Earlier in 2016, the Indonesian government launched the B20 biodiesel program. This program stipulates a mandatory 20 percent of fatty acid methyl ester (derived from palm oil) to be blended with 80 percent of diesel. This program was introduced to relieve pressures on Indonesia's trade balance and government budget deficit as it should lead to a decline in crude oil and fuel imports. Moreover, Indonesia is the world's largest producer of crude palm oil and therefore supplies are guaranteed.

The B20 biodiesel gives rise to higher domestic demand and therefore exports of crude palm oil, biodiesel and oleochemicals have been sliding in recent months. However, falling palm oil demand in export markets also causes falling exports.

Indonesia's palm oil exports to China fell 39 percent from 259,940 tons in June 2016 to 158,790 tons in the following month. Meanwhile, palm oil exports to the United States declined 49 percent from 92,870 tons in June to 47,730 tons one month later. Lastly, exports to Pakistan and Bangladesh fell 46 percent (m/m) and 37 percent (m/m), respectively.

However, exports of palm oil and its derivatives to the European Union in fact rose from 257,400 tons in June to 340,370 tons in July (+32 percent m/m).

The positive side effect of sliding palm oil exports from Indonesia (the world's biggest producer and exporter of palm oil) is that it supports global palm oil prices. Palm oil reserves in both Indonesia and Malaysia have fallen to below the 2 million ton level (partly due to bad weather brought about by the El Nino weather phenomenon). Hasan said the palm oil price rose to above USD $750 per metric ton in the first week of September and there is room for further growth in the remainder of September.

Indonesian Palm Oil Production and Export Statistics:

  2008 2009 2010 2011 2012 2013 2014 2015  2016
(million tons)
 19.2  19.4  21.8  23.5 26.5  30.0  31.5  32.5  30.0¹
(million tons)
 15.1  17.1  17.1  17.6 18.2  22.4  21.7  26.4  24.0¹
(in USD billion)
 15.6  10.0  16.4  20.2 21.6  20.6  21.1  18.6  16.0¹

¹ indicates forecast
Sources: Indonesian Palm Oil Producers Association (Gapki) & Indonesian Ministry of Agriculture