PALM OIL DOWNSTREAMING POLICY FOR CAPTURING BETTER VALUE-ADDED OF PALM OIL

Abstract

Indonesia, as the world’s largest producer of palm oil, had long relied on exporting crude palm oil (CPO) with limited industrial processing, resulting in missed economic opportunities in value addition. To overcome this, downstreaming policies have been promoted to enhance domestic processing and industrial diversification. This study aims to explore the extent to which these downstreaming strategies have successfully increased the value-added contribution of palm oil to Indonesia's economy. Employing a qualitative literature review approach, this research analyses more than 80 scientific articles, policy reports, and statistical publications through thematic content analysis. Data collection was conducted using a structured review of relevant academic databases and institutional sources, managed and organised through Mendeley Desktop. Analytical procedures involved coding, synthesising, and interpreting patterns across themes such as export performance, industrial output, employment, and fiscal impact. The findings indicate a significant shift in Indonesia’s palm oil export structure, with processed derivatives constituting over 75% of total exports in 2021. Oleochemical production and biodiesel output have grown considerably, supporting industrial development. However, downstream activities still contribute less than 10% of total value-added and face persistent constraints such as weak R&D, low technology adoption, and infrastructural limitations. The study concludes that while policy efforts have delivered measurable progress, structural reforms and better inter-agency coordination are essential to deepen downstream gains. Future research should focus on firm-level innovation capacity and integration with global sustainability standards.

DOI: https://doi.org/10.56238/sevened2025.021-078