In 2015 Indonesian authorities imposed new export levies on palm oil products in order to collect funds amid low palm oil prices. Since September 2014 the government's reference CPO price has been below the USD $750 per ton mark. When the price falls below this level, then the export tax on palm oil products drops to zero. However, as there were no signs that the palm oil price would recover above this USD $750 per ton threshold again soon, the government imposed a USD $50 per metric ton levy on exports of CPO and a USD $30 per metric ton levy on exports of processed palm oil products in order to generate funds from this sector (these export levies will be scrapped when the benchmark palm oil price rises back above the USD $750 per ton level).

Krisnamurthi said a total of IDR 2.8 trillion (approx. USD $212 million) has been collected in Q1-2016 through these palm oil export levies, around 30 percent of the government's full-year target. He added that these funds are to be used to fund the government’s biofuel subsidies, the replanting of new trees (rejuvenation), as well as on research and the development of human resources in the nation’s palm oil industry. For the April-May 2016 period, the subsidy for biodiesel has been determined at IDR 5,000 per liter (significantly higher from the IDR 1,000 per liter subsidy at the start of 2015).

Indonesia's biodiesel program has been an essential factor in encouraging higher palm oil prices (as the program causes an increase in palm oil demand). The palm oil price has risen from USD $450 per ton in August 2015 to USD $700 per ton in March 2016. In 2016, Indonesia introduced the B20 biodiesel program (one notch up from the B15 program), referring to the requirement to blend a mandatory 20 percent of fatty acid methyl ester (FAME, derived from palm oil) with 80 percent of diesel. This program should also manage to curb imports of diesel into Indonesia.

Read more: Overview & Analysis of Indonesia's Palm Oil Industry

For the rejuvenation of palm oil trees the Indonesian government allocates a IDR 25 million (approx. USD $1,900) per hectare subsidy. Currently, the rejuvenation process is ongoing at a total of 4,396 hectares of plantation, owned by 2,140 farmers that joined a total of 12 cooperatives.

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   31.0¹
(million tons)
  15.1   17.1   17.1   17.6  18.2   22.4   21.7   26.4   25.0¹
(in USD billion)
  15.6   10.0   16.4   20.2  21.6   20.6   21.1   18.6   17.0¹

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