Although Indonesia can still raise its domestic consumption of palm oil, exports would remain the main absorber for the commodity. As the world’s top producer for palm oil, there is a need to open new markets considering the many challenges currently faced in the country’s traditional market destinations, an Indonesian palm oil executive told The Palm Scribe.
Bernard Riedo, Director for Sustainability and Stakeholder Relations for Asian Agri said that so far almost 70 percent of Indonesia’s palm oil output is being exported while the remaining 30 percent is absorbed by the domestic market. The domestic food sector, which along with the energy sector are the main consumers of palm oil- takes about six to seven tons of palm oil a year.
In the energy sector, palm oil is used as part of the government’s mandatory B20 program, which is the use of 20 percent mixture of palm oil based biofuel for diesel fuel.
“Later, when the B20 program is already running for a full year and if the B30 could be implemented, there will be an even greater absorption domestically, which could reach up to 40 percent. However, exports will remain the main market, so new markets that can absorb more must be sought after,” Riedo said.
He said that in 2018, the B20 program managed to absorb a total of 4,4 million tons of crude palm oil (CPO).
“It is hoped that in 2019, with the stagnant consumption for food due to the population that would not change significantly, and the one year of B20 policy that allocated at 6,1 million tons; if all of these absorbed, we will automatically be able to reach a consumption of 13 million tons,” he said.
Riedo added that the government has already made known its desire to advance, if possible, the starting date of the use of B30 which had been set for January 1, 2020. When this happens, more CPO can be absorbed by the domestic market.
He said that the consumption of CPO by domestic market would not change much because of the population increase would remain insignificant.
“In the food sector, for cooking oil and so forth, it always grows in line with the GDP, in line with the size of the population, therefore the average volume would always revolve around six to seven million tons. That would not change much because the population will not increase significantly,” Riedo said.
Fadhil Hasan, Asian Agri Corporate Affairs Director, said that there may be number of factors this year which would allow an increase for Indonesian palm oil exports.
“For example, China. If there is no agreement with the United States then the possibility is that it will slap a higher import tariff on soybeans from the United States, even though it needs soybeans. Now it is shifting its purchase to Brazil and Argentine but that would still not suffice so that to compensate, it will have to increase its palm oil import,” he said, adding that India had also lowered its previously high import tariff for CPO and its derivative products.
“This will also add to the push for export,” he said, while stressing that another stimulant was the temporary waiving of the export levy on Indonesian palm oil and its derivative products.
Hasan said that with the expected lower palm oil production for this year, prices could rise, at least until June after which the main harvest period begins. He said that in palm oil, there is a three-year cycle of rising production and a year when production weakens. He said that the past three years have seen palm oil production strengthen and therefore 2019 was likely to see a weaker output.
“If we look early this year, the trend is (for prices) to strengthen,” he added.
According to Hasan, Asian Agri produced 1,1 million tons of CPO in 2018, or an increase of 10 percent over the previous year. He added that the increase was above the industry’s average.
Riedo added that the increase in production was obtained through better productivity, including among its partnering smallholders, scheme or independent, and not due to new producing plantations.