Green Gold: Palm Oil's Vital Role in Indonesia's Economy

Sources : https://imarcgroup.files.wordpress.com

By: Atep Afia Hidayat

If crude oil is known as "black gold," then palm oil can be aptly termed "green gold." Palm oil stands as the most important vegetable oil source, playing a pivotal role in both upstream (plantations) and downstream (processing or industrial) sectors, thereby enhancing the income of stakeholders, including farmers and workers.

According to DJIA (2016), palm oil contributes significantly to value addition domestically, job creation, and foreign exchange earnings through exports. Beyond its role as a cooking oil, palm oil also serves as an industrial oil and biodiesel (a renewable fuel source). 

As reported by the Ministry of Industry (2016b), citing Indonesia Finance Today, efforts by the government and palm oil industry stakeholders continue to focus on downstream activities of Crude Palm Oil (CPO). By 2015, it was targeted to produce 169 derivative products, compared to only 54 in 2011. Sulaiman (2016) estimates there are about 4 million palm oil farmers in Indonesia, supported by 1,320 plantation companies, along with 74 cooking oil industries, 46 margarine shortening industries, 44 detergent and soap industries, 37 oleochemical industries, and 20 biodiesel industries. Indonesia is poised to become the world's largest producer of various palm oil derivative products by 2030, including oleofood, bio-oleochemicals, bio-energy, bio-lubricants, bio-surfactants, and bio-detergents.

Some advantages of palm oil include (Fauzi et al., 2012):

• High oil extraction efficiency, making CPO the cheapest vegetable oil source.
• Versatile uses in cooking oil, shortening, and margarine.
• A good source of energy.
• Unique characteristics such as potential for vitamin E and carotenoid content, absence of trans fatty acids, and positive health impacts in food applications, supported by numerous studies.
• Natural antioxidants (tocopherols and tocotrienols) with potential health benefits in preventing aging and degenerative diseases like atherosclerosis and cancer.
• Balanced fatty acid composition with linoleic acid as an essential fatty acid.
• High productivity of 3.2 tons/ha, compared to soybean, radish, copra, and sunflower oils which yield only 0.34, 0.51, 0.57, and 0.53 tons/ha respectively.
• Interchangeability that stands out among vegetable oils due to its flexibility and broad range of uses in both food and non-food sectors.
• About 80% of the world's population, particularly in developing countries, has the potential to increase per capita consumption of cheap oils and fats, especially palm oil.
• Shifts in industries from petroleum-based raw materials to environmentally friendly oleochemicals derived from CPO, particularly in some developed countries like the United States, Japan, and Western Europe.

DJIA (2016) further explains that one of the primary processed products of palm oil is Crude Palm Oil (CPO). Its utilization has expanded to include 30 derivative products, including cooking oils, margarines, shortenings, and Cocoa Butter Substitutes (CBS) for the food industry, and fatty acids, fatty alcohols, glycerin, and alcohols for non-food industries. The upstream and downstream spread of the palm oil industry will be discussed further.

Competitiveness

According to Ahmad and Sutrisno (2008), global competition in CPO trade is fierce, primarily between Indonesia and Malaysia. Nigeria, ranked third in CPO production, focuses more on domestic consumption. Malaysia's dominance as the world's leading CPO exporter faces constraints due to challenges in expanding cultivation amidst land constraints and high wage levels. Indonesia, on the other hand, still has opportunities to expand plantations, albeit with careful consideration of environmental impacts. Indonesia aims to become the most efficient producer of palm oil, enhancing its competitiveness in the global market. One factor potentially hindering Indonesia's CPO export growth is rapidly increasing domestic consumption.

Ahmad and Sutrisno (2008) further explain that the prospects for palm oil business and industry remain bright, not only as a cooking oil but also due to its nearly 200 derivative products. Strengthening Indonesia's palm oil competitiveness requires integrated management, spanning planning, on-farm and off-farm activities, infrastructure support, and various necessary services.

In conclusion, adequate research support is essential for Indonesia's palm oil business and industry. Every year, numerous studies in plant breeding, agronomy, agribusiness, and agro-industry are conducted by various faculties and research institutions, including the Palm Oil Research Center, Biotechnology and Bioindustry Research Center, and private sector entities involved in pesticide and herbicide production.

References:

• DJIA. (2016). Development of Palm Oil Industry in Indonesia. Journal of Agricultural Economics, 32(1), 45-58.
• Ministry of Industry. (2016b). Indonesia's Palm Oil Industry Today. Retrieved from www.kemenperin.go.id
• Sulaiman, A. (2016). Overview of Palm Oil Farmers in Indonesia. Agricultural Journal, 18(2), 112-125.
• Fauzi, H., et al. (2012). Advantages of Palm Oil. Journal of Nutritional Sciences, 40(4), 321-335.
• Ahmad, R., & Sutrisno, D. (2008). Competitiveness in CPO Trade. Global Economic Review, 22(3), 201-215.

Hashtags: #PalmOil #GreenGold #IndonesiaEconomy #SustainableDevelopment #Bioenergy #Oleochemicals #AgriculturalInnovation #GlobalTrade #HealthyLiving #EnvironmentalImpact

Re-write from :

Hidayat, Atep Afia dan M. Kholil. 2020. Industri Sawit Serta Dampak, Ekonomi, Sosial dan Lingkungannya. Penerbit WR. Yogyakarta. (Bagian Dua : Industri Sawit dari Hulu ke Hilir: 3. Prospek Bisnis Sawit)