Indonesian palm oil output set to fall on dry weather, old trees

The outlook for Indonesia’s palm oil harvest has dimmed as dry weather and ageing trees crimp production in the world’s top grower, which will likely tighten global supply and keep prices elevated.

Output of the tropical oil this year is expected to be flat or as much as 5 per cent lower than in 2023, according to forecasts from the Indonesian Palm Oil Association and the Indonesian Palm Oil Board. The industry groups, which represent producers and refiners, had both predicted an increase earlier this year.

The US estimates global palm oil reserves are heading for the lowest level in three years, with the world’s second-largest grower – Malaysia – also facing supply issues due to old trees and a labour shortage. The tropical oil is used in a wide range of products from soap to ice cream and fuels.

About a third of Indonesia’s key palm oil growing regions have seen lower than normal rainfall in July, including Sumatra and parts of Kalimantan, said M Hadi Sugeng, the secretary general of Gapki. The trend is expected to continue this month, he added. The group forecast production will be steady to 5 per cent lower this year, compared with a February projection for a 5 per cent increase.

The US Foreign Agricultural Service forecast Indonesian palm oil output from January to June declined by 2 per cent from the same period last year, according to a report earlier this month. Drought caused trees to develop more male flowers and decreased the volume of fresh fruit bunches, it said.

Maturing trees continues to be a persistent problem for the industry. For many of the nation’s smallholders, their plantations are older than 25 years and they desperately need to be replenished to help boost output, said Sahat Sinaga, the acting chairman of the Indonesian Palm Oil Board.

Fresh fruit production has slipped to as low as 700 kilogrammes a hectare at some plantations, from 830 kilogrammes, Sinaga said. The board estimated Indonesian output this year would drop by 3 per cent, compared with a January forecast for a gain.

“I am deeply concerned, Indonesia’s glory in palm oil could fade away if no one realises this issue,” Sinaga said, referring to ageing plantations.

Tags: Indonesian Palm Oil Association, ageing trees, harvest, Indonesian Palm Oil Board, Indonesia, prices, Outlook, Production, palm oil, dry weather, forecasts, output