Indonesian palm oil exports and deforestation

In 2023, Indonesia produced 47 million tonnes of crude palm oil, solidifying its position as the world’s largest palm oil exporter, accounting for 54% of global exports. The palm oil industry has grown to become an important part of Indonesia’s economy, representing 4.5% of GDP, and contributing to the labour sector by directly and indirectly employing over 16.2 million people. Much of this growth has been fuelled by international demand for palm oil products, although the domestic market is becoming an increasingly important buyer.

Low deforestation amid rise in palm oil production

The expansion of oil palm plantations has been an important driver of deforestation in Indonesia for the past 20 years, accounting for one third (3 million hectares) of Indonesia’s loss of old-growth forest. This deforestation, alongside peatland drying and associated fires, is an important contributor to global climate change and biodiversity loss, as well as poor local air quality.

Over the past decade, Indonesia has achieved a reversal in deforestation for palm oil production. In 2018–2022, deforestation for industrial palm oil was 32,406 hectares per year – only 18% of its peak a decade earlier, in 2008–2012. Importantly, deforestation has fallen during a period of continued expansion of palm oil production. Although the decline in deforestation has been linked to a drop in the market value of crude palm oil, the recent spike in palm oil prices has not yet been accompanied by a boom in oil palm-driven deforestation. However, this trend saw a slight reversal in 2022 due to an 18% increase in industrial oil palm-driven deforestation, though it remained lower than all previous years since 2001 except 2021.

Despite declining rates of deforestation, 2.4 million hectares of intact forest remains within Indonesia’s oil palm concessions. This large area of forest designated for palm oil production underscores both an opportunity for conservation, as well as the potential risk that further oil palm expansion may pose to Indonesia’s rainforest. A fundamental challenge over the coming decade will be to meet continued growth in demand for palm oil products while preventing a surge in deforestation.

Industrial palm-driven deforestation continues to be concentrated in Kalimantan

Although deforestation has generally declined across Indonesia over the past decade, several provinces continue to see significant conversion of forests to oil palm plantations. In recent years, deforestation for industrial palm oil production has been concentrated in the forest-rich provinces of Indonesian Borneo. Four provinces in Kalimantan accounted for 72% of all deforestation for palm oil in Indonesia in 2018–2022.

Sumatra, the largest palm oil-producing island, saw a 3.7-fold increase in industrial palm oil-driven deforestation in 2022 compared to 2020, which was its lowest point in almost two decades. Much of this new deforestation was clustered among a handful of concessions in North Sumatra. Nevertheless, Sumatra and the island of Papua, the new frontier of palm oil development in Indonesia, accounted for only 22% of the deforestation between 2018–2022.

Company commitments and transparency

Indonesia’s palm oil sector is notable for its widespread adoption of zero-deforestation commitments (ZDCs). More than 85% of observed palm oil exports are traded by companies with formal ZDCs.

By implementing these commitments, companies publicly disclose information about their supply chains. In 2021–2022, 91% of observed refined palm oil exports were sourced from refineries that publicly reported on the set of mills from which they purchased crude palm oil. By integrating these lists into the Trase supply chain model, we can compare the environmental performance of exporters who have adopted ZDCs with those who have not.

Overall, we find that exporters with and without ZDCs have similar rates of annual deforestation intensity – 0.27 ha for every 1,000 tonnes of palm oil for exporters with ZDCs compared to 0.23 ha for every 1,000 tonnes of palm oil for exporters without ZDCs. This shows that the decline in deforestation has been widespread throughout the sector as both ZDC and non-ZDC supply chains exhibit dramatically less deforestation than the sector-wide deforestation intensity experienced in 2012 (8.7 ha per 1,000 tonnes of palm oil).

Domestic demand for Indonesian palm oil is on the rise

Since 2013, India, China, and the European Union (EU) have been Indonesia’s largest palm oil export markets, together purchasing 47% of 2013–2022 exports. However, the relative importance of each of these markets has changed. In 2013, India (29% of exports) and the EU (17% of exports) were the biggest importers of Indonesian palm oil. By 2022, exports to India (12%) and the EU (10%) had declined, and China had become the largest importer of Indonesian palm oil, increasing its market share from 11% of exports in 2013 to 14% in 2022.

Importantly, Indonesian palm oil is increasingly used within Indonesia. Domestic use of palm oil for either local consumption or downstream manufacturing increased from 32% of production in 2018 to 44% in 2022. Data from the Indonesian Palm Oil Association (known locally as GAKPI) shows that in 2022, over half of the domestically consumed palm oil was used for the biodiesel and oleochemical industry with the remainder used in food products.

The Indonesian government’s push to intensify downstreaming of the industry within the country and increase the share of palm oil-based biodiesel blending has been one driver of this growth in domestic demand and has been seen as a possible reason behind the supply shortage and increased domestic cooking oil prices that plagued Indonesia in late 2021 and early 2022. This led the government to implement various policies aimed at shifting palm oil towards domestic markets, including use quotas and export levies and bans. These government-related policies and regulations are likely to contribute to the continuation of domestic consumption growth well beyond 2022.

In addition to being the largest markets for Indonesian palm oil, Indonesia, China and India all tend to source from supply chains with comparatively higher rates of deforestation exposure. We estimate that these markets tend to rely on palm oil with twice the per-tonne deforestation exposure of exports destined for export to the EU.

The combination of large volumes and a relatively high rate of deforestation exposure means that the combined palm oil purchases of these three countries cover 75% of all of Indonesia’s palm oil deforestation exposure. Conversely, despite 98% of the palm oil exported to the US, EU and UK coming from companies with zero-deforestation pledges, these markets accounted for only 9% of Indonesia's palm oil production in 2022.

Indonesia’s palm oil sector is a major source of greenhouse gas emissions

Indonesia’s palm oil production is linked to a large amount of greenhouse gas (GHG) emissions from fires on drained peatlands, peat subsidence and land-use conversion. We found that industrial palm oil production in Indonesia emitted an annual average of 220 million tonnes of carbon dioxide equivalent between 2015 and 2022. This amounts to almost a fifth of Indonesia’s total annual emissions of 1.23 gigatonnes in 2022.

Even though only 14% of palm oil plantations (2.2 million ha) in Indonesia are on carbon-rich peatlands, peatland subsidence and fires on drained peatlands were responsible for nearly 92% of the palm oil sector’s average annual GHG emissions between 2015–2022.

Outside of the dry El Nino years in 2015 and 2019 which led to an increase in emissions due to peatland fires, the GHG emissions from palm oil production have remained relatively constant. It remains to be seen how the Indonesian government and palm oil sector will deal with the challenge of reducing emissions through the protection and conservation of forests while developing and sustaining palm oil-producing landscapes.

The authors thank the incredible community of researchers who have contributed to this research. In particular, this analysis wouldn’t have been possible without important contributions from Hilman Afif, Helen Bellfield, Harry Biddle, Kim Carlson, Toby Gardner, David Gaveau, Florian Gollnow, Akhmad Kamaluddin, Timer Manurung, Carina Mueller, Vivian Ribeiro, Yustinus Seno, Clément Suavet and Dedy Sukmara.

To reference this article, please use the following citation: Benedict, J., & Heilmayr, R. (2024). Indonesian palm oil exports and deforestation. Trase. https://doi.org/10.48650/0ZP9-GH11

Trase. (2024). SEI-PCS Indonesia palm oil v1.2.2 supply chain map: Data sources and methods. Trase. https://doi.org/10.48650/ZY8Z-F795

Benedict, J., Biddle, H., Gollnow, F., Heilmayr, R., Mueller, C., & Ribeiro, V. (2024). Indonesia palm oil (2021–2022) (Version 1.2.2) [Data set]. Trase. https://doi.org/10.48650/X83N-7M36