Indonesia considers restricting red palm oil production to co-ops

Around 42% of the 16 million hectares of area under oil palm in Indonesia is managed by independent smallholders

The Indonesia government is considering restricting red palm oil production to co-operatives, according to a report by national news agency, Antara.

Palm oil production has been a key issue in recent months, with Indonesian government introducing a policy that requires producers to sell a portion of their output to the local market after an earlier ban on palm oil exports.

Co-operatives and small and medium enterprises (SMEs) minister Teten Masduki said red palm cooking oil could be produced only by co-ops, in a measure designed to protect the industry, reports Antara.

Masduki said 12 co-ops are ready to produce red palm oil in several provinces, including North Sumatra, Riau, Jambi, Lampung, Central Kalimantan, South Kalimantan and West Kalimantan.

Co-ops can also meet the minimum requirements of being able to produce 10 tons of red edible oil from 50 tons of palm oil bunches per day on one thousand hectares of land.

In May, Masduki announced his ministry’s intention to build three red palm oil factories on a pilot basis in Central Kalimantan, Riau, and Jambi provinces. To do so, the ministry established a joint task force with the Indonesian Sustainable Oil Palm Farmers Forum (Forstabi) and the Revolving Fund Management Institution for Micro, Small, and Medium Enterprises (LPDB-KUMKM).

The move is part of a series of initiatives undertaken by the government and president Joko Widodo to stabilise cooking oil prices, which have risen 40% since 2021. The government also intends to build a red palm oil factory to meet domestic demand and provide subsidies to producers.

Indonesia is the world’s leading palm oil exporter, supplying 56% of the global demand. In 2020 alone the country exported 34 million tonnes of palm oil products. Around 42% of the 16 million hectares of area under oil palm in Indonesia is managed by independent smallholders, who account for 35% of the total domestic production of crude palm oil (CPO), according to Antara. The palm oil sector is dominated by a small number of large companies.