Indonesia needs to undergo a strategic transformation from being merely the world’s largest palm oil producer into the global center for palm oil downstream industries.
Mohammad Faisal, Executive Director of the Center of Reform on Economics (CORE) Indonesia, said that transforming Indonesia into the global hub for palm oil downstream processing would create greater added value, strengthen competitiveness, and enhance the contribution of the national palm oil industry.
Faisal acknowledged that Indonesia has already developed a wide range of palm oil derivative products. However, he noted that the commodity’s full potential remains far greater than the current achievements in downstream development.
“So far, Indonesia has been promoting palm oil downstream development. However, the downstream industry is perhaps not yet sufficiently diversified. Therefore, a strategy is needed for Indonesia to become the global center of the palm oil downstream industry,” he said in Jakarta on Thursday, July 21, 2026.
He explained that Indonesia needs a clear national policy direction for the development of its palm oil downstream industry. Such a policy framework would encourage the growth of manufacturing industries capable of processing palm oil into a wide range of high-value-added products.
In addition to a clear policy direction, Indonesia also requires various supporting instruments, including fiscal and non-fiscal incentives and disincentives, to accelerate investment in downstream industries.
“We must also strengthen the upstream palm oil sector. Strengthening the upstream sector is essential because it is impossible to build a strong downstream industry without robust upstream support,” he said.
To date, efforts to develop Indonesia’s palm oil downstream industry have been actively carried out by the Palm Oil Plantation Fund Management Agency (BPDP) through various initiatives, including promoting research and innovation, strengthening promotion and partnerships, and developing human resources in the downstream palm oil sector.
BPDP has consistently supported the acceleration of Indonesia’s palm oil downstream industry toward a competitive and sustainable sector capable of delivering tangible benefits and positive impacts for the public.
Faisal believes that accelerating palm oil downstream development will generate significant economic benefits, ranging from job creation and higher household incomes to a stronger national industrial structure.
“The positive impacts of palm oil downstream development are enormous, from employment generation to increasing people’s incomes,” he said.
Meanwhile, Tungkot Sipayung, Executive Director of the Palm Oil Agribusiness Strategic Policy Institute (PASPI), said that downstream development is a strategy to produce high-value derivative products while expanding market opportunities for Indonesia’s palm oil industry.
He emphasized that downstream development is not solely aimed at increasing exports but also plays an important role in reducing Indonesia’s dependence on imported products.
“Through palm oil downstream development, we can transform from being the world’s king of crude palm oil (CPO) into the global leader in oleochemicals, biofuels, biomaterials, and oleofood,” he said.
Tungkot cited the success of Indonesia’s Mandatory Biodiesel Program, which has reduced imports of fossil-based diesel fuel by utilizing palm oil.
He explained that many imported products could still be substituted through further development of the downstream palm oil industry.
“We have successfully developed palm oil into biodiesel, allowing us to substitute imports of fossil diesel. We need to move even further. There are still many imported products that can actually be replaced by downstream palm oil products,” he said.
He also pointed to the energy sector, where palm oil downstream development has the potential to reduce imports of aviation fuel through the production of Sustainable Aviation Fuel (SAF), also known as biojet fuel.
Potential feedstocks for SAF production include palm oil, Palm Fatty Acid Distillate (PFAD), Palm Oil Mill Effluent (POME), used cooking oil, and empty oil palm fruit bunches.
“In the energy sector, we import large amounts of gasoline and aviation fuel every year. In fact, downstream palm oil products can produce palm-based gasoline and palm-based aviation fuel, or SAF, to replace those fossil energy imports,” he explained.
Tungkot added that palm oil downstream development could also position Indonesia as one of the world’s largest producers of oleochemicals.
Indonesia’s oleochemical production capacity currently stands at 19.93 million metric tons per year.
Expanding the downstream palm oil industry in the oleochemical sector also has the potential to reduce imports of organic chemicals.
“The same applies to imports of organic chemicals, namely petrochemicals, which remain substantial every year. These can be substituted with downstream palm oil products, namely palm-based oleochemicals,” he concluded.***
