematic tenders or troubled distribution, then this year's domestic consumption of CPO will only be around nine million tons.

Bangun also said that weaker CPO export is the result of consumers' shift to other vegetable oils, for example in India. Recently, India has been focused on enhancing the role of sunflower oil, soybean and peanut oil to meet domestic fuel demand. China also imports more soybeans and sunflower oil for fuel purposes. As such, these vegetable oils are big competitors of palm oil. Moreover, Indonesia imposed a progressive export tax on palm oil and its derivatives, which makes this commodity less competitive on the international market. The tax begins at 22.5 percent when the price goes beyond USD $750 per ton.

According to the Indonesian Palm Oil Association (Gapki), Indonesian exports of CPO and derivatives in 2013 reached 21.2 million tons, a 16 percent growth from the previous year. Gapki said that production stood at 26 million tons in 2013, falling 1.9 percent from the result in 2012.

Production of palm oil can be hindered by the arrival of a new El Niño cycle in July 2014. El Niño is a weather phenomenon that occurs once every five years (on average) and which involves periodical warm ocean water temperatures off the western coast of South America which can cause climatic changes across the Pacific Ocean. El Niño is expected to bring a dry spell to Southeast Asia, thus impacting on output of CPO and other agricultural commodities. Both the Goldman Sachs Group and Barclays have listed palm oil as crops that can be plagued by the 2014 El Niño cycle. If the El Niño cycle occurs then CPO production in Indonesia can fall by five to ten percent in 2014 (in fact, the impact of El Niño on production rates can be felt for another two years). However, as the intensity of El Niño remains unknown, the DMSI has not felt the need to revise its production target of Indonesian CPO in 2014 yet. On a positive note, if production declines then the CPO price will rise. In June 2014, the CPO price fell to USD $840 per ton.

DMSI said that it expects to see an Indonesian CPO production figure of 29.5 million tons in 2014. Higher production is expected to originate from young plantations that are ready to produce CPO.

Palm oil is one of Indonesia's most important foreign exchange earners, apart from coal, in the non-oil and gas sector.