Strengthening Indonesia China Palm Oil Trade with Sustainable Practices 2025

Key challenges The challenges are multidimensional. On the supply side, both Indonesia and Malaysia face significant constraints in building inclusive, traceable and verifiable supply chains. In Indonesia, around 41% of palm oil plantations are smallholder-owned, but fewer than 3% of these smallholders are formally registered or certified, making them vulnerable to exclusion under emerging global regulations.6 Traceability remains weak, especially due to unregulated “mini-mills” and disconnected data systems between local and national levels.7 The certification ecosystem is also fragmented. While Indonesian Sustainable Palm Oil (ISPO) and Malaysian Sustainable Palm Oil (MSPO) are national standards, they lack universal recognition in global markets, forcing producers to navigate multiple parallel systems such as the Roundtable on Sustainable Palm Oil (RSPO) – at high financial and administrative cost.8 From the demand side, China’s shift towards green trade is exemplified by the Taskforce on Green Value Chains (TGVC), signaling its ambition to integrate sustainability into commodity imports. China has made demonstrable progress in achieving its commitment towards deforestation- and conversion-free palm oil (see Annex 1). This creates a dual challenge and opportunity: how to scale verified sustainable imports from Indonesia and Malaysia while supporting producer countries in strengthening traceability systems.9 Despite growing political will and private sector momentum towards sustainability, Indonesia-China trade in agricultural commodities, particularly palm oil, continues to face entrenched structural and systemic challenges. These barriers manifest across both the supply and demand sides of the value chain, impacting environmental integrity, traceability and market access. Addressing these challenges is critical to realizing a deforestation-free, inclusive trade ecosystem. Challenges in palm oil trade TABLE 1 Category Supply side Demand side Traceability Mini-mills sourcing from unregistered farmersNo import traceability requirement in China Certification Low RSPO/ISPO uptake among smallholders –Lack of strong market demand signal for RSPO/ISPO-certified palm oil –Lack of market premium or differentiation Finance and complianceHigh cost of farmer registration and infrastructure gapsAbsence of demand-side incentives for certified products Market access Exclusion due to legality and land tenure issuesPrioritization of price over sustainability Consumer awareness Limited support systems for farmer complianceLow consumer awareness and ESG demand in retail sector Sources: Discussions between IDH (Institut Dagang Hijau, the Sustainable Trade Initiative), RSPO (Roundtable on Sustainable Palm Oil), Astra Agro and LTKL (Lingkar Temu Kabupaten Lestari) at Indonesia stakeholder meetings (March 2025); “Sustainable Procurement for Greener Future – Palm Oil” briefing paper; Indonesia National dashboard data and estimates on smallholder and land registration progress.102 Strengthening Indonesia-China Palm Oil Trade with Sustainable Practices 7