Jakarta. Indonesian palm oil farmers have warned the government that smallholders are the ones who will bear the brunt of a hasty biodiesel program expansion.

In about two days from now, Indonesia will begin blending 50% palm oil-based biodiesel with 50% conventional diesel. The policy, known as B50,  is an expansion of the current B40 program, which has a lower palm oil blend of 40%. The government sees the move as a cure to the national fuel import reliance following soaring fuel prices in the wake of the US-Iran war.

However, the oil palm smallholder association POPSI fears that the B50 will only add to existing problems, especially if implemented in a rush. 

“We are not against the biodiesel program. What we don’t want is for it to be the palm oil farmers that have to pay the price when prices of fresh fruit bunches decline,” POPSI chair Mansuetus Darto said in a recent press statement.

Over the years, Indonesia has been subsidizing this cost-heavy biodiesel program using proceeds from export levies. It is currently set at 12.5% of the palm oil monthly reference price. The export levy is now at almost $129 per metric ton, and is expected to change for July. Indonesia had only lifted the threshold from 10% a few months ago. 

POPSI is worried that a 12.5% levy threshold for the sake of the B50 mandate would weaken the net CPO price. The purchase price of fresh fruit bunches or FFBs — the key raw material for palm oil mills — follows the levy-deducted CPO price. In other words, a higher levy of 12.5% could further weaken the net CPO price and shrink what farmers earn “despite a relatively high CPO price”.

The group then proposed a more flexible blending mechanism, which puts a 30% rate or B30 as the minimum threshold.  Indonesia may raise the ratio to 40% to 50%, “depending on the national production capacity, global prices, fiscal capacity, and domestic energy demands”.

Energy Minister Bahli Lahadalia had previously told the press that he was “very optimistic” about rolling out the B50 program on July 1.

His team’s estimates showed that Indonesia would be able to save Rp 157.28 trillion ($8.8 billion) in foreign exchange reserves from stopping fuel imports. The government’s B50 trial runs on various vehicles, such as ships and trains, have yielded positive results, according to Bahlil.

Indonesia reigns supreme as the world's largest palm oil supplier.