Downstream industrialization (hilirisasi) has become one of the flagship programs of President Prabowo Subianto’s administration. This program is embedded within the vision, direction, and new strategy for building the national economy during President Prabowo Subianto’s era—commonly referred to as “Prabowonomics.” One of the pillars of this vision, known as Asta Cita, focuses on continuing downstream processing and industrialization to increase domestic value-added.

Prabowonomics holds that a national industry based solely on natural resources will not significantly contribute to the people’s welfare if Indonesia merely exports raw materials to international markets. Instead, these natural resources must be processed domestically through downstream industrialization so that the economic benefits—such as added value, employment opportunities, and higher income—can be enjoyed by the Indonesian people.

This perspective is not only highly relevant to the national palm oil industry but also reinforces a new direction for palm oil downstream development. Prior to 2010, much of Indonesia’s palm oil downstream processing took place in palm oil-importing countries. This situation made Indonesia heavily dependent on the global palm oil market, while the value-added benefits of downstream products were enjoyed primarily by importing nations. However, as the Indonesian government has strengthened its commitment to advancing palm oil downstream industrialization—supported by a favorable domestic industrial climate—the country’s palm oil downstream sector has developed rapidly.

Palm oil is one of the world’s most versatile agricultural commodities, with applications spanning across various industries. This article explores how palm oil creates value throughout its downstream supply chain.

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Palm Oil, The Most Efficient Vegetable Oil

In general, the ongoing and potential future downstream development of palm oil in Indonesia can be categorized into four downstream pathways. Initially, there were only three main palm oil downstream pathways (Sipayung, 2018; PASPI, 2023). However, given the vast potential of palm biomass, the scope of palm oil downstream development has expanded to include the downstream pathway of palm biomass and biomaterials. The following are the four palm oil downstream pathways.

Before diving into the specific utilization pathways, it’s important to understand palm oil’s position among global vegetable oils. As of 2024, there are four main vegetable oils dominating the global market:

1. Palm oil (crude palm oil and crude palm kernel oil)
2. Soybean oil
3. Rapeseed oil
4. Sunflower oil

Palm oil stands out for its remarkable efficiency in land use and production volume. In 2024, global palm oil production reached 88.7 million tons on just 27.4 million hectares of land, with a productivity rate of 3.36 tons per hectare. By comparison, soybean oil produced 66.2 million tons but required 146.3 million hectares – over five times more land per ton of oil.

This efficiency makes palm oil an economical choice for various industries, helping to keep products affordable while reducing the land footprint needed for vegetable oil production.

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The Four Downstream Utilization Pathways of Palm Oil

Palm oil plantations produce two main elements that feed into downstream industries:

• Palm Oil – Including Crude Palm Oil (CPO) and Crude Palm Kernel Oil (CPKO)
• Palm Biomass – Including empty fruit bunches, palm kernel meal, fiber, shells, trunks, and fronds

These raw materials are then processed through four major utilization pathways:

Four Pathways of Palm Oil Downstream Industry

Value transformation from plantation to end products

Raw Materials from Oil Palm Plantations

Oil palm plantations produce two main components that serve as raw materials for the downstream industry:

1. Palm Oil

Including Crude Palm Oil (CPO) and Crude Palm Kernel Oil (CPKO)

2. Palm Biomass

Including empty fruit bunches, palm kernel cake, fiber, shell, trunk, and fronds

Click on each pathway below to learn more about its derivative products.

Four Main Downstream Pathways

1. Oleofood Complex

Utilization of palm oil in food products such as cooking oil, margarine, and various food items.

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2. Oleochemical Complex

Applications of palm oil in the chemical industry such as biosurfactants, cosmetics, bioplastics, and other chemical products.

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3. Bioenergy Complex

Utilization of palm oil in renewable energy such as biodiesel, green diesel, and aviation fuel.

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4. Biomass Complex

Utilizing non-oil components from oil palm for various environmentally friendly products.

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Oleofood Complex

The Oleofood Complex represents the utilization of palm oil in food products. Palm oil plays an important role in the food industry due to its stability, versatility, and cost efficiency. Its semi-solid state at room temperature makes it ideal for products that require specific textures without using trans fats.

Oleofood Products

Cooking Oil

Used for frying food

Margarine

Butter substitute in baking

Bread

Ingredient in bread making

Coffee Drinks

Non-dairy coffee creamer

Chocolate

Ingredient in chocolate products

Biscuits/Snacks

Ingredient in various snacks

Shortening

Used in bakery products

Other Food Products

Various culinary applications

Benefits of Palm Oil Oleofood

• Good source of vitamin E
• Free of cholesterol and trans fats
• Durable and stable when heated
• Has a neutral taste and aroma
• Provides desired texture in final products

Oleochemical Complex

The Oleochemical Complex demonstrates applications of palm oil in the chemical industry. This pathway reflects high-value utilization of palm oil’s chemical properties to produce products that previously depended on petroleum-based materials.

Oleochemical Products

Biosurfactants

Soap, detergent, shampoo, conditioner

Cosmetics

Make-up, skincare products

Bioplastics

Eco-friendly plastic alternatives

Dyes/Pigments

For natural dye industry

Biourea

Organic fertilizer material

Other Chemical Products

Various industrial applications

Advantages of Palm Oleochemicals

• Renewable and environmentally friendly
• Biodegradable (naturally decomposable)
• Reduces dependence on petrochemicals
• More stable pricing compared to petroleum-based products
• Superior chemical properties for various applications

Bioenergy and Biofuel Complex

The Bioenergy/Biofuel Complex showcases the role of palm oil in renewable energy. As the global transition to renewable energy progresses, the high yield per hectare of oil palm makes it a more efficient biofuel feedstock compared to other crops.

Bioenergy Products

Biodiesel

Alternative diesel fuel

Palm Diesel

Green Diesel from palm

Palm Gasoline

Green Gasoline from palm

Aviation Fuel

Sustainable Aviation Fuel

Advantages of Palm Biofuels

• Carbon emission reduction compared to fossil fuels
• Renewable and sustainable energy source
• High production yield per hectare of land
• Reduces dependence on petroleum imports
• Supports national clean energy programs

Biomass and Biomaterial Complex

The Biomass-Biomaterial Complex utilizes non-oil components from the oil palm. This pathway reflects the industry’s efforts to adopt zero-waste principles by optimizing all parts of the oil palm.

Biomass Products

Animal Feed

From palm kernel cake

Palm Sugar

Eco-friendly alternative sugar

Bioplastics

Biodegradable plastics from biomass

Bioethanol

Alternative fuel

Biobriquettes

Biocoal for energy

Biochar

Carbon storage and soil enhancer

Organic Fertilizer

Compost from palm waste

Crafts & Furniture

From trunk and fronds

Benefits of Palm Biomass Utilization

• Reduces waste from oil palm plantations
• Creates additional revenue streams
• Maximizes economic value from every part of the plant
• Supports circular economy and zero-waste principles
• Reduces the carbon footprint of the palm oil industry

The Future of Palm Oil Downstream Industry

Palm oil downstream development is a strategic step in increasing the added value of this key commodity. With the four main pathways described, the national palm oil industry has great potential to contribute more significantly to the economy, create jobs, and drive domestic technological innovation.

The development of the downstream palm oil industry also aligns with sustainability commitments, as it maximizes value from every part of the plant and minimizes waste. With proper implementation, palm oil downstream strategies can propel producing countries to become key players in high-value-added industries in the future.

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The Economic Impact of Palm Oil

Palm oil’s multiple utilization pathways create significant economic value throughout the supply chain. The industry supports millions of smallholder farmers while providing raw materials for numerous downstream industries.

By 2024, palm oil has established itself as the world’s most produced vegetable oil at 88.7 million tons, ahead of soybean oil (66.2 million tons), rapeseed oil (34.1 million tons), and sunflower oil (20 million tons). Its competitive pricing and year-round availability have made it the preferred choice for many industries worldwide.