Indonesia to raise crude palm oil export levy to fund biodiesel, replanting initiatives

The Indonesian government will raise its export levy on crude palm oil (CPO) from 7.5 per cent to 10 per cent of the reference price, in a move aimed at financing its national biodiesel programme and supporting replanting efforts in the sector.

The revised levies, outlined in a regulation issued by the Finance Ministry, also apply to other palm oil derivatives as the country intensifies efforts to maintain long-term sustainability in its palm oil industry.

As the world’s largest palm oil producer, Indonesia is using export levies to subsidise its ambitious B40 biodiesel policy, which mandates a 40-per-cent palm oil blend in diesel fuel.

The funds help offset the significant price gap between palm oil and conventional crude oil, which makes biodiesel production costlier.

However, the policy has raised concerns among industry players about Indonesia’s global competitiveness. Chairman of the Indonesian Palm Oil Association (GAPKI) Eddy Martono warned that the higher export levy could erode the country’s market position.

“Our palm oil is now priced higher than that of neighbouring producers,” Eddy said, as quoted by Bisnis. He noted that Indonesian exporters are already burdened by a combination of costs, including the domestic market obligation (DMO) for cooking oil, the export levy, and the export duty, which together amount to USD221 per metric tonne.

Despite these headwinds, the government is pushing ahead with its biodiesel targets, citing energy security and support for smallholder farmers as key priorities. Indonesia’s CPO levy framework is tiered based on global price benchmarks and is regularly adjusted in response to market conditions and policy needs.

“The figure was based on a CPO price of IDR14,000 (USD0.84) per kilogramme. We have yet to calculate the additional burden resulting from the new 10 per cent levy,” he said, as Bisnis reported.

Indonesia began implementing its B40 policy in January this year.

The rule, which requires approximately 15.62 million kilolitres of CPO, took place when the country’s CPO production fell from 50.1 million tonnes in 2023 to 47.8 million tonnes in 2024, according to GAPKI.

The palm oil industry group also anticipated that B40 implementation could reduce CPO exports by two million tonnes.

Indonesian CPO export value fell 16.6 per cent year-on-year (yoy) in January, despite prices rising from USD835 to USD1,134 per tonne. The weak CPO export performance was mainly due to a drop in volume, as Indonesia shipped out a mere 1.27 million tonnes in January compared with two million tonnes a year prior.

Despite bottlenecks, the Energy and Mineral Resources Ministry forecasts significant economic and environmental benefits from the B40 programme, including a cut in fuel imports, particularly diesel, worth IDR147.5 trillion in 2025.

The ministry also predicts the programme would boost CPO’s added value by IDR20.9 trillion, lower carbon emissions by 41.46 million tonnes of carbon dioxide equivalent, as well as generate 1.95 million on-farm jobs and 14,730 off-farm jobs.

The Oil Palm Plantation Fund Management Agency (BPDPKS) expected subsidies for the B40 programme could amount to IDR46 trillion to IDR47 trillion in 2025.

Tags: export levy, reference price, Indonesia, Crude palm oil, biodiesel