Why China wants Indonesia’s palm oil
Is China betting big on palm oil to secure its cooking oil and biofuel future?
Indonesian media reported that China recently sent its Deputy Minister of Agriculture and Rural Affairs, Maierdan Mugaiti, to request that Jakarta guarantee its long-term supplies of crude palm oil and other key commodities.
While full details remain undisclosed, such an arrangement would deepen agricultural trade ties between two pivotal players: China — the world’s second-largest importer and third-largest consumer of palm oil — and Indonesia, the world’s largest producer and exporter.
China relies heavily on foreign imports of edible oils (such as palm oil, soybean, rapeseed/canola, sunflower) to support its domestic production, making the country highly exposed to global price volatility and supply disruptions. Although soybean oil remains dominant, supplying around 40% of China’s cooking oil consumption, palm oil use has expanded steadily increased partly due to lower costs, versatility, and long shelf life.
Indonesia makes up nearly 60% of global palm oil output. In 2024, its biggest buyers were India (17.6% of the country’s exports), China (nearly 14.8%), and Pakistan (12.3%).
Despite efforts to cultivate oil palm domestically, last year China imported approximately 4.36 million tonnes of palm oil and related products, primarily from Indonesia (76%) and Malaysia (24%). Most imports arrive as crude palm oil (CPO), later refined domestically into edible oils, processed foods, and industrial products. Estimates suggest that 80% of its palm oil consumption is for consumption; the remaining 20% is used in industrial applications (like oleochemicals and biodiesel).
Indonesia makes up nearly 60% of global palm oil output. In 2024, its biggest buyers were India (17.6% of the country’s exports), China (nearly 14.8%), and Pakistan (12.3%). Palm oil also plays a crucial role in the country’s economy. It also contributes more than 4% to Indonesia’s gross domestic product, while providing employment for over 16.2 million people.
Two-way trade between China and Indonesia continues to accelerate, reinforcing their strategic partnership as both countries mark 75 years of diplomatic relations and deepen cooperation under the BRICS framework. As Southeast Asia’s largest economy and a Belt and Road Initiative (BRI) participant since 2017, Indonesia remains closely tied to China through trade, investment, and infrastructure collaboration.
In 2024, China was Indonesia’s largest trading partner for the 12th consecutive year. Bilateral trade reached US$147.8 billion — a 6.1% year-on-year increase. China’s exports to Indonesia totalled US$76.7 billion, up 17.6% from the previous year. Agricultural commodities play an increasingly important role in this trade relationship: Indonesia posted a US$1.77 billion agricultural surplus with China in 2024, led by palm oil exports (worth US$2.72 billion).
For China, guaranteed palm oil supplies provide essential inputs for food processing, industrial production, and bioenergy, helping to stabilise supply chains and reduce vulnerability amid a complex geopolitical environment.
Strengthened agricultural trade offers tangible benefits for both Beijing and Jakarta. For China, guaranteed palm oil supplies provide essential inputs for food processing, industrial production, and bioenergy, helping to stabilise supply chains and reduce vulnerability amid a complex geopolitical environment.
The need for such stability is clear. In recent years, the global vegetable oil market has faced repeated disruptions — from supply chain breakdowns and conflicts like the Russia–Ukraine war (which impacted sunflower and rapeseed exports) to climate-induced production shocks and transportation upheavals costs. These challenges have exposed structural weaknesses in China’s import-dependent food system, leaving it highly sensitive to trade disputes, tariffs, and price volatility, even as demand for palm oil continues to rise in major markets such as India and the European Union (EU).
For Jakarta, long-term Chinese demand for Indonesian agricultural commodities ensures steady export revenue and supports employment, particularly in rural areas. Such engagement embeds Indonesia further into regional value chains, strengthens its position in global edible oil and biofuel markets and could lead to more Chinese investment in the sector.
In the case of the latter, recent developments suggest that there is interest in doing so. In April, China’s foreign ministry announced plans to increase imports of Indonesian products. Furthermore, in August, reports indicated that Chinese investors are turning to Indonesia to circumvent tariffs from the US.
In this context, palm oil has re-emerged as a cost-effective, high-yield alternative that can (partially) substitute soybeans in food processing and biofuel production. While this shift could free millions of tonnes of soybeans for other importers, Beijing’s suspension of US crop purchases ahead of the Trump–Xi talks may depress global soybean oil prices, narrowing crude palm oil’s price advantage.
Regionally, China’s bid for guaranteed palm oil supplies from Indonesia could reshape Southeast Asia’s agricultural trade, influencing both intra-ASEAN flows and inter-regional trade between Southeast and East Asia. Deepening ties under frameworks like the China–ASEAN Free Trade Agreement (CAFTA) not only consolidates Beijing’s influence in the region but also encourages greater Chinese investment in refining, transport, and certification infrastructure.
Deepening Sino-Indonesian agricultural trade risks asymmetric dependencies. As Indonesia exports greater volumes to China, it becomes increasingly exposed to fluctuations in Chinese demand. Palm oil — already Indonesia’s third-largest export to China after coal and metals, and accounting for around 20% of total exports — illustrates this vulnerability. A slowdown in China’s economy or a shift toward alternative edible oils could sharply reduce Indonesia’s export earnings.
But Beijing remains cautious about over-reliance on a single supplier too. Political, climatic, and regulatory risks can disrupt supply chains even with formal agreements in place. These concerns are compounded by Indonesian President Prabowo Subianto’s ongoing crackdown on illegal plantations, aimed at reclaiming millions of hectares lost to unregulated expansion. While intended to improve governance, the campaign may unsettle Chinese investors wary of asset seizures and opaque regulatory processes.
Jakarta must additionally balance export commitments to China with domestic priorities.
Structural constraints in Indonesia further exacerbate matters. Price volatility and stagnant yields, driven by ageing plantations and slow replanting, continue to limit production capacity. In 2024, climatic variability hit plantation yields, underscoring the sector’s vulnerability to weather-related shocks.
Environmental scrutiny is also intensifying. Global and regional concerns over deforestation, biodiversity loss, labour rights, land grabs, and sustainability standards increasingly shape market access and investment. Expanding exports to China without robust safeguards could exacerbate these issues.
Jakarta must additionally balance export commitments to China with domestic priorities. Indonesia’s biodiesel policies — such as the ‘B40’ biodiesel mandate (requiring 40% palm oil in diesel fuel), planned B50 rollout by 2026, and the eventual B100 target — aim to reduce energy imports. But these initiatives risk triggering tensions between energy and non-energy uses of palm oil, while constraining Jakarta’s ability to meet export pledges, including to China.
These pressures were evident between late April to late May 2022, when Jakarta slapped a ban on palm oil exports to address domestic cooking oil shortages and reduce food prices. While the move curbed local inflation, one estimate suggests that it cost around US$3 billion monthly in lost government revenue and sparked widespread concerns of further global inflation. In this light, long-term supply guarantees to China may constrain Jakarta’s flexibility to manage such competing demands in future crises.
China’s push for long-term palm oil supplies from Indonesia reflects a strategic effort to safeguard food and energy security amid global trade volatility and geopolitical tension. While the arrangement offers Beijing stable inputs and Jakarta reliable export revenue, it also highlights structural vulnerabilities: production constraints, environmental pressures, and competing domestic priorities. As bilateral trade deepens, both countries must navigate these risks carefully, balancing economic gains with sustainability, market stability, and long-term resilience.
For almost 30 years of expertise in the agri markets, UkrAgroConsult has accumulated an extensive database, which became the basis of the platform AgriSupp.
It is a multi-functional online platform with market intelligence for grains and oilseeds that enables to get access to daily operational information on the Black Sea & Danube markets, analytical reports, historical data.
You are welcome to get a 7-day free demo access!!!
Read also
Updated trade agreement between Ukraine and the EU enters into force
US soybean prices hit a 15-month high amid hopes for a trade deal with China
UkrAgroConsult presents market research on Ukraine’s livestock sector
Exports of Ukrainian agricultural products to the EU decreased by €1.57 bln in mon...
Ukraine commits to align its agricultural standards with the EU by 2028
Got additional questions?
We will be happy to assist!
Write to us
Our manager will contact you soon