Indonesia’s palm oil power hinges on sustainability

Over the past decades, Indonesia has emerged as the undisputed global leader in palm oil production, leveraging its favorable climate, vast land resources and an early start in plantation development. Today, palm oil supports millions of livelihoods, underpins rural incomes and cements the country’s position as the world’s largest producer of crude palm oil.

Indonesia currently manages around 16 million hectares of oil-palm plantations, with annual output exceeding 55 million tonnes. By comparison, Malaysia, once the dominant force in the sector, operates only about 5–6 million hectares and produces roughly 20 million tonnes a year. This imbalance gives Indonesia decisive influence over global prices, as any adjustments to export policies, biodiesel mandates or levy structures are closely watched by international markets.

However, the industry’s rapid expansion has come at a high environmental cost. Recent floods and landslides across several Sumatran provinces have highlighted the consequences of deforestation, disrupted watersheds and drained peatlands converted into plantations. Such disasters damage infrastructure and plantations alike, eroding the long-term resilience of the palm oil sector.

A key tool to address these challenges is the Indonesian Sustainable Palm Oil (ISPO) certification system. Yet only about one-third of the national plantation area is currently certified, largely due to financial, technical and land-tenure constraints faced by smallholders. This limited coverage weakens Indonesia’s ability to defend palm oil in international markets increasingly shaped by sustainability requirements and supply-chain transparency.

Analysts argue that sustainability is no longer just an environmental issue but a strategic necessity for Indonesia. Universal ISPO implementation, stronger support for smallholders and accelerated downstream processing—from crude palm oil to higher-value refined and bio-based products—could secure the country’s leadership. Without such reforms, environmental risks may gradually undermine one of Indonesia’s most powerful economic and geopolitical assets.

Tags: Indonesia, palm oil