InfoSAWIT, JAKARTA – The Indonesian Oil Palm Smallholders Organization (POPSI), together with the Clean Transition Coalition, has urged the government to reassess the nationwide implementation of the B50 biodiesel mandate, warning that the policy could unintentionally reduce fresh fruit bunch (FFB) prices received by smallholders if not supported by broader structural reforms.

The organization stressed that while it fully supports Indonesia's downstream palm oil development and efforts to strengthen national energy security, the expansion of biodiesel blending should be implemented in a way that safeguards the livelihoods of millions of independent smallholders.

POPSI Chairman Mansuetus Darto said the organization has consistently proposed a flexible blending (flexi blending) approach, under which the mandatory biodiesel blend would remain at a minimum of B30, while any increase to B40 or B50 would be adjusted according to crude palm oil (CPO) production, global oil prices, fiscal capacity, and domestic energy demand.

According to Darto, such an approach would provide greater flexibility than imposing a fixed higher blending mandate regardless of prevailing market conditions.

"We are not rejecting biodiesel. What we oppose is a policy whose costs are ultimately borne by oil palm smallholders through lower FFB prices," Darto said in a statement received by InfoSAWIT on Saturday.

POPSI's concerns were reinforced by an economic assessment conducted by Traction Energy Asia, which concluded that full implementation of B50 without significant productivity improvements could create long-term fiscal and economic challenges.

The study projects that an aggressive rollout of B50 could generate a funding deficit of around Rp28 trillion in Indonesia's Palm Oil Fund (BPDP), while reducing potential government revenue from taxes, export duties, and export levies by as much as Rp620 trillion over the next decade.

Beyond fiscal implications, POPSI argued that the recent increase in Indonesia's CPO export levy to 12.5%, introduced to help finance the biodiesel program, could place downward pressure on domestic CPO prices, which serve as the benchmark for calculating FFB prices paid to smallholders.

As a result, growers could receive lower farmgate prices even when international CPO prices remain relatively strong, as domestic pricing formulas incorporate export levies and other deductions before determining FFB values.

The organization warned that independent smallholders would likely bear the greatest burden of the policy because they have limited bargaining power within the palm oil supply chain.

Dr. Yayan Satyakti, a researcher at Padjadjaran University involved in the study with Traction Energy Asia, said the debate should no longer focus solely on whether Indonesia should implement B50, but rather on how the policy can be introduced in a financially and environmentally sustainable manner.

According to Yayan, implementing B50 without broader structural reforms could increase fiscal pressures, contribute to higher cooking oil prices, encourage additional land conversion, and create long-term carbon liabilities.

Conversely, he said the biodiesel program could deliver stronger economic and environmental outcomes if accompanied by measures to improve smallholder productivity, expand the use of alternative feedstocks such as used cooking oil, and adopt a more flexible biodiesel blending mechanism.

Yayan also urged the government to review the Biodiesel Market Index Price (HIP) and the CPO pricing formula used to determine FFB prices, arguing that the current mechanism does not fully reflect market conditions and therefore limits the benefits received by smallholders.

In addition to pricing issues, POPSI highlighted the government's proposal to strengthen institutional arrangements through the Indonesian Palm Oil Agency (DSI), emphasizing that any governance reforms must be implemented transparently and should enhance, rather than weaken, the position of smallholders within the national palm oil industry.

The Traction Energy Asia study further estimates that meeting feedstock demand for a nationwide B50 mandate could require up to 3.22 million hectares of additional oil palm plantations unless productivity improvements are achieved. Such expansion, the report warns, could significantly extend Indonesia's carbon footprint for more than a century.

At the same time, smallholders continue to face rising production costs, including higher fertilizer prices, increasing labour expenses, and greater plantation maintenance costs. POPSI warned that any further decline in FFB prices resulting from higher export levies and the B50 policy would place additional pressure on rural incomes.

Against this backdrop, the organization called on the government to conduct a comprehensive evaluation of the existing B35 and B40 biodiesel programs before proceeding with the nationwide expansion of B50. The review, it said, should assess the policy's impact on FFB prices, the sustainability of BPDP funding, government fiscal capacity, Indonesia's palm oil export competitiveness, inflation in downstream palm products, and the long-term welfare of oil palm smallholders.

"For us, the biodiesel program must create benefits for every stakeholder in the palm oil industry, especially smallholders who supply the raw material. Indonesia's energy security should not be achieved at the expense of the livelihoods of millions of oil palm smallholders," Darto said. (T2)