InfoSAWIT, JAKARTA - The domestic economic policies of the United States, initiated by President Donald Trump through increased tariffs on trading partner countries, have become a focal point in the dynamics of global trade. This strategy aims to boost the domestic economy by reducing imports, encouraging local innovation, and providing funding support for US industries. However, these policies also have significant ripple effects that cannot be overlooked, particularly for the Indonesian palm oil industry.
To control the financial deficit, the US has implemented varying tariffs on its trading partners. This move resembles the concept of traceability, where incoming goods must meet stringent regulatory standards. Many countries facing high tariffs are suspected of violating US trade rules. Indonesia, in particular, is subjected to a 32% tariff, which serves as a signal for us to evaluate our legal compliance standards in export trade.
History has shown that economic turmoil in the US can have profound effects on Indonesia. In 2008, the financial crisis triggered by the collapse of Lehman Brothers caused palm oil prices to plummet, leading to economic hardships for palm oil farmers in Jambi and East Kalimantan. This resulted in various social impacts, such as children of farmers dropping out of school, an increase in poverty rates, and even mental health issues among farmers.
Threats to Indonesian Palm Oil Plantations
The high tariff policies of the US have the potential to shake the Indonesian palm oil industry, which is labor- and capital-intensive. If businesses implement efficiency measures by reducing fertilizer use, labor, or oversight, production will decline. For the palm oil industry, a decrease in production translates to significant losses. Another possible alternative is to limit the purchase of palm fruit from third parties or to pressure farmers by lowering purchase prices, which would further disadvantage smallholders.
On the other hand, challenges are compounded by European Union regulations, such as the European Union Deforestation Regulation (EUDR) set to take effect in 2026. As the US raises tariffs, the EU tightens regulations, further constraining the palm oil export market. This will have a substantial impact on palm oil companies already burdened by export taxes (PE and BK) that have reached US$170 per metric ton.
Solutions for the Indonesian Palm Oil Industry
In facing these challenges, several strategic steps need to be taken. First, compliance with EU regulations must be prioritized—European markets must be approached with full adherence to regulations. Partnerships with small farmers should be strengthened to ensure that the Indonesian palm oil industry remains competitive in the global market.
Second, lobbying the government to reduce export tariffs (PE and BK) is essential. Lowering export taxes can stabilize the price of fresh fruit bunches (TBS) and mitigate the impact of fluctuations in the US market.
Third, exploring new markets is crucial—Indonesia needs to seek alternative markets by offering more competitive palm oil products, such as ISPO-certified palm oil with transparent and independent audit standards.
Fourth, establishing an independent National Palm Oil Agency is necessary—this agency must be free from political interference to focus on sustainable management of the palm oil industry. Lastly, ensuring legal certainty is vital—improving the investment climate and reducing corruption in the palm oil sector are essential for the sustainability of this industry.
With the right strategies, the Indonesian palm oil industry still has significant opportunities to survive and thrive amid increasingly complex global trade challenges. (*)
Author: Mansuetus Darto/National Council of Serikat Petani Kelapa Sawit (SPKS)
Disclaimer: This article represents the author's personal opinion and is entirely the author's responsibility, with no connection to InfoSAWIT.
