Indonesia's Palm Oil Industry​

 

 

The economic significance of palm oil for Indonesia cannot be underestimated. In 2006, the country became the world's leading producer of palm oil, and in 2012, produced 28 million tons of palm oil. Today, Indonesia and Malaysia reportedly produce 86% of the world's palm oil. In Indonesia, 3.7 million people are believed to be employed in the palm oil industry.

 

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​Gross Domestic Product 
 

Indonesia’s GDP of $878.2 billion in 2012 was ranked #16 in the world out of 195 countries according to the International Monetary Fund.

 

GDP per capita, according to the International Monetary Fund, was $3,910 in 2012, ranked #104 out of 182 countries. The CIA Factbook estimates that in 2012, 11.7% of the population lived below the poverty line.

 

The Jakarta Globe reports that "government data as of September 2012 showed that 28.59 million people [in Indonesia] were living in poverty, with income at less than $1 a day."

 

Forbes reports that Indonesia's 40 richest people were worth $88.6 billion in 2012. In this group, nine gained their wealth at least in part through the palm oil industry and have an accumulated net worth of $34.24 billion.

 

Exports by Commodity 

Palm oil is the third largest export-earner in Indonesia, outranked only by coal and petroleum. Indonesia is also the second-largest producer of natural rubber in the world, which is also its fourth-largest export earner.

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In 2012, Indonesia exported $17.6 billion worth of palm oil around the world, according to United Nations Comtrade data. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Crop Estates

 

 

The following table indicates the number of hectares dedicated to various major commercial crops by year in Indonesia. Of these crops, oil palm plantations use the most land, followed by rubber plantations and then sugar cane.

 

In 2009, Indonesia Agriculture Minister Suswono said the government has allocated 

18 million hectares for oil palm plantations, according to a Jakarta Post news report. Total dry land in Indonesia is estimated at 57 million hectares, according to Indonesia's Ministry of Agriculture.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Where the Oil Palm Trees Grow

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The Indonesian islands of Sumatra and Kalimantan (the Indonesian name for Borneo, which is divided between Indonesia, Malaysia, and Brunei) are the most productive palm-growing areas in the world. Within these areas, the top Indonesian palm-producing provinces are Riau, North Sumatra, and South Sumatra in Sumatra, and Central Kalimantan, East Kalimantan, and West Kalimantan.

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Palm Oil Plantation Mapping​
 

As of 2009, Indonesia had 7.9 million hectares (19.5 million acres) of palm oil plantations with another 1.8 million hectares (4.45 million acres) licensed for that use and a total of 18 million hectares (44.48 million acres) which could be allocated. Sawit Watch, an Indonesian watchdog NGO which advocates against negative social and environmental impacts of palm oil production in that country, has mapped oil palm plantation holdings across Indonesia. See their GIS-based interactive maps for geographical data.

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Palm Oil Production by Ownership

 

 

While production of palm oil from state-owned palm plantations has remained relatively steady since 1996, according to the Directorate General of Plantations of the Ministry of Agriculture, production from smallholder and private plantations has risen steadily and more dramatically, as the following chart shows.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Labor Force

 

The work of planting, cultivating, and harvesting palm fruit, while labor intensive, does not demand a skilled workforce. Securing and maintaining a reliable workforce is one of the industry's key challenges, according to the management consulting and technology services firm Accenture in its 2013 report. 

 

Of Indonesia’s nearly 120 million-strong labor force, an estimated 38.9% of workers are involved in the agricultural sector. The Indonesian palm oil sector alone directly and indirectly employs between two and three million people, according to the International Finance Corporation. 

 

The following charts show data from the Indonesia Ministry of Agriculture related to the agricultural sector and labor force in Indonesia. Labor laws in Indonesia allow children to work when they are 12 years old, though the new Manpower Law will raise that age to 15 for regular work and 18 for work of a hazardous nature. The International Labour Organization estimates that 3.2 million Indonesian children between the ages of 10 and 17 are active in the workforce.

 

Migrant workers in agriculture may include Indonesians who travel in and around Indonesia to work on the many plantations and migrants from poorer neighboring countries such as Myanmar (Burma) and Sri Lanka. Indonesians may also migrate out of the country, some of them working on palm oil plantations in Malaysia.

The oil palm fruit, above, grows in large bunches that hang from the Elaeis guineensis tree which originated in West Africa. Today it is used in a plethora of grocery and household products, as well as in biodiesel. Nutella, a product on the store shelf behind the palm fruit, lists palm oil as its second ingredient after sugar. Ferrero, the company that makes Nutella, announced in April that it had switched to 100% CSPO (segregated) palm oil for its French market. Photo of store shelf by Roswitha Siedelberg. 

Palm oil plantation in West Kalimantan. 
Photo | Rainforest Action Network

Snapshot of the Indonesian Economy​

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GDP

$894.9 billion (CIA World Factbook, 2012 est.)

$878.2 billion (IMF 2012)

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GDP per Capita

$5,000 (CIA World Factbook, 2012 est.)​

$3,910 (IMF 2012)

Total Population

242.3 million (World Bank, 2011​)

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Labor Force

118 million (CIA World Factbook, 2012 est.​)

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Population below Poverty Line

11.7% (CIA World Factbook, 2012 est​.)

 

​Percent of Labor Force by Sector

Agriculture: 38.9%
Industry: 22.2%

Services: 47.9% 

(CIA World Factbook 2012 est.) 



For more facts about Indonesia, see the
CIA Factbook>

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Brief History

Based on fossilized remains of H. erectus found in Indonesia in 1891, the archipelago is thought to have been inhabited as far back as 1.5 million years ago. Early kingdoms were based on Hindu and Buddhist traditions. By the end of the 16th century, Islam became the dominate religion in Java and Sumatra, mixing with local cultures. The 16th century also brought European traders to Indonesia, which led to the colonization of Indonesia by the Dutch. In 1942, the Japanese took control of the country. In 1945, two days after the Japanese surrendered in the Pacific, Indonesia declared independence. Sukarno was declared the independent country's first president. In 1965 a failed coup d’état made way for General Suharto, who led the country until 1998. After his forced resignation, his deputy Jusuf Habibie took over briefly, followed by Abdurrahman Wahid. Wahid was also pressured to resign and in 2004, in the country's first direct Presidential elections, Susilo Bambang Yudhoyono was elected. He won re-election in 2009. 

 

Learn more about Indonesia's history at the Wikipedia website.

 

See a timeline of Indonesia's key events prepared by the BBC.   

$17.6 billion worth of palm oil (18.8M metric tons) exported
in 2012

UN Comtrade.

31.6% of
total dry land
(18M hectares) 
allocated to palm oil crops

Indonesia Central Statistics Bureau and Ministry of Agriculture, Indonesia.

4.7% work as free workers in agriculture

Indonesia Central Bureau of Statistics.

2.7% of work force in Indonesia work in palm oil industry

International Finance Corporation.

 

 

 

Basic wage

for palm oil workers in
Riau province, Sumatra 2012: $143.49/month 

​RSPO Assessment Report, p. 16.

Palm oil production
by ownership, 2010:

50% private

39% smallholders

11% state

Ministry of Agriculture, Indonesia.

Further Reading



“Indonesian Palm Oil in Numbers,” 2007, Indonesian Palm Oil Board
 

The Indonesian Ministry of Trade, Ministry of Agriculture, and the Indonesian Palm Oil Board provide figures on the land area dominated by palm oil plantations in Indonesia and the production of these plantations in 2007. 

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“Palm Oil Plantation: Industry landscape, regulator and financial overview,” 
2012, PriceWaterhouseCooper
 

PriceWaterhouseCooper creates a business/investor overview of statistics and trends in the palm oil industry in Indonesia and summarizes present conditions of and potential future solutions for sustainable planting practices. The report highlights the palm oil industry’s role as a job creator in Indonesia, and warns potential investors about regulatory problems in the palm oil industry.

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“Chasing the Commodities Boom,” 8/4/2011, Wall Street Journal

 

According to the Wall Street Journal, “in commodity-driven economies like Indonesia, the rising prices are lifting millions of farmers and miners out of poverty—and creating opportunities for global companies.”

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Next: Ubiquitous Palm Oil: Products with Palm Oil

 

 

 

 

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