Indonesia’s palm oil production is under threat following the government's intensified efforts to regulate plantations within forest areas as ordered by the Ministry of Environment and Forestry (KLHK) under Ministerial Decree No. 36/2025 and Presidential Regulation No. 5/2025, which authorize the Ministry of Defense, the Attorney General’s Office, and law enforcement agencies to enforce plantation compliance.

The regulations grant authorities legitimacy to take over illegal plantations. Industry experts suggest that Agrinas, a state-backed entity, may be tasked with managing seized plantations, as seen in the case of PT Duta Palma’s 210,000-hectare estate, which was taken over due to corruption allegations. If Agrinas assumes control of the 317,000 hectares identified by KLHK, it could become Indonesia’s largest state-owned palm oil enterprise, potentially rivaling State plantation company PTPN, which has operated since the 1970s.

Palm oil production in Indonesia has already seen a decline, dropping from 54 million tons in 2023 to 52 million tons in 2024. Exports also fell from 32 million tons to 29 million tons during the same period. 

Industry analysts warn that the military-led enforcement in plantations could exacerbate this downturn. If the 317,000 hectares of plantations remain unmanaged, palm oil production could decrease by an estimated 1.3 million tons. In a worst-case scenario, where all 3.4 million hectares of forest plantations are seized under Articles 110A and 110B of the Job Creation Law, crude palm oil (CPO) production could drop by 13.6 million tons, reducing total national output to just 35 million tons.

Palm oil analyst Mansuetus Darto expressed skepticism over the state’s ability to manage these plantations effectively. 

“If the government takes aggressive action without careful planning, using force without dialog, national CPO production could suffer a major blow,” Darto spoke to Indonesia Business Post on Friday, March 14,2025. He pointed at previous inefficiencies in state-run enterprises like PTPN, citing mismanagement and corruption as recurring issues that hinder productivity.

Indonesia is expanding its biodiesel program, targeting a B40 blend, which requires approximately 15 million tons of palm oil annually. A drop in production could affect exports, reducing foreign exchange earnings. In 2024, palm oil exports contributed US$27.76 billion (Rp440 trillion) to the national economy. If production declines as projected, 2025 earnings could fall below this figure, further strained by increased export taxes and levies reaching $230 per metric ton.

“The government must consider all factors carefully,” Darto said. “Many state-owned enterprises managing natural resources are already facing financial difficulties. If they take a bigger share, they must ensure it does not backfire.”