[Jakarta, February 9, 2021] The Presidential Instruction No. 8 of 2018 on the Suspension and Evaluation of Palm Oil Plantation Licenses and the Improvement of Palm Oil Plantation Productivity—widely known as the Palm Oil Moratorium—is set to expire this year and needs to be extended to provide sufficient space for improving governance and increasing the welfare of smallholder farmers and palm oil–producing regions.
“There are still many unresolved governance issues that must be addressed to ensure farmers’ and regional welfare, including tangled licensing systems, illegal plantations, land and plantation legality for smallholders, poorly targeted subsidies, limited budget prioritization for farmer welfare, and unfair fiscal balance between the central and regional governments. Therefore, the three-year palm oil moratorium must be extended so all stakeholders have adequate time to make improvements,” said Trias Fetra, Palm Oil Governance Program Officer at Yayasan Madani Berkelanjutan.
Licensing Chaos and Lost Regional Revenue
Complicated palm oil licensing has limited regional revenue potential. MADANI records indicate that 11.9 million hectares of licensed palm oil land have not yet been planted, which should be prioritized for permit review and revision. At the same time, there are 8.4 million hectares of existing oil palm cover that lack clear licensing records, requiring urgent government attention to clarify permit status and optimize state revenue.
Trias Fetra added that beyond extending the moratorium, the government must develop a new formula to improve smallholder welfare, particularly through reforms in Fresh Fruit Bunches (FFB/TBS) pricing and the Palm Oil Plantation Fund.
“Currently, the use of Palm Oil Plantation Funds is misaligned with farmer welfare objectives. These funds have not significantly benefited smallholders, while the FFB pricing mechanism continues to favor and subsidize large plantation companies,” he explained.
Palm Oil Funds: Biodiesel Subsidies vs. Farmer Welfare
MADANI’s research shows that Palm Oil Plantation Funds—intended to support plantation development programs such as smallholder replanting, infrastructure improvement, and human resource development—have instead been largely allocated to biodiesel subsidies.
Based on data from the Corruption Eradication Commission (KPK, 2017), the Palm Oil Plantation Fund Management Agency (BPDPKS) collected IDR 11 trillion from export levies on crude palm oil (CPO) and its derivatives in 2016. Of this amount, 81.8% was allocated to biodiesel subsidies, with Wilmar Group and Musim Mas Group receiving the largest shares.
Economic Impact Analysis
Erlangga, Palm Oil Governance Researcher at Yayasan Madani Berkelanjutan, explained that MADANI’s input–output analysis demonstrates that using plantation funds for biodiesel subsidies delivers far fewer economic benefits than directing them toward plantation sector development.
“If all palm oil fund revenues were allocated to the plantation sector, production output in the sector would increase by 6.52%, with spillover effects such as a 0.59% increase in labor output and a 0.50% increase in household income output. In contrast, allocating all funds to biodiesel subsidies only increases biodiesel industry output by 1.23%, while labor and household outputs rise by just 0.31%,” Erlangga explained.
Failed Promise to Boost CPO and Farmer Prices
According to Intan Elvira, Palm Oil Governance Researcher at MADANI, the core objective of collecting palm oil funds—to improve farmer welfare as mandated by Law No. 39 of 2014 on Plantations—has not been realized.
The government imposed export levies on CPO and its derivatives to finance biodiesel subsidies, aiming to boost domestic biodiesel production, absorb excess CPO supply, raise CPO prices, and ultimately increase FFB prices at the farmer level.
“In reality, this did not happen. Domestic CPO prices did not increase significantly and instead fluctuated. For example, in 2014 the average CPO price (based on Belawan and Dumai reference prices) was IDR 9,084/kg. After export levies were introduced in 2015, prices fell below pre-levy levels. By 2019, CPO prices had dropped further to IDR 6,829/kg,” Intan explained.
Policy Recommendations
To correct these structural problems, MADANI recommends:
Extending the Palm Oil Moratorium to allow comprehensive governance reforms;
Redirecting Palm Oil Plantation Funds toward farmer-focused programs, including smallholder replanting, infrastructure development, and farmer capacity building;
Improving BPDPKS fund distribution mechanisms, using valid spatial and numerical data, streamlining bureaucracy, and simplifying verification processes;
Reforming FFB pricing formulas to incorporate production costs at both mill and farmer levels;
Developing an official quality-based FFB pricing matrix through revisions to Minister of Agriculture Regulation No. 1 of 2018;
Establishing a linear pricing mechanism that ensures FFB prices increase fairly in line with rising CPO prices and the K Index.
“These reforms are essential to ensure that the mandate of Law No. 39 of 2014 on Plantations—particularly improving smallholder welfare—is genuinely fulfilled,” Trias Fetra concluded.
Media Contacts:
Trias Fetra, Palm Oil Governance Program Officer, Yayasan Madani Berkelanjutan
WhatsApp: +62 877 4403 0366Erlangga, Palm Oil Governance Researcher, Yayasan Madani Berkelanjutan
WhatsApp: +62 852 0856 8896Intan Elvira, Palm Oil Governance Researcher, Yayasan Madani Berkelanjutan
WhatsApp: +62 812 2838 6143
