Jakarta. Indonesia is among the world’s largest palm oil producers, but it still somewhat struggles to compete with its close neighbor Malaysia, according to palm oil industry association Gapki.

Eddy Martono, the chairman of Gapki, talked of his recent trip to Nigeria. He visited the local factory belonging to Indonesian instant noodle giant Indomie. But it turns out that the factory favors purchasing Malaysian palm oil as it is a cheaper option compared to that of Indonesia.

“I have just returned from Nigeria and I asked from which country did the local Indomie [factory] buy their palm oil from? They said they bought Malaysian [palm oil]. … And that’s because Indonesian palm oil is expensive,” Eddy told a conference in Belitung on Tuesday evening.

Eddy said this was ironic as Indonesia produced 33 percent of the global palm oil. While Malaysia’s palm oil output is lower, the neighboring country can access markets untapped by Indonesia thanks to its more competitive price. Gapki attributed the expensive Indonesian palm oil to the costs that businesses had to bear. Indonesian palm oil businesses are now nudging the government to impose fiscal incentives to make prices more competitive. 

Businesses today have to pay around $138 per metric ton before it can export palm oil. The costs include export levy, export duty as well as a domestic market obligation that stands at around $20 per metric ton, according to Eddy.

“Exports are on the decline in terms of volume. Why? Sunflower has lower productivity compared to palm oil, but it is cheaper. Why? It’s because of the oversupply,” Eddy said.

The Finance Ministry reported that the government had disbursed trillions of rupiahs to incentivize the palm oil sector. Throughout 2023, the biodiesel incentives stood at Rp 18.5 trillion (almost $1.2 billion). The Finance Ministry also rolled out Rp 1.7 trillion for palm oil plantation rejuvenation program, and another Rp 100 billion went to research. The Finance Ministry also spent Rp 500 billion in other incentives related to the palm oil sector.