Indonesia's palm oil needs sustainability to stay competitive globally

Indonesia's palm oil industry must enhance its sustainability to maintain global competitiveness, according to industry leaders. Beyond increasing productivity, stakeholders are urged to expedite downstream processing and bolster governance and environmental practices.

Zaid Burhan Ibrahim, Director of Finance, Risk Management, General Affairs, and Compliance at the Palm Oil Plantation Fund Management Agency (BPDP), stated that the palm oil industry is no longer solely reliant on production and exports. He emphasized that the sector is intertwined with economic, social, energy, environmental, and geopolitical aspects, necessitating sustainable management. "Sustainability is no longer an option but a necessity for the Indonesian palm oil industry to remain competitive and benefit society," Zaid said during a discussion on sustainable palm oil in Pangkalan Bun, Central Kalimantan.

Hilalization, or downstream processing, is identified as a key strategy for strengthening national palm oil competitiveness. Currently, over 80 percent of Indonesia's palm oil exports are in downstream product forms, generating greater added value for the national economy. Yetty Yulianty, Director of Customs Facilities at the Directorate General of Customs and Excise, affirmed the government's support for developing downstream palm oil industries through bonded zone facilities.

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Sustainability is no longer an option but a necessity for the Indonesian palm oil industry to remain competitive and benefit society.

These incentives are specifically provided to intermediate and downstream industries to boost the competitiveness of value-added products. "We provide facilities primarily for intermediate and downstream companies. We do not provide facilities for upstream processing plants because our goal is downstream development," Yetty explained. Companies in bonded zones receive benefits such as import duty deferrals, exemption from import-related taxes, customs exemptions, and waivers on VAT and luxury goods sales tax for goods used in production.

As of now, 77 companies producing crude palm oil (CPO) and its derivatives utilize bonded zone facilities, which have been available since 2001 to promote downstream industry growth. These companies account for approximately two-thirds of CPO and derivative exports, contributing about 63 percent of the export volume and nearly 80 percent of the national CPO export value, totaling around $23.7 billion in 2025. A cost-benefit analysis by the Directorate General of Customs and Excise shows a cost-benefit ratio of 1.47 for bonded zone facilities, indicating that every Rp1 of fiscal incentive generates approximately Rp1.47 in fiscal benefit, deeming the policy effective for downstream development, investment, and exports.

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We provide facilities primarily for intermediate and downstream companies. We do not provide facilities for upstream processing plants because our goal is to downstream development.