MICRO, SMALL, AND MEDIUM ENTERPRISES (MSMEs) IN THE NATIONAL PALM OIL INDUSTRY

TL;DR

MSMEs (Micro, Small, and Medium Enterprises) are an integral part of Indonesia’s national palm oil industry, living in a mutually beneficial relationship with large corporations and engaged across the entire chain, from upstream activities such as seedling and fertilizer supply, through smallholder plantations, to downstream palm oil-based industries and supporting services like transportation, finance, and labor. The scale of this involvement is substantial, with MSMEs accounting for around 90 percent of national business actors, roughly 4 million farming households controlling 40 percent of Indonesia’s oil palm plantation area, and millions of other MSMEs operating in culinary, health and beauty, handicraft, and service sectors that use or support palm oil-based products. This symbiosis has proven economically significant, transactions between palm plantation communities and rural agricultural MSMEs reached 206.72 trillion rupiah, and with urban communities reached 500.22 trillion rupiah in 2025, making the palm oil plantation economy a growth engine that integrates rural and urban economies while correcting rural-urban economic polarization.

INTRODUCTION

A common view often directed at the palm oil industry is that its actors involve only large corporations (large businesses). The vast expanses of oil palm plantations, large-scale factories, and the trade in oil palm plantation products, which indeed appear to be large-scale, have created a public perception of the palm oil industry as a large industry owned only by large corporations. 

This view is not entirely correct. In reality, the involvement of micro, small, and medium enterprises (MSMEs) in the palm oil industry is no less substantial. In fact, the size of palm oil corporations cannot be separated from the involvement of MSMEs; therefore, the involvement of business actors in the plantation industry should not be viewed as MSMEs versus Large Enterprises, but rather as a mutually beneficial symbiosis between MSMEs and Large Enterprises. 

MSME involvement in the palm oil economy is very broad and diverse. In reality, palm oil MSMEs are involved in the supply chain from upstream to downstream. Unfortunately, not all of them have been recorded in formal statistics, so their role in the palm oil industry has not yet been quantified in detail. 

In addition, MSME involvement is also often viewed narrowly, namely as only MSMEs directly involved in the palm oil production chain from upstream to downstream. In economic terms, however, MSME involvement also includes all economic transactions between communities engaged in palm oil businesses and businesses providing goods/services directly required by communities engaged in the palm oil business.

This article discusses how MSMEs are involved in the palm oil industry from upstream to downstream. It will then discuss the extent of the mutually beneficial symbiosis among MSMEs in palm oil production centers.

ANATOMY OF PALM OIL MSMEs

In the national business sector, MSMEs are the largest group of business actors in Indonesia. Approximately 90 percent of national economic actors are MSMEs. According to the Ministry of Cooperatives and SMEs (2026), the number of MSME business units in Indonesia in 2025 reached approximately 30.21 million business units and was able to absorb approximately 45.31 million workers.

Government Regulation No. 7 of 2021 concerning the Facilitation, Protection, and Empowerment of Cooperatives and Micro, Small, and Medium Enterprises establishes the criteria for MSMEs as follows: (1) a Micro Enterprise is a business with business capital of up to a maximum of IDR 1,000,000,000 (one billion rupiah), excluding the land and building where the business is located; (2) a Small Enterprise is a business with business capital of more than IDR 1,000,000,000 (one billion rupiah) up to a maximum of IDR 5,000,000,000 (five billion rupiah), excluding the land and building where the business is located; and (3) a Medium Enterprise is a business with business capital of more than IDR 5,000,000,000 (five billion rupiah) up to a maximum of IDR 10,000,000,000 (ten billion rupiah), excluding the land and building where the business is located.

In the context of the product line or supply chain of palm oil products from upstream to downstream, based on their roles, there are four groups of subsystems/clusters in the palm oil industry or palm oil economy. First, the Upstream Industry, namely all industries that produce and provide capital goods (inputs) for oil palm plantations, including nurseries, the fertilizer industry, the pesticide industry, and the plantation machinery and equipment industry. Second, Oil Palm Plantation namely all businesses engaged in cultivating oil palm plantations to produce FFB and process FFB into CPO and PKO. Third, the Downstream Industry, namely industries that process oil palm plantation products into intermediate products as well as finished products. Fourth, the Service-Providing Industry, namely industrial activities and institutions that produce services used by the upstream industry, oil palm plantations, and the industry. MSME involvement in the palm oil industry extends from upstream to downstream across the four palm oil industry clusters mentioned above (Figure 1).

In the upstream industry, MSME actors are heavily involved in oil palm nurseries, compound fertilizer production, and the trading of fertilizers, pesticides, and plantation equipment. MSME involvement in oil palm nurseries generally consists of downline businesses of large oil palm nursery industries that produce seedlings, which are grown by nursery SMEs until they reach 6–12 months of age and then marketed to oil palm plantations undergoing replanting. Likewise, MSME traders or kiosks selling fertilizers/pesticides/plantation equipment serve as retail outlets for large-scale fertilizer, pesticide, machinery, and equipment industries. 

MSME involvement in oil palm plantations consists of oil palm farmers, both independent farmers and plasma farmers. According to data from the Ministry of Agriculture (2025), the number of MSME business units in oil palm plantations reached approximately 4 million farming households, or approximately 40 percent of the total area of Indonesia’s oil palm plantations.

In addition to oil palm plantations, MSMEs are also involved in oil palm-based businesses, namely businesses producing broomsticks, satay skewers, household utensils made from palm fronds, and palm sugar businesses. These SMEs utilize “waste” from oil palm plantations and therefore generally develop in palm oil production centers.

In the downstream industry, MSME involvement is very broad and diverse, including businesses that use palm oil (or other processed palm oil products) as raw material (inputs) to produce various products, both intermediate products and finished products. One group of businesses that has a close connection with palm oil products is culinary MSMEs or food and beverage providers, such as fried-food businesses, warung tegal, food stalls/eateries/restaurants, coffee shops (cafés), catering businesses, chocolate businesses, ice cream businesses, and bakeries. The size of this sector’s potential is reflected in BPS-Statistics Indonesia (2025b), which recorded approximately 5.28 million food and beverage provision businesses in Indonesia in 2024, including restaurants/eateries, other food and beverage businesses, mobile or non-permanent food and beverage businesses, and catering services. This figure demonstrates the large business base in the culinary sector that potentially uses processed palm oil products such as palm cooking oil or margarine.

The connection between MSMEs and the downstream industry is not limited to the culinary sector. Palm oil and its derivative products also serve as inputs for various other business activities, such as MSMEs producing health, beauty, and fitness products, handicraft businesses, batik businesses, as well as various other consumer products. The existence of the palm oil industry not only creates value added at the level of large-scale processing industries, but also provides opportunities for MSMEs to grow and develop in various economic sectors. These MSMEs are also widely and inclusively distributed across both rural and urban areas, encompassing both palm oil production centers and areas outside these production centers. 

MSME involvement in the service-providing industry covers all MSMEs that provide services to the upstream industry, oil palm plantations, and the downstream industry. These service-providing MSMEs are included as palm oil MSMEs because these service businesses are intended for the palm oil industry. They include: (1) MSMEs providing transportation services for FFB, transportation services for CPO and other palm oil products, transportation services for fertilizers/pesticides/plantation equipment, transportation services for cooking oil, etc.; (2) food/beverage production and trading businesses and providers, particularly in palm oil production centers, including food stalls/eateries, restaurants, food crop farmers, livestock farmers, and fishermen. The presence of these food-provider MSMEs makes it possible to find almost all typical local Indonesian cuisine in palm oil production centers; (3) MSMEs trading fruit/FFB in palm oil production centers; (4) automotive rental and repair businesses; (5) financial service businesses such as savings and loan businesses, and rural credit banks; (6) clothing and household equipment trading businesses in palm oil production centers; (7) labor recruitment services for harvesters and land clearing; (8) oil palm tree felling services (for replanting); and (9) consulting, training, and certification services.

With this anatomy of MSMEs in the palm oil industry, in terms of the number of business units, MSMEs are shown to be the largest actors in the national palm oil industry. Not only are they large in terms of numbers, but the MSMEs involved in the palm oil industry are also very important to the sustainability of the palm oil industry’s production process from upstream to downstream. The large palm oil industry that exists today is also made possible by the contribution of MSMEs. MSMEs should therefore be able to grow and develop as the palm oil industry grows and develops. Therefore, MSMEs and large corporations (private and state-owned enterprises/BUMN) must coexist in a mutually beneficial symbiosis, and there is no need to set MSMEs against large corporations.

To build a mutually beneficial symbiosis between MSMEs and large corporations, the government, through Law No. 39 of 2014 concerning Plantations and Law No. 20 of 2008 concerning Small and Medium Enterprises, has issued a policy to establish cooperative institutions, better known as Partnerships. Partnership arrangements between MSMEs and large corporations can be developed through various mutually beneficial schemes, enabling MSMEs and corporations to live and thrive in partnership (growing together).

MUTUALLY BENEFICIAL SYMBIOSIS OF MSMEs IN PALM OIL PRODUCTION CENTERS

The presence of MSMEs in the palm oil industry, in addition to contributing to the sustainability of the palm oil industry as a whole, also plays an important role in integrating the economy of communities working in the palm oil industry with other industries, integrating the food crop sector with oil palm plantations, and integrating rural areas with urban areas, including communities outside palm oil production centers such as those on Java and Bali. 

The people working in oil palm plantations, including MSME/oil palm farmers, employees of plantation companies and their family members (hereinafter referred to as oil palm plantation communities), are estimated to number at least 72 million people distributed across palm oil production centers throughout the country. These communities are neither food producers nor producers of industrial goods. The large population, supported by relatively high and stable purchasing power, gives the oil palm plantation communities significant market potential for both food producers around oil palm plantations and producers of industrial products from urban areas.  

Based on BPS-Statistics Indonesia’s data (2025^a), the magnitude of the values of transactions between oil palm plantation communities and agricultural communities (food crop farmers, livestock farmers, and fisheries communities) around oil palm plantations, as well as urban communities as producers of industrial goods, can be identified (Figure 2).

The value of transactions created between oil palm plantation communities and rural communities reached approximately IDR 206.72 trillion in 2025. This includes the value of transactions between the communities and food crop MSMEs amounting to IDR 138.13 trillion, livestock MSMEs amounting to IDR 35.11 trillion, and fisheries MSMEs amounting to IDR 33.48 trillion.

Economic transactions between oil palm plantation communities and agricultural/livestock/fisheries MSMEs reveal a mutually beneficial relationship in rural areas through the rural food market. This food symbiosis is one of the factors explaining why oil palm plantation communities never experience food shortages even when food crises occur in other areas due to the presence of agricultural/livestock/fisheries MSMEs as well as culinary MSMEs providing food and beverages for them (feeding the planters). Conversely, agricultural/livestock/fisheries MSMEs located in areas surrounding palm oil production centers do not experience difficulties in marketing their agricultural products. Once again, oil palm plantation communities constitute a sustainable market for agricultural/livestock/fisheries MSMEs.

Economic transactions also occur between oil palm plantation communities and urban communities through trading MSMEs operating between cities and palm oil production centers. The oil palm plantation communities also require industrial goods produced in urban areas (industry). Conversely, urban industrial communities also require markets for their industrial products. It should be noted that urban communities here include not only urban communities in provinces that are palm oil production centers, but also industrial communities in provinces that are not palm oil production centers, such as provinces on Java and Bali.

The value of transactions between oil palm plantation communities and urban communities reached approximately IDR 500.22 trillion in 2025. The value of transactions with urban communities (industries) was more than twice the value of transactions with agricultural communities (food crop, fisheries, and livestock producers). This shows that oil palm plantation communities constitute a very large market for urban communities (producers of industrial goods).

The economic mutually beneficial symbiosis between oil palm plantation communities and agricultural/livestock/fisheries MSMEs, as well as urban communities (producers of industrial goods), shows that the oil palm plantation economy integrates intersectoral economies as well as rural economies with economic sectors in urban areas. The oil palm plantation economy can be described as a locomotive that drives the growth of agricultural sectors in rural areas while simultaneously becoming a locomotive for economic sectors in urban areas. Growth in the income of oil palm plantation communities will drive rural economic growth and urban economic growth.

Studies by PASPI (2014, 2022, 2023) reveal that economic transactions between oil palm plantation communities and rural MSMEs and urban communities have created new palm oil-based economic growth centers in rural areas. In addition to creating an inclusive economy, the growth and development of new, integrated palm oil-based economic growth centers in rural areas that are also integrated with the urban sector will, in the long term, reduce the polarization between urban and rural economies, correcting the dualistic economy into a rurban (rural-urban) economy.

CONCLUSION

Micro, Small, and Medium Enterprises (MSMEs) are an important part of the national palm oil industry. MSMEs coexist in a mutually beneficial symbiosis with and mutually strengthen the corporate businesses that drive the palm oil industry from upstream to downstream. MSME involvement in the palm oil industry covers the upstream industry, oil palm plantations, the downstream industry, as well as service-providing industry serving the upstream industry, oil palm plantations, and the downstream industry. 

Economically, the mutually beneficial symbiosis between oil palm plantation communities (including 4 million oil palm plantation MSME units) and food-provider MSMEs, including food-producing MSMEs (farmers, livestock farmers, fishermen), enables oil palm plantation communities/MSMEs to obtain certainty in the stable and sustainable supply of food. Conversely, food MSMEs also obtain certainty in marketing their production. In addition, a mutually beneficial symbiosis occurs between oil palm plantation MSMEs, production MSMEs, and food providers and urban communities (industries), enabling non-food goods from urban areas to be made available in palm oil production centers.

The economic mutually beneficial symbiosis between oil palm plantation MSMEs, production MSMEs, and food providers, together with oil palm plantation corporations, creates new economic growth centers in rural areas that are palm oil production centers. These new economic growth centers integrate sectors within rural areas and integrate the rural economy of palm oil production centers with the economy of urban communities.

Acknowledgment

“The author extends sincere gratitude for the financial support provided by the Plantation Fund Management Agency (Badan Pengelola Dana Perkebunan) in the preparation of this popular scientific article as part of an advocacy at countering negative campaigns against palm oil.”