Nama : Muhammad Ridwan

NPM : 18.0101.0122

Prodi : Manajemen

THE IMPACT OF PALM OIL TRADE ON ECONOMIC GROWTH IN INDONESIA

INTRODUCTION

Palm oil is an industrial and plantation plant that is useful as a producer of

cooking oil, industrial oil, and fuel. Palm oil plantations can generate large profits, so that
many old forests are converted into palm oil plantations. The spread of palm oil in
Indonesia is on the islands of Sumatra, Kalimantan, Java, Sulawesi, Papua, and certain
islands in Indonesia. Palm fruit is used as raw material for cooking oil, margarine, soap,
and industry material. The most popular part to be processed for palm oil is fruit. Parts of
meat from palm oil fruit produce crude oil which is processed into raw materials for
cooking oil. The rest of the processing is used as a mixture of animal feed and fermented
into compost.
The agricultural is a sector that has a very important role in the economy in
various developing countries including Indonesia. Agricultural production can only be
obtained if the required can be met, namely land, labor, capital, and skills. Indonesia as a
country has a lot of palm oil plantations so there is a lot of investor competition in the
world market, which can be seen that the price of palm oil or palm oil prices varies
according to Indonesian standards and laws. Given the large impact of palm oil prices on
the economic growth in Indonesia, a good method is needed to be able to know and
predict the price of palm oil. The reason for choosing the price of palm oil, namely the
price of palm oil is a price that is growing rapidly and is not constant especially in
Indonesia. The price of palm oil also affects investors, labor, and foreign exchange of
Indonesia.
 Only a few industries is Indonesia have shown progress as rapidly as the palm oil
industry for the past 20 years. This growth is evident in the amount of production and
exports from Indonesia and also from the growth of the area of oil palm plantations. The
majority of Indonesia palm oil production is exported. The most important export
destination countries are China, India, Pakistan, Malaysia and Netherlands. Althought the
numbers are very significant, Indonesia also imports palm oil, mainly from India.
Increasing demand for domestic palm oil can actually mean that crude palm oil shipments
from Indonesia will be hampered in the coming years. The palm oil plantation and
processing industry is a key for the Indonesian economy.

DISCUSSION

Palm oil breeding by generative. Palm fruit ripe under certain conditions the
embryo will germinate to produce shoots (plumula) and the root (radical). Palm oil has
many types, based on the thickness of its shell, palm oil is divided into Dura, Pisifera, and
Tenera. Dura is a palm whose fruit has a thick shell so that it is considered to shorten the
life of the processing machine but usually the fruit bunches are large and the oil content
of the fruit is around 18%. The fruit Pisifera does not have a shell, but the female flower
is sterile so it rarely produces fruit. Tenera is a cross beetwen the parent of Dura and
Pisifera. This species is considered superior seed because it complements the deficiencies
of each parent with a thin fruit shell but the female flowers are still fertile. Some of the
superior Tenera of meat yield can reach 90% and the oil content of the fruit can reach
28%.
The most important part of the palm tree is the fruit. Parts of fruit fresh produce
crude palm oil which is processed into raw materials for cooking oil. The advantages of
vegetable oils from palm oil are cheap prices, low cholesterol, and have high carotene
content. Palm oil can also be processed into raw materials for alcohol oil, soap, candles,
and the cosmetics industry. The remaining processing of palm oil fruit has the potential to
become a mixture of animal feed and fermented into compost. Empty bunches can be
used for palm oil plants, as raw material for making pulp and organic solvents, and palm
oil shells can be used as fuel and making activated charcoal. Palm oil has a higher
productivity than other vegetable oil producing plants (such as soybeans, peanuts, etc).
The production period of palm oil is quite long for 22 years, also affects the lightness of
production costs incurred by palm oil enterpreneurs. Moreover, this type plant includes
plants that are most resistant to pests and diseases compared to other vegetable oil
producing plants. Good soil contains a lot of clay, is well aerated and fertile, has good
drainage, the groundwater level deep enough, the solum is deep enough (80 cm), soil Ph
is 4-6, and the soil is not rocky. Latosol, ultisol, and alluvial soils, sapric peat soils,
coastal plains, and river estuaries can be used as palm oil plantations. Dura palm oil is
usually planted as a parent tree with thin fruit characteristics of 20 to 65 percent, shell
thickness of 20 to 50 percent.
The Indonesian palm oil industry in recent years has become one of the issues that
has attracted the attention of the world community. Attracting the world attention because
of its rapid development, changing the competitive map of global vegetable oil and the
existence of various social, economic and environmental issues related to the palm oil
industry. The palm oil industry known in Indonesia today has a long history since
colonial times. Therefore 1991 was considered the beginning of palm oil plantantions in
Indonesia. In 1991, a German company also opened an palm oil plantation business in
Tanah Itam Ulu. The steps of Belgian and German investors were followed by other
foreign investors including the Netherlands and the United Kingdom. In 1996 there were
19 palm oil plantation companies in Indonesia and increased to 34 companies in 1920.
The first Palm Oil Mill ( PKS ) in Indonesia was built on Sungai Liput (1918) later in
Tanah Itam Ulu (1992).
The development of the Indonesian palm oil industry accelerated after
successfully strengthening the National Privat Large Plantantion (PBSN I,II,III) and
implementing a palm oil plantation model synergy between farmers and corporations
known as Nucleus Plantation ( PIR ) or NES ( Nucleus Estate and Smallhoulders ). The
success of the NES (NES I-IV) trials funded by the World Bank was later developed into
various PIR models. Indonesian palm oil plantations increased from around 300 thousand
hetares in 1980 to around 11,6 million hectares in 2016. While CPO production increased
from around 700 thousand tons in 1980 to 33,5 million tons in 2016. Indonesian palm oil
exports generate foreign exchange which is important for the national economy. Export is
the process of transporting goods or commodities and services legally from one country
to another, generally in the trade process. The export process in general is an action to
issue goods or commodities from within the country to enter them into other countries
through procedures determinated by the government. Large exports of goods generally
require interference from customs in sending and receiving countries. Exports are an
important part of international trade. Prioritizing exports for Indonesia has been
encouraged since 1983. Since then, exports have become a concern in spurring economic
growth along with the changing industrialization strategy from the emphasis on import
substitution industry to the export promotion industry. Domestic consumers buying
imported goods and foreign domestic goods, is something very common. Competition is
very sharp between various products. In addition to price, quality and quantity of goods is
a determining factor in the competitiveness of a product.
World palm oil production is dominated by Indonesia and Malaysia. These two
countries produce a total of around 85-90% of the world’s total palm oil production. At
present, Indonesia is largest producer and exporter of palm oil in the world. In the long
term, the world demand for palm oil shows an increasing trend in line with the growing
population of the world and increases the consumption of products with palm oil raw
materials. The most important export destination countries are China, India, Pakistan,
Malaysia, and Netherlands. Large companies in Indonesia for example Unilever
Indonesia have been or are making investments to increase palm oil refining capacity.
This is an accordance with the ambitions of the Government of Indonesia to get more
income from domestic natural resources. Indonesia has been focusing on dependent the
export of crude palm oil, but over the past few years it has been willing to encourage the
processing of natural resource products to have a higher selling price and which serves as
a buffer when price slide palm oil. Refining capacity in Indonesia jumped to 45 million
tons a year at the beginning of 2015, up from 30,7 million tons in 2013, and more than
double the capacity in 2012 at 21,3 million tons.
Indonesian potential in producing CPO has led Indonesia to become the world’s
largest CPO producer and exporter. In addition to meeting domestic CPO requirements,
the production produced is also allocated to fulfill export to destination countries.
The aim is to:
1) Analyze the factors that affect Indonesia CPO export performance.
2) Analyze the factors that affect the production and consumption of cooking oil.
3) Analyze the impact of the export tax policy on the behavior of CPO commodity
exports, production, and consumption Indonesia cooking oil.
All equations show results which are all over identified. So from that the analysis in this
study was carried out using the econometric model with a system of simultaneous
equations which includes analysis of supply and demand behavior and model validation.
The results of the analysis show that Indonesian CPO exports were significantly
affected by CPO world prices, CPO export tax policies and Indonesian CPO exports in
the previous year. Meanwhile, Malaysian CPO exports and exchange rates did not
significantly affect Indonesian CPO exports. Domestic production of cooking oil was
significantly affected by Indonesian CPO exports, oil palm plantation land, and cooking
oil production in the previous year. Meanwhile, domestic cooking oil prices and labor
real wages do not significantly affect domestic production of cooking oil. Meanwhile,
domestic consumption of cooking oil was significantly affected by domestic prices of
cooking oil, domestic production of cooking oil and domestic consumption of cooking oil
in the previous year. Meanwhile, domestic prices of coconut oil and national income do
not significantly affect domestic consumption of cooking oil. And based on the results of
the simulation results, the impact of an increase in the CPO export tax policy resulted in a
decline in the import of CPO for cooking oil. In addition, increasing domestic production
of cooking oil, domestic consumption of cooking oil and prices of palm cooking oil.

As for several factors that influence the price of palm oil, namely:
1) Conditions and Regulations in Oil Palm Producing Countries.
With the huge dominance of Indonesia and Malaysia in the CPO market, the
conditions and regulations of the two countries in the related fields will greatly
impact the price of palm oil. For example, policies related to palm oil export tax. The
export tax on these commodities alone has pushed CPO prices to be higher for
consumers and lower for producers. Weather in Indonesia and Malaysia can also have
a major impact on CPO prices. Suppose there were flash floods that sank oil palm
 plantations and foiled the harvest, or heavy dry season which resulted in production
falling. In non-conducive weather conditions, the price of oil palm commodities can
increase.
2) Condition and Regulation in the Biggest Consumer Country of CPO
China, India and Europe are the largest importers of palm oil. For example, if there is
a crisis in these areas, then the slowdown in demand for CPO can occur along with
the decline in public consumption. In turn, the decline in demand will drive a surplus,
so that CPO prices can decline.
3) Prices of Other Vegetable Oils.
The function of vegetable oil obtained from Palm Oil can actually be replaced by
soybean oil, sunflower seed oil, rapa oil, canola oil, and corn oil. Among them, the
cheapest are palm oil and soybean oil. This makes both of them as substitution
commodities that provide mutual influence. For example, bad weather in soybean
producing countries such as the United States, Brazil and Argentina will reduce
soybean production. In this case, a decrease in soybean production can boost soybean
oil prices and CPO prices. On the other hand, if environmental awareness increases
and people move from palm oil to other products, then CPO prices will obviously
decline.
4) Attention to Environmental Sustainability
The international world is constantly concerned about the impact of oil palm
cultivation on environmental sustainability, so it continues to pressure producer
countries to tighten policy. If producer countries really follow international pressure,
then production can be restrained and the price of palm oil increases. However, as
long as there is no serious policy, the effect will not be large. For example, the
moratorium on new virgin forest concessions signed by President Susilo Bambang
Yudhoyono and effective on May 20, 2011 and extended by President Joko Widodo
in May 2015, is expected to temporarily halt the expansion of oil palm plantations.
With the existence of the moratorium, production will be limited to land that has only
been opened. Unfortunately, the government gave 9 million hectares of concessions
before enacting the moratorium, so in reality land expansion continued and the rate of
palm oil production remained high.
 As for the problems faced by palm oil in Indonesia, namely:
1) Awareness that it is important to make more environmentally friendly policies.
2) Conflict over land issues with local residents due to unclear land ownership.
3) Legal and regulatory uncertainty.
4) High logistics costs due to lack of quality and quantity of infrastructure.

The extension of the use of oil palm by the European Union is like giving a new
breath to the Indonesian government. However, it seems that the government cannot just
breathe a sigh of relief for the sustainability of the future of oil palm. The refusal of the
oil palm issue does not only come from those who care about environmental issues. Pros
and cons of this issue come from various parties, especially those concerned with the
welfare of oil palm workers. This is because there is an irony in the middle of the country
getting a large amount of foreign exchange from the palm oil sector, oil palm workers
actually experience various rights violations and exploitation which often ends in death.
There are at least three violations of the main rights of oil palm workers that occur in
Indonesia. The first violation is an inhuman wage policy. One of the main problems
found in the Indonesian palm oil industry is the issue of wages. The wage rate for
workers on plantations is very low, which is usually under 100 Euros (1.6 million
Rupiah) per month. In addition, the wage policy applied depends on the status of their
workers.

What worsens is that even though workers have been paid a low wage, they can also
face a reduction in wages because sanctions imposed by employers in making mistakes or
targets are not met. The refusal of Indonesian palm oil that once rolled out in the
European Union can actually be a moment of reflection for the government on how the
palm oil industry is run. Instead of struggling to protest against EU policies that are
considered to be protective of local sunflower seed products, the government should not
turn a blind eye that the problems that occur in the oil industry are from upstream to
downstream, one of which is marked by the fact that there is a chain of exploitation of
workers massive in the palm oil industry. Breath while extending the use of oil until 2030
by the European Union can actually be used by the government to improve the fulfillment
of the rights of workers who are more dignified considering the refusal of Indonesian oil
exports does not only come from those who care about environmental issues, but also
those who uphold human values especially in fulfilling the rights of dignified workers.

Improving the fate of workers can provide a new bargaining position for the
government if it still wants to expand and export palm oil, one of which is in the
European Union. Therefore, using the momentum of extending the use of palm oil to
improve the fulfillment of workers' rights is a wise attitude for the Indonesian
government.

At a time when global demand is strong, the palm oil business in Indonesia is
profitable for the following reasons:

1) Large profit margins, while these commodities are easily produced.

2) Large international demand and continues to grow as the global population

increases.

3) The cost of producing crude palm oil (CPO) in Indonesia is the cheapest in the
world.

4) Higher levels of productivity than vegetable oil products.

5) The use of biofuels is expected to increase significantly, while the use of iron
expected to decrease.

CONCLUSION

Palm oil is a national strategic commodity because it has a long utilization chain
so many benefits can be taken, among others, replacing the role of petroleum which is
non-renewable resource as fuel and produces various derivative products from palm oil.
The large number of industries will result in a lot of employment and result increased
foreign exchange for the country so that the economy in Indonesia increases. One of the
goals of industrial agricultural development in Indonesia is to increase company
productivity and value added productivity. The increase in added value of a commodity
achieved is through the processing of raw forms into finished goods. Some agro industry
developments that have been carried out by the government in promoting palm oil
plantations in East Kalimantan province are the estabilishment of palm oil mil agro-
industry companies. Palm oil is a plantation product that has bright prospects in the
future. The potential lies in the diversity of uses of palm oil. Palm oil as a raw material
for the food industry can be used as a raw material for the non-food industry. Palm oil
commodities that have strategic value because they are the main raw material for making
edible oils. While edible oil is one of the basic needs of the Indonesian people. The
demand for strong domestic and foreign edible oils is an indication of the important role
of palm oil commodities in the nation’s economy.

References

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Susila, W.R. 2012. Peluang Pengembangan Kelapa Sawit di Indonesia. Jurnal Agribisnis.
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Huda, E.N. 2017. Determinan dan Stabilitas Ekspor Crude Palm Oil Indonesia. Jurnal
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