Indonesian palm oil exports and deforestation

Domestic demand dominates Indonesian palm oil sector

Indonesia is the world's largest producer of palm oil with an output of nearly 47 million tonnes in 2024. The sector is heavily concentrated on the islands of Sumatra and Kalimantan, which are collectively responsible for almost 96% of Indonesian palm oil production. The sector plays a central role in the national economy, contributing roughly 4.5% of the country’s gross domestic product (GDP), generating $27.8 billion in export earnings in 2024 and supporting over 16.5 million direct and indirect jobs across the country.

Domestic demand continued to grow in 2024 driven by local food consumption, downstream manufacturing, the mandatory B35 biodiesel mandate programme and the Domestic Market Obligation (DMO), a government policy requiring producers to reserve a portion of their palm oil for the local market before exporting. Domestic consumption consequently reached an all-time high of 24.6 million tonnes (53% of the palm oil produced in 2024), aligning the industry with national energy security goals while leaving less palm oil available for export.

Domestic consumption of palm oil was linked to 67% of total palm oil deforestation in Indonesia in 2024 – reaching 629,000 hectares – almost nine times the amount linked to India (71,400 hectares), the largest export market. In June 2026, the Indonesian government announced an expansion of the biodiesel mandate to B50, which will further drive up domestic demand for palm oil.

While overall deforestation remains at relatively low levels, forest loss worsens in Papua

While Indonesian palm oil production reached a record high in 2024, new forest conversion remained at a fraction of past levels. Palm oil driven deforestation dropped sharply over the past decade, remaining more than 81% lower than the 2008–2015 average of 166,544 hectares per year.

Palm oil expansion in Sumatra has dropped by over 90% from historical highs, leaving Kalimantan accounting for over half (56%) of total clearing in 2025. However, recent modest rebounds since the 2021 record lows demonstrate that continued monitoring and effective policies are needed to prevent a broader resurgence, most notably in Papua, where palm oil driven deforestation doubled from roughly 3,600 hectares in 2024 to over 7,300 hectares in 2025.

Major export markets realign as China’s demand drops

Indonesia’s palm oil exports shifted away from some traditional major markets between 2018 and 2024. Shipments to the European Union declined every year, halving from 3.78 million tonnes in 2018 to 1.9 million tonnes in 2024. This drop is largely due to the EU’s Renewable Energy Directive (RED II), which phases out palm oil based biofuels due to deforestation concerns, along with tighter corporate sustainability commitments.

Asia’s largest markets followed a more volatile path. India retained the top position in 2024, but its imports fell to 4.37 million tonnes, 21% below 2023 levels and 32% below its 2018 peak. Exports to China fluctuated before also falling sharply by 44% from 4.47 million tonnes to 2.48 million tonnes between 2023 and 2024.

Over the same period, Pakistan emerged as an increasingly important destination: exports rose by 20% to 3.15 million tonnes, overtaking China as Indonesia’s second-largest export destination in 2024. This divergence occurred as China’s buyers replaced palm oil with cheaper domestic soybean oil. Meanwhile, Pakistan’s limited domestic production capacity and reliance on palm oil for domestic use sustained steady demand.

Market concentration and zero-deforestation commitments remain high

Indonesia’s palm oil exports remained concentrated among a relatively stable group of major companies, though their position shifted between 2018 and 2024. Sinar Mas, Musim Mas and Wilmar maintained comparatively stable export shares, while Royal Golden Eagle (RGE) rose from fourth place in 2018 to become the largest exporter in 2024 with a market share of 15.5%. Changes were more evident among mid-sized exporters. KPN Corp rose eight places, from 15th in 2018 to seventh in 2024, while Permata Hijau moved in the opposite direction, falling seven places from fifth to 12th.

At the same time, the transparency of Indonesia’s exports weakened. Volumes classified by Trase as ‘unknown’ accounted for less than 1% of exports in 2018, but reached almost 17% in 2024, highlighting a growing problem caused by missing shipment records in trade data.

Corporate zero-deforestation commitments (ZDCs) covered almost 93% of all observed palm oil exports from Indonesia in 2024. Yet widespread coverage does not necessarily demonstrate additional benefit. Between 2018 and 2020, ZDC-linked concessions maintained deforestation below 1% annually, demonstrating high compliance. However, they showed no additional reduction in deforestation compared to concessions without ZDCs. This finding does not rule out possible wider effects, such as commitments influencing practices among companies without their own pledges, although those effects were not established by this comparison.

Peatland degradation drives palm oil sector's climate impact

The greenhouse gas emissions associated with Indonesia’s palm oil production assessed by Trase – combining land-use change, peat subsidence and peat burning – averaged 215 million tonnes of CO2-equivalent (MtCO₂-e) annually between 2015 and 2024. As the component from land-use change fell by 58% over this period, emissions were increasingly dominated by drained peatlands. In 2024, peat subsidence contributed almost 148 MtCO₂-e; and, together with peat burning, accounted for almost 85% of the sector’s assessed greenhouse gas emissions (see figure below).

This reliance on drained peat soils leaves the sector exposed to El Niño drought cycles, as seen in 2015, 2019, and 2023. The vulnerability is especially acute in 2026, as a rapidly strengthening El Niño dries these combustible landscapes and increases the likelihood that persistent fires will develop. Between January and August 2026, Mapbiomas Fire Monthly recorded 677,743 hectares burned. Since the fire season in Indonesia usually starts in August, the burned area is likely to increase.

By August 2026, the National Disaster Management Agency (BNPB) was forced to prioritize ground and air emergency operations across six provinces as forest and land fires (karhutla) reached peak risk. In South Kalimantan alone, the country's Meteorology, Climate and Geophysics Agency (BMKG) recorded extreme drought conditions exceeding 60 consecutive days without rain. This intense dry spell drove peatland fires that contributed to hazardous air quality and severely reduced visibility.

Meeting Indonesia’s climate goals will require the palm oil sector to both prevent further forest conversion and expansion onto peatlands, while reducing emissions from peat already under cultivation. Although annual peatland conversion for industrial oil palm declined in 2025, past expansion has left a substantial area under cultivation: the total area of productive oil palm on peat increased by 28%, from approximately 1.28 million hectares in 2015 to 1.64 million hectares in 2024. This underscores the need to strengthen implementation and enforcement of Indonesia’s moratorium on new permits in designated peatlands and its wider peat-protection regulations. This will require stronger implementation and enforcement of forest and peat protection measures alongside aggressively re-wetting and restoring peatlands. Until the sector can reduce production on these carbon-dense and highly combustible soils, recurring dry seasons will leave oil palm planted on peat at high risk of fire, disrupting agricultural production and creating massive sources of global emissions.

Progress on social impacts falters

Smallholders manage 32% of Indonesia's oil palm plantation area and produce 35% of its palm oil, but their yields remain below those of company-owned estates. Replanting ageing trees with high-quality seedlings through the Peremajaan Sawit Rakyat (PSR) programme could potentially raise smallholder productivity on existing farmland and may reduce pressure for further expansion. The PSR was launched in 2017 by the Indonesian government and funded by the Oil Palm Plantation Fund Management Agency (BPDPKS). The state initiative provides direct grants, doubled to IDR 60 million per hectare in 2024, to replace unproductive trees with certified seeds and assist farmers towards mandatory Indonesian Sustainable Palm Oil (ISPO) certification.

Implementation, however, remains below government targets. PSR achieved only 41% of its 120,000-hectare target in 2024, falling to 31% in 2025, before the annual target was subsequently reduced to 50,000 hectares in 2026, of which 20,229 hectares had been achieved by August. Progress has been constrained by unclear or undocumented land tenure, plantations overlapping the legally designated forest estate, and the loss of income farmers face while replanted trees mature.

Beyond limited access to replanting support, land tenure insecurity can leave smallholders vulnerable to competing land claims and dispossession. Ongoing debate over revisions to the Forest Law (UU Kehutanan) and the proposed Indigenous Peoples Bill (RUU Masyarakat Adat) highlight the need for accessible recognition of land rights, including customary rights and safeguard against expansion without community consent in Indonesia.

Smallholders who depend on oil palm for their livelihoods risk being left behind by changing sustainability requirements. Corporate ZDCs have had limited reach among smallholders, particularly independent producers, owing to low awareness and limited bottom-up traceability, capacity-building and price incentives. Without formal land titling and traceability support, smallholders also face an increased risk of exclusion from international supply chains under strict compliance mandates like the EUDR.

The authors thank the team of researchers for their contribution to this research: Helen Bellfield, Harry Biddle, Kim Carlson, Niamh French, David Gaveau, Florian Gollnow, Mairon Bastos Lima, Timer Manurung, Nicolás Martín, Carina Mueller, Sesilia Maharani Putri, Vivian Ribeiro, Yustinus Seno, Clément Suavet, Dedy Sukmara and Chris West.

Chandra, A., Benedict, J., Kamaluddin, A., Putri, S. M., Suavet, C., Gollnow, F., Biddle, H., Mueller, C., Ribeiro, V., & Heilmayr, R. (2026). Indonesia palm oil supply chain: Data and Methods (2018–2024) (Version 1.2.5) [Dataset]. Trase. https://doi.org/10.48650/0717-AJ12

Benedict, J. J., Chandra, A., Heilmayr, R., & Kamaluddin, A. (2026). Indonesian palm oil exports and deforestation. Trase. https://doi.org/10.48650/K4QS-QW84