The global sway of Indonesian palm oil: An export analysis

The export share of Indonesia's crude palm oil (CPO) has significantly decreased from 37.5% in 2003 to 8.5% in 2021, primarily due to inconsistent sustainability standards and increased competition from Malaysia. This study utilises the Constant Market Share (CMS) method and the Global Trade Analysis Project (GTAP) model to analyse Indonesia's export competitiveness and evaluate the impacts of trade policies, production technologies, and sustainability initiatives on export performance. The findings indicate substantial fluctuations in export trends, with palm oil product values rising from USD 371.7 million in 2002 to USD 4.7 billion in 2021, despite a competitive effect decline of -19.6% post-2019. Key challenges include low productivity among smallholder plantations and stringent international regulations, particularly from the European Union regarding sustainability. Additionally, GTAP model simulations suggest that technological adoption and increased investment could improve the trade balance by up to USD 3.2 billion under optimistic conditions. To enhance Indonesia's competitiveness in the palm oil export sector, it is essential to improve smallholder productivity, promote technological advancements, and facilitate greater access to financing. The results underscore the need for strategic enhancements in sustainability certification and the integration of smallholders into the supply chain. Addressing climate change impacts, compliance with certification standards, and fostering innovation are vital for expanding export opportunities and ensuring sustainable growth. This paper concludes with strategic policy recommendations aimed at improving production efficiency and strengthening Indonesia's position in the global palm oil market. • Indonesia dominates global crude palm oil (CPO) and palm kernel oil (PKO) markets but faces productivity and supply chain challenges. • Expanding exports requires addressing climate change impacts, certification standards, and smallholder integration. • Constant Market Share (CMS) analysis reveals Indonesia’s competitive position in global markets. • Global Trade Analysis Project (GTAP) assesses the impact of global vegetable oil trade on Indonesia’s export competitiveness and strategic focus on derivative products and supply chain improvements is key to capturing domestic and global market opportunities. • Indonesia is strongly advised to have the ability to capture domestic and global markets by using several strategic derivatives. Palm oil business actors must be prepared to face the entry of downstream products from other countries.