- Indonesia the world’s biggest producer of palm oil, is looking to increase its exports to China, its number 3 market, after India and European Union.
- As Indonesia, faces a likely increase in duties in India and a biofuel phase-out in the EU, it has welcomed a move by China to remove palm oil from its import tariff quota management.
- Palm oil producers in Indonesia have cleared vast swaths of rainforest across the archipelago to make way for the plantations, destroying biodiverse habitats and driving rare wildlife to the brink of extinction. The highest demand for palm oil comes from India.
Indonesia, the world’s biggest producer of palm oil, is anticipating a boost in exports of the commodity to China, taking advantage of an opportunity opened up by the escalating trade war between Beijing and Washington.
The move also presents Indonesia with a respite from its own trade woes, namely a planned phase-out of palm oil from biofuel in the European Union, its second-biggest export market, and a likely increase in duties by India, its top export customer.
Montty Girianna, the deputy for energy in the office of the coordinating minister for the economy, said Indonesia was always looking to expand the market for its crude palm oil (CPO), including in China, it’s third-largest market.
“We’re the biggest CPO supplier. We can dictate the price. That’s the beauty of being the biggest supplier,” Montty said.
But boosting exports to China will not mean clearing more forests to plant oil palms, Montty said. Instead, Indonesian producers will increase yields through better technology and seeds, rather than more acreage.
There are currently 162,000 square kilometers of palm oil plantations across Indonesia, Montty said. “If possible it will stay that way,” he said. “We’re prioritising increasing the productivity by using oil palm seeds with good standard.”
The statement comes after China’s commerce ministry announced on August 7 that it plans to remove palm, soybean and rapeseed oil from its import tariff quota management. The decision follows the ministry’s announcement that Chinese companies would stop importing U.S. agricultural products, in retaliation for $300 billion in tariffs on Chinese imports imposed by the Trump administration.
For Indonesia, the U.S.-China trade war presents an opportunity to expand beyond a European market that’s become increasingly hostile to palm oil because of its environmental implications. The European Commission passed a measure in March to phase out palm oil-based biofuels by 2030, over concerns that production of the crop, often on land cleared of rainforest, contributes to global carbon emissions and thus exacerbates climate change.
In August, the commission announced it had started imposing temporary duties ranging from 8 to 18 percent on imports of biodiesel from Indonesia to counter Indonesian government subsidies to producers. The new duties will be in effect for four months, with a possibility for extension. The Indonesian government has vowed to retaliate with tariffs of 20 to 25 percent on EU dairy products.
The Indonesian Palm Oil Association (GAPKI) welcomed the Chinese government’s decision to end palm oil import quotas, saying there was lots of room for export growth in China, where soybean oil is the dominant vegetable oil.
“Honestly, China consumes much more soybean oil than palm oil,” GAPKI spokesman Tofan Mahdi told Mongabay. “So the potential is huge” to disrupt that market share.
But he said Indonesia wasn’t abandoning its market in the EU.
“It doesn’t mean that we’re giving up in reclaiming our market in the EU,” Tofan said. “The government has to fight even harder in the EU so that our palm oil products could be accepted as the ingredient for food, oleochemicals and biofuels.”
Exports account for about 70 percent of Indonesia’s palm oil production, but the government is trying to boost domestic consumption to mitigate demand risks. In particular, it has required the state-owned oil company to increase the palm oil content of biodiesel to 50 percent by the end of 2020.
The Indonesian palm oil industry has long been criticized for its unsustainable practices. Producers have cleared vast swaths of rainforest across the archipelago to make way for oil palm plantations, destroying unique and highly biodiverse habitats and driving rare wildlife to the brink of extinction.
The Rainforest Foundation Norway estimates that 45,000 square kilometers (17,400 square miles), of rainforests and peatlands, an area larger than the Netherlands, might be destroyed to make way for oil palm plantations to feed biofuel demand through 2030. This, it warns, would result in the release of 7 billion tons of carbon dioxide emissions over the next 20 years.
Banner image: Oil palm plantation in Indonesia. Image by Rhett A. Butler/Mongabay.