Palm oil’s versatility has made it an integral part of our daily lives, found in everything from food and cosmetics to its growing use as a biofuel. Its high yield and cost-efficiency has led to its position as the world’s most popular vegetable oil.

Indonesia, the world’s largest producer and exporter of palm oil, accounts for more than 50 per cent of global production. According to the Indonesian Palm Oil Association (IPOA), the country’s biggest industry group, production is set to rise with a focus on sustainable alternatives.

Under the leadership of President Prabowo Subianto, Indonesia is building on its commitment to downstreaming in the crude palm oil (CPO) industry, a strategic focus that is central to the administration’s economic vision.

To support Indonesia's ambitious 8 per cent economic growth target, priority is placed on sustainable investment in sectors such as agriculture.

From January to September 2024, Indonesia’s investment in the downstream industry reached IDR 272.91 trillion, accounting for 21.6 per cent of the country’s total investment during this period.

Investment in the agriculture sector, specifically the CPO and oleochemical industries, accounted for IDR 44.09 trillion, highlighting Indonesia's focus on enhancing the value and competitiveness of its CPO exports.

The newly renamed Ministry of Investment and Downstream/BPKM has identified 21 key commodities – including minerals, coal, plantations, forestry, fisheries, and marine – in its comprehensive roadmap.

This approach has delivered impressive results, with foreign direct investment (FDI) reaching US$45.6 billion in 2022 – a 44.2 per cent increase from the previous year. The upward trend continued into 2023, with FDI rising further to US$50.27 billion.

Indonesia is not only pursuing robust economic growth but is also charting a course toward a sustainable green economy. With its ambitious Net Zero 2060 goal, the country is prioritising greener downstream activities to align economic progress with environmental objectives.

Unlocking the potential of crude palm oil

With the global demand for biofuels, oleochemicals, and oleo foods on the rise, Indonesia is positioning itself to lead the market by developing high-value palm oil derivative products.

The Government is targetting a US$4.4 billion investment in the CPO downstream sector from 2023 to 2040. This is projected to boost gross domestic product (GDP) by US$2.9 billion, create 19,500 jobs, and drive US$11.4 billion in exports.

Figure 1: Projected economic impact of palm oil downstreaming. Source: Ministry of Investment/BKPM

The Deputy for Investment Planning has prepared several ready-to-offer plantation projects, focusing on CPO in North Kalimantan and Riau with targeted investments of IDR 269.62 billion and IDR 227.67 billion, respectively.

These initiatives aim to further enhance Indonesia's production capabilities and reinforce its position as a leading player in the global CPO market.

Supporting yields from smallholders

The CPO processing industry is crucial for Indonesia's economy, boosting national growth by absorbing smallholder farmers' production, improving their welfare, and increasing foreign exchange earnings.

Ensuring smallholder sustainability is essential to achieve this goal.

In July 2024, 1,340 smallholder farmers were registered in three pilot districts in Jambi province, a major palm oil producer in the southeast island of Sumatra.

Government support for downstream palm oil processing has led to the creation of high-quality and competitive derivative products, further integrating smallholder production.

The production of red palm oil (RPO) – a healthier, less refined version of palm oil – reflects this integration. Red palm oil production helps to stabilise the prices of fresh fruit bunches from smallholders, who are traditionally reliant on palm oil mills owned by larger plantation companies.

Despite being relatively new, RPO has seen strong market demand, with 200 tonnes supplied to restaurant chains.

Additionally, the palm oil industry offers significant investment opportunities in high-energy density biomass through palm shell processing.

Fanning out into sustainable fuel

CPO processing also contributes to environmentally friendly renewable fuels.

Since the launch of the mandatory 30 per cent biodiesel (B30) programme in January 2020 and the target for 100 per cent biodiesel (B100) production in 2021, Indonesia has been producing biodiesel as a sustainable fuel alternative.

By expanding its biodiesel programme, blending diesel with palm-based Fatty Acid Methyl Ester (FAME), Indonesia looks to reduce fuel imports and boost domestic palm oil demand while cutting down on emissions.

This initiative, managed by state-owned Pertamina and private companies, has progressed from the B20 programme to B35 recently, with plans for B40 and B50 blends. B20 refers to 20 per cent blended biofuel with the blend increasingly towards biofuel as the industry progresses towards B50.

Figure 2: Indonesia’s biodiesel production on a steady rise since 2019. Source: APROBI Data

With an annual biodiesel production potential of 13 million tonnes requiring 14.87 million tonnes of CPO, and exports reaching 3.5 million tonnes, Indonesia can meet the high demand for sustainable energy sources in overseas markets like Japan.

This shift helps reduce carbon emissions and also supports global sustainability trends.

A significant portion of Indonesia’s CPO is directed towards biodiesel production, with demand projected to grow 3 per cent annually.

Meeting the B40 target will require an additional 2.5 million tonnes of CPO, while by 2035, the B60 program is expected to consume 34.35 million metric tonnes of CPO. 

Easing market entry into crude palm oil

For ease of business, the Indonesian Government has introduced several incentives for investors to boost the industry further. These include import duty facilities, tax holidays, and tax allowances.

Investing in one of the 246 priority business lines, including palm oil, comes with substantial benefits. Companies can receive a 50 per cent corporate income tax reduction for investments between IDR100 billion (US$6.2 million) and IDR500 billion (US$31 million) for five years, and a 100 per cent reduction for larger investments for up to 20 years.

Additional perks include a 30 per cent reduction in taxable income for six years, a special 10 per cent withholding tax rate on dividends, and tax loss carry forwards for up to 10 years.

However, as the global minimum corporate tax rate of 15 per cent takes effect in 2025, Indonesia’s tax holiday framework is under revision to align with new international standards.

While the previous 0 per cent corporate tax rate may be phased out, the Government is developing alternatives, such as extended tax holidays and enhanced allowances, to keep CPO investments attractive under the new standards.

Moreover, all investors in the palm oil industry will benefit from an easy licencing process through the Online Single Submission (OSS) system – a web-based, integrated business licencing platform by BKPM.

The OSS system connects investors with ministries, agencies, local governments, and administrators of special economic zones, free ports, and free trade zones, for a smooth and efficient setup workflow.

Greener future forward

There are sustainability implications of investing in the palm oil sector. For example, the European Union Deforestation-Free Regulation (EUDR), bans products linked to deforestation. In response, Indonesia is taking significant steps towards sustainable development of its palm oil sector. 

The Government has developed a detailed forest database through SIMONTANA (National Forest Monitoring System) to closely monitor forest coverage. As of 2022, Indonesia's forested land covers 96.0 million hectares, with deforestation at its lowest in recent years (104,000 hectares in 2022).

Strict measures have been implemented, including halting permits in primary forests and peatlands, preventing forest fires, and restructuring land use for palm oil plantations.

To further strengthen compliance, the country's Ministry of Agriculture and Ministry for Economic Affairs have initiated the pre-launch of the national dashboard of sustainable commodity data and information.


Still in its pilot phase, this digital platform aims to track key commodities such as palm oil, offering greater transparency in the supply chain and promoting sustainability standards. Once fully operational, it will serve as a critical tool to help Indonesia meet EUDR requirements and navigate global market challenges.

The Indonesian Government is also actively working to ensure that by the end of this year, its risk assessment under the EU’s Forest Observatory map can be categorised as 'Low Risk,' paving the way for continued access to the EU market.

Gateway to sustainable growth

Indonesia’s commitment to sustainable development within its palm oil industry presents a compelling opportunity for international investors.

With robust policies, attractive incentives, and a focus on eco-friendly practices, the country is an ideal destination for those looking to invest in a dynamic and green-forward market.

At UOB’s FDI Advisory Unit, we specialise in guiding companies through their Southeast Asian ventures with tailored market insights, regulatory navigation, and valuable connections.

Our holistic approach, backed by UOB’s comprehensive financial solutions and collaboration with key stakeholders, positions us as a pivotal partner for sustainable success across ASEAN.

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About the author

Harapman Kasan

UOB Indonesia

In his current role as Wholesale Banking Director, Harapman Kasan has been leading UOB Indonesia’s Wholesale Banking segment since 2019. With more than 30 years of experience in the banking industry, his expertise lies in connecting clients with ecosystem partners to expand businesses by providing a one-stop solution, while managing strategic partnerships with the government and regulators to reinforce Indonesia’s vision of seamless transition for a sustainable future and economic growth.