Strengthening Indonesia China Palm Oil Trade with Sustainable Practices 2025

Supply-side challenges –Smallholder inclusion and legal recognition Smallholders manage 41% of Indonesia’s palm oil plantations, but only 3% are registered in traceability systems. Lacking land tenure, digital literacy and financial resources, most are excluded from certification schemes like ISPO and RSPO – undermining efforts to build an inclusive, traceable supply chain.11 –Traceability and illicit sourcing Unregulated “mini-mills,” often in remote areas, source from smallholders outside legal frameworks, creating major traceability gaps. In regions like West Kalimantan and North Sumatra, they account for a significant share of fresh fruit bunch volume (volume of palm oil fruit, which grows in dense bunches), weakening legality verification and market compliance.12 –Fragmented certification ecosystem ISPO remains poorly recognized internationally, with only 60% of producers certified. RSPO covers less than 10% of Indonesia’s mills. The coexistence of over 25 global standards creates confusion and adds costs – especially for smallholders, for whom RSPO certification can cost up to $15,000 per group annually.13 –Compliance costs and infrastructure gaps Complying with regulations like the EUDR is costly – Indonesia needs around $600 million to register farmers and land. Currently, only 30% of plantation land and 3% of smallholders are listed in the Indonesia National Dashboard. Poor internet access in rural areas further limits digital traceability.14Demand-side challenges –Price sensitivity and certification ambivalence in key markets China, sourcing over 94% of its palm oil via imports – 76% of this from Indonesia – remains highly price-sensitive. Sustainability is not a major procurement factor; processors often switch to palm oil during soybean shortages, prioritizing cost over certification.15 –Lack of premium for sustainable products Certified palm oil (RSPO/ISPO) rarely commands a price premium in Asian markets. In China, it competes directly with conventional oil, discouraging investment in sustainable practices due to unclear returns.16 –Low awareness and consumer demand for certified palm oil Sustainability awareness in China is limited. Interviews with RSPO and Wilmar note its absence from trade fairs and retail campaigns. Unlike in the EU or the United States (US), ESG-driven procurement remains in early development.17 –Trade policy and tariff barriers China lacks green import guidelines for soft commodities. India and Pakistan impose high tariffs to protect local industries, pushing Indonesian exporters towards markets with fewer sustainability demands – weakening incentives for voluntary certification.18 Addressing these challenges through public-private collaboration can help both countries build a fairer, more sustainable palm oil trade aligned with shared development and environmental goals. Strengthening Indonesia-China Palm Oil Trade with Sustainable Practices 8