InfoSAWIT, JAKARTA – As global markets increasingly demand transparency and sustainability, Indonesia’s palm oil industry is facing growing internal concerns over the rise of non-conventional palm oil mills operating without plantations and relying heavily on loose fruit collection systems. Industry observers warn that if left insufficiently regulated, these business models could disrupt supply chains, weaken traceability systems, and damage the credibility of Indonesian palm oil in international markets.

According to Dr. Veritia, Researcher in Palm Oil Economics & Management at Universitas Pamulang, Editor-in-Chief of Kabar SDGs, Indonesia’s palm oil industry has evolved into one of the country’s most integrated agribusiness ecosystems, involving plantation companies, plasma farmers, independent Smallholders, fresh fruit bunch (FFB) suppliers, mills, refineries, and export networks serving more than 150 countries worldwide.

More than 1,200 palm oil mills and over 80 refineries currently support this ecosystem, which is increasingly shaped by sustainability requirements under Indonesian Sustainable Palm Oil (ISPO), Roundtable on Sustainable Palm Oil (RSPO), and global regulations such as the European Union Deforestation Regulation (EUDR).

Within this context, the emergence of mills without plantations and loose-fruit-based processing facilities is no longer viewed merely as a new business trend, but as a structural shift in Indonesia’s palm oil trading system.

For many industry players, the core concern is not about restricting business opportunities or limiting Smallholder participation. Instead, the concern centers on supply chains with unclear origins, declining raw material quality, and increased risks related to theft, social conflict, and supply instability.

One of the most immediate impacts has been growing competition for raw materials. Loose fruits, which traditionally form part of harvested fresh fruit bunches, are increasingly treated as standalone commodities.

In many plantation regions, this practice has reportedly triggered suspicions of stolen harvest collection and disrupted long-term supply agreements that have long underpinned partnerships between plantations, mills, and suppliers.

The consequences extend beyond business competition into broader social tensions.

In several regions, theft of fresh fruit bunches and loose fruits has reportedly increased sharply, with some plantations losing up to 50–60% of harvest volumes due to organized theft activities. Industry observers say loose-fruit collection has gradually evolved into a tolerated social practice in some communities, fueling increasingly organized harvesting raids and plantation security conflicts.

At the same time, the quality of raw materials entering conventional mills has also been affected. Many externally supplied fresh fruit bunches now arrive with disproportionately low loose-fruit content, even though loose fruits typically contain the highest oil concentration.

This imbalance reduces oil extraction rates (OER), lowers production efficiency, and increases refining costs for conventional palm oil mills.

Industry experts also warn that loose-fruit-based mills may produce crude palm oil (CPO) with higher free fatty acid (FFA) levels, resulting in inconsistent product quality and weaker downstream competitiveness.

However, the industry’s biggest concern lies in compliance and traceability.

Conventional palm oil mills operate under strict layers of environmental, labor, trade, and sustainability regulations, including AMDAL requirements, ISPO certification, NDPE commitments, environmental monitoring systems, grading standards, and traceability obligations demanded by international buyers.

By contrast, many non-conventional operators are perceived to operate within regulatory gray areas.

Questions remain regarding the traceability of raw materials, environmental management systems, licensing compliance, metrology standards, and sustainability practices. As a result, industry players argue that an uneven business environment has emerged, where compliant companies bear high sustainability costs while loosely regulated operators gain flexibility and cost advantages.

This imbalance comes at a time when global palm oil markets are moving toward stricter traceability standards.

Indonesia’s sustainability reputation increasingly depends on ISPO, RSPO, and EUDR compliance, all of which require Traceability to Plantation (TTP) systems extending to tier-3 suppliers. Full EUDR implementation is scheduled for December 30, 2026, making supply chain transparency a critical market-access requirement.

Under such systems, unidentified supply chains and undocumented raw material flows are viewed as major vulnerabilities that could undermine the credibility of Indonesia’s entire palm oil industry.

According to Veritia, the solution is not outright prohibition, but equal enforcement of sustainability, environmental, legal, and traceability standards across all palm oil processing businesses.

He stressed that environmental compliance, metrology standards, legal licensing, sustainability certification, and long-term supplier partnership requirements should apply equally to all operators.

At the same time, supplier development programs, transparent pricing mechanisms, agronomic assistance, NDPE implementation, and traceability mapping initiatives must be strengthened to ensure the industry can meet future global market expectations.

Veritia believes Indonesia must accelerate efforts to achieve full Traceability to Plantation tier-3 coverage to strengthen its position within premium segregated global supply chains.

Ultimately, he argued, the debate surrounding non-conventional palm oil mills is not simply about business models, but about the future direction of Indonesia’s palm oil industry itself.

“Indonesia’s palm oil industry is too important to be managed through poorly directed flexibility,” Veritia stated. “What the industry needs is fair and consistent governance for all players.”  (T2)