Dynamics of Crude Palm Oil and Fresh Fruit Bunches Prices in the Era of Indonesia's Biodiesel Policy

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FORMOSA NEWS

The biodiesel policy in Indonesia has a significant impact on the price volatility of Crude Palm Oil (CPO) and Fresh Fruit Bunches (FFB) at the farmer level. Research conducted by Muhammad Farhan Kurniawan from the Universitas Sumatera Utara in 2026 analyzes the relationship between palm oil commodity prices and national energy policy during the 2021–2025 period. These findings are crucial as they demonstrate how the integration of the domestic palm oil market with the global energy market affects national economic stability.

In recent years, global energy price fluctuations and the transition toward renewable energy have compelled many nations, including Indonesia, to strengthen their energy security. The implementation of biodiesel programs—ranging from B20 to B35 and the planned development of B40—has increased domestic demand for CPO as a primary raw material. This surge in demand has altered the structure of the palm oil market, where CPO prices are no longer influenced solely by export mechanisms but also by domestic energy policies.

In this study, Muhammad Farhan Kurniawan utilized the Vector Error Correction Model (VECM) to analyze five years of monthly time-series data. This method was chosen for its ability to capture dynamic relationships between CPO prices, FFB prices, world oil prices, exchange rates, and biodiesel policy indicators, both in the short and long term.

Key findings of this research include:

• There is a long-run equilibrium relationship between CPO prices, FFB prices, world oil prices, exchange rates, and biodiesel policy in Indonesia.
• The biodiesel policy has proven to increase domestic CPO demand, which directly influences price dynamics in the national palm oil market.
• FFB prices tend to follow CPO price movements, confirming a robust price transmission mechanism between the upstream (farmers) and downstream (industry) sectors.
• The Indonesian palm oil market is now integrated with the global energy market, making domestic commodity price stability highly vulnerable to changes in international energy prices and government energy policies.

The implications of this study suggest that biodiesel policy must be managed optimally to support the palm oil industry without compromising the welfare of palm oil farmers. The stability of FFB prices, which serve as the primary income source for farmers, relies heavily on efficient price transmission from the downstream sector. Therefore, synergy between energy policy and price monitoring at the farmer level is key to maintaining the sustainability of the palm oil plantation sector in Indonesia.

Author Profile: Muhammad Farhan Kurniawan is an academic from the Faculty of Economics and Business, Universitas Sumatera Utara, specializing in agribusiness economics and commodity market analysis.

Research Source:

• Article Title: Dynamics of Crude Palm Oil and Fresh Fruit Bunches Prices in the Era of Biodiesel Policy in Indonesia
• Journal Name: Indonesian Journal of Business Analytics (IJBA), Vol. 6, No. 3, 2026
• DOI: https://doi.org/10.55927/ijba.v6i3.16595