PALM OIL EXPORT RESTRICTION

Background

On 17 January 2018, a policy made by the European Parliament for a decision on the use of palm
oil for biodiesel products. This decision was taken in order to increase energy efficiency to 35
percent by 2030. In this policy, the majority of members of the European Union Parliament
approved a plan to ban the use of palm oil as the main raw material for biodiesel by 2021.
Indonesia is the world's largest producer and exporter of palm oil. In 2016, Indonesia could
produce 36 million metric tons of palm oil (Indonesia Investments, 2017). In addition, countries
in the European Union are countries that have a high level of energy consumption. So that the
European Union is one of the countries that are export destinations for Indonesian palm oil. Until
the end of 2017, palm oil exports to European Union countries reached 4.4 million tons. The
European Union occupies the fifth position

as a destination country for Indonesian palm oil exports in 2017 (Fauzie, 2017). So the European
Union Parliament's decision to ban imports of palm oil in 2021 will hit the domestic palm oil
industry. In addition, the ban on imports of palm oil to the European Union can create a potential
for oversupply of palm oil supplies in the global market (Rahman, 2018). This happens because
about 46 percent of total palm oil exports to Europe or about 7.5 million tons of palm oil are used
for conversion to biodiesel. If oversupply occurs, it is very possible that the price of palm oil will
be corrected. This will lead to a decrease in the income of palm oil issuers. The drop in revenue
could be a blow to players in the Indonesian palm oil industry.

Data and Facts

Impact of the Prohibition of Palm Oil Imports into the European Union Palm oil is Indonesia's
main trade commodity with Europe. However, the European Union parliament has agreed to set
zero percent of palm oil imports for alternative fuels to the European Union by 2021. In fact,
most of Indonesia's palm oil exports to the European Union are used to produce biofuels.

In the short term, the European Union parliament's decision has not yet had a significant impact
on the decline in palm oil exports. However, this EU parliamentary decision will have adverse
consequences for Indonesia in the medium and long term. The European Union parliament's
decision on the import of palm oil can make the image of the downstream palm oil industry
worse in the eyes of the international community, especially in America and Europe. Where in
both areas a negative stigma towards oil palm is often given. In Europe, oil palm is associated
with issues of human rights violations, corruption, child labor, and the deprivation of indigenous
peoples' rights. If the negative stigma against palm oil continues to grow, the international
community will assume that the stigma is true and can suppress palm oil exports which in turn
will lead to a decline in the price of palm oil in the international market.
 In contrast to the opinion of , it turns out that the palm oil market has shown its response to the
decisions taken by the European Union Parliament. The market responded to the European
Union parliament's policy with a decrease in the price of Oil Palm Fresh Fruit Bunches (FFB).
The decline in the price of oil palm Fresh Fruit Bunches (FFB) in the Riau Islands is one of the
impacts of the ban on palm oil imports to the European Union. The price of oil palm FFB in Riau
has decreased in every age group of oil palm. Where the largest decrease occurred in the 25 year
age group, which was Rp. 6.17 per kg (Setiawan, 2018). The decrease in FFB prices was caused
by the decline in the selling prices of CPO and Kernel from several data source companies.

Another domino effect that may arise is the influence of other countries to ban the import of
palm oil. Without firm action from the government against the negative stigma issued by anti-
palm oil groups, the global world will judge that the negative stigma of Indonesian palm oil is
true. So they will do the same prohibition. In fact, palm oil is one of the mainstay exports from
Indonesia. The significant decline in palm oil prices and the decline in the value of Indonesian
palm oil exports could result in the closure of the domestic palm oil industry. The sluggish
domestic palm oil industry will have an impact on the non-absorption of oil palm production
from farmers. This condition can close the livelihoods of 5.3 million families of oil palm farmers
(Infosawit.com, 2018) and decrease the welfare of farmers. This is in accordance with the results
of research conducted by Pohan, where the decline in oil palm prices will have a significant
influence on the socio-economic conditions of farmers, both in terms of income, education, and
health. The decline in the welfare of oil palm farmers can cause social problems around oil palm
plantations. This is very possible to happen, considering that oil palm has become part of the
culture of the community around the plantation (Brata, 2012). However, the possible low price of
palm oil does not always have a negative impact. If the price of palm oil falls, the difference
between palm oil and soybean oil or rasseed oil will be further. Palm oil will be much cheaper
than other similar oils. This can open up other market opportunities for palm oil industry
corporate.

(Upaya Indonesia menghadapi stigma kerusakan lingkungan akibat produksi kelapa sawit)

1. provide strict legal action for any person or legal entity (company) who is proven to have
intentionally burned land. With strict law enforcement, the government can break the negative
stigma that exists, namely that the government does not support land burning efforts

2. The second step that the government needs to take is to provide a clear legal basis for any
development of the biofuel industry. This is very necessary considering that there is no law that
is used as the basis for any industrial development that produces renewable energy. Incentives
are needed to lower the selling price of the biofuels produced. And these incentives need to be
clearly and fairly regulated for industry players, the government, and the community in the
legislation.
To further stimulate the development of the domestic biofuel industry, the government also
needs to encourage consumption of the products produced. The government can mandate PT.
PLN and PT. KAI to use the resulting biofuel. In addition to absorbing domestic biofuel
production, this policy is also an environmentally friendly policy.

3. Indonesian government makes laws and regulations that are able to stimulate the development
of energy sources