The Indonesia Palm Oil Policy

The newly adopted B50 biodiesel policy in Indonesia increases the requirement for the country’s diesel to contain 50 percent biodiesel derived from palm oil, compared with the previous B40 blend. The new policy is aimed at reducing the country’s dependence on diesel imports and encouraging the use of the country’s palm oil production. Indonesia has already begun implementing the program in 2026, which is the government’s objective for the year.

This will mean that there will be reduced availability for export due to the increase in the consumption of palm oil in the country, which is one of the biggest producers of palm oil in the world and a supplier in the international market. According to Reuters, the introduction of the B50 program will increase crude ‌palm oil use to between 16.3 million and 17 million metric tons from 15.2 million tonnes.

In Nigeria, which depends on both local production and foreign supply, the effect will be in the form of increased prices and inflated costs of importing palm oil.

The Challenge Nigeria Has Been Unable to Solve

The extent of Nigeria’s palm-oil supply problem is even clearer when production and consumption are compared within the same year. For instance, Data by the Council of Palm Oil Producing Countries (CPOPC) has revealed that Nigeria’s palm-oil production for 2025 was 1.57 million metric tonnes, whereas its estimated palm-oil consumption hit 2.61 million metric tonnes.  This implies a shortfall of over 1 million metric tonnes. This underscores a structural problem of insufficient supply. Although Nigeria produces a significant volume of palm oil, domestic production does not meet the Nigerian market’s needs.

Population increase is one reason for that.

While palm oil is still used extensively for cooking purposes, its usage is not limited to the domestic sphere. The US Department of Agriculture (USDA) reports on its usage in noodles, soap, detergent, cosmetics, and other manufactured goods.

With Nigeria’s growing population and the expansion of the food industry, demand for vegetable oils is rising; however, production has not kept pace. 

“Our challenges have surged in the last three years due to rising costs of transportation, fertilizers, as well as labour in the farms. This has reduced our output”, laments Mr. Felix Ekol, a farmer in Ikom Local Government Area of Cross River State.

This complicates Nigeria’s palm-oil dilemma beyond merely stating that Nigeria does not have sufficient agricultural land. The issue is not only acreage but also productivity, since Nigeria has oil palm plantations. According to data by the USDA, Nigeria has a palm oil harvested area of approximately 3.2 million hectares and an estimated production of about 1.5 million tonnes in 2025/26. Therefore, the average yield is only about 0.47 tonnes per hectare.

The Ageing Plantations Challenge

The state of Nigeria’s oil-palm plantation stock is another aspect of the productivity question. According to research published in the Ife Journal of Agriculture, approximately 76 percent of the surveyed plantations in Abia State are typically old. Surveys of oil-palm plantations carried out in Nigeria revealed that yields may decline considerably due to the age of the palms. In one plantation surveyed, the yield of palm oil decreased from 2.64 tonnes per hectare at the age of nine years to 1.38 tonnes per hectare at the eighteenth year of growth.

Recent studies also revealed the economic impact of ageing palms. According to a study conducted by the Nigerian Institute for Oil Palm Research (NIFOR) in 2025, the optimum economic replacement age of oil palms in Edo State was 33 years due to increasingly higher costs and low returns from older plantations. Indeed, NIFOR states that improved Tenera planting material produces much higher yields than those from unimproved palms. For smallholder farmers who depend on annual yields to survive, this transition presents a financial strain.  

The Small Farmer at the Heart of the Issue

In trying to understand the Nigerian palm oil industry, one must not overlook its small farms.

According to USDA reports, around 80 per cent of all palm production comes from small farms, and there have been expansions of plantations and processing capacity by private sector actors. This means that the state of small farm agriculture is key to the future of supply in Nigeria.

An individual farmer operating just a few hectares is faced with a whole host of problems different from those faced by the large plantation. Manual harvesting, individual payments to labourers, transportation of fruit across poor road networks, and selling fruit to processors with little bargaining power are just some of them.

In the case where processing facilities are too far away, the farmer can even be faced with losses as the harvested palm fruit needs to be processed relatively soon after harvest. This means that any increase in the palm oil production in Nigeria requires more than just persuading farmers to grow more trees.

The Processing Challenge

While there is some substantial infrastructure for processing oil palms in Nigeria, it is unevenly distributed, and quite a lot of the country’s palm production is processed through relatively primitive systems. According to NIFOR, Nigeria has 471 tonnes per hour of fresh fruit bunches (FFB) processing capacity without taking into account informal processing. At continuous operation, this amounts to 3.7 million tonnes of FFB per year, but it is only an indicator of installed capacity, not an output.

The problem is especially noticeable considering that the share of smallholders in Nigeria’s palm production is about 80 percent, according to the USDA Foreign Agricultural Service, and the processing technology used by smallholders is far from being efficient. The agency stated that private companies’ investments in building processing facilities were increasing in order to overcome Nigeria’s dependency on old and primitive technologies. Evidence of the underutilization of the country’s processing capacity also exists. A 2024 study of selected Nigerian mills revealed that two state-owned mills, the Okitipupa and NIFOR, with 24 and six tonnes of FFB processing capacity per hour respectively, were in poor shape and did not work, while privately owned mills investigated in the study were operating.

This implies that the processing issue faced by Nigeria is not just an issue of lack of mills but also an issue of capacity utilization, availability of the new mills to the small farmers, maintenance of the mills and their location, and capacity utilization as well.

When Indonesia Shifts Gears

The significance of Indonesia to the global palm-oil industry is immense. Where the biggest producer in the world opts to consume some of its production internally, other global buyers face the challenge of competing for what may become an even smaller exportable stock.

The B50 biodiesel scheme is focused mainly on Indonesia’s energy strategy at home. It is not a strategy aimed directly at Nigeria. Yet the repercussions of its implementation can be felt around the world.

While Indonesia anticipates that the higher blend will help the country become less dependent on diesel imports, it is expected that the country’s palm-oil usage will increase.

According to Reuters, the scheme is going to make the country less dependent on diesel imports yet more dependent on palm oil. For countries like Nigeria, which are partly dependent on palm oil imports, this could translate into higher import prices.

”As far as we continue to import, we will remain vulnerable to global palm oil movements. So, we must address all the challenges that need to be fixed, or we deal with the after-effects like we are doing with the prices of crude oil”, says Apex Consulting boss, Paula Achichie.

What Does the Consumer Pay For?

The gap in the supply chain is not some vague agricultural statistic. It will sooner or later find its way to the marketplace. Consumption of palm oil takes place both directly at the household level as well as indirectly through processed goods.

If the price of crude palm oil increase, it will incur more input costs on the part of the processors and manufacturers of goods. These could be either internalized or passed on to the retailers or ultimately to the consumer.

Consequently, this impact might well be felt far beyond the simple price of a bottle of cooking oil. Even a manufacturer of products such as noodles, biscuits, soaps could have to incur increased costs.

According to Abuja-based restauranteur Ginini Atu of Ginnie Foodie, “palm oil has become so expensive that we are using it sparingly in our cooking these days so that we can make a little profit. Whatever is making it expensive should be handled by the relevant authorities because it is an irony that palm oil in some Nigerian villages that have vast palm plantations is expensive”.

The Opportunity That Lies Within the Gap in Supply

While the supply gap is bad, it is also an opportunity for the economy. Each ton of imported palm oil means demand that can be satisfied by domestic producers.

Therefore, bridging the gap would mean creating sources of income for farmers, creating employment opportunities in processing and transportation of the product, developing the rural economy, and protecting it from supply risks.

The opportunity is especially valuable as the country already has all the necessary preconditions to cultivate the product.

Nigeria has a rich experience in palm oil production and an established infrastructure of farmers, processors, and merchants. The only question is whether it is possible to update the agricultural sector enough to become competitive in production.

There are some examples of private investments that show that it is possible.

USDA reported that new plantations are already working and some of the existing companies expanded their plantations and processing capacity. Also, there are reported cooperation cases of private investors with small farmers in financing, production, and cultivation materials.

Closing the Gap Through Policy?

Efforts are being made by the Nigerian government towards the revival of oil palm. In 2026, the Federal Ministry of Agriculture and Food Security developed a National Oil Palm Development Strategy after engaging with the stakeholders in the industry. The strategy aims at increasing production and productivity levels, developing processing capabilities, and incorporating small farmers into value chain structures. The government believes that improved and resilient planting material, skills training, extension services, availability of funds, and modern processing techniques are necessary in the industry.

Another program that the government is implementing is the Special Agro-Industrial Processing Zones (SAPZ). This program is meant to link farming villages with processing centers, storage, logistics, and markets. Among the industrial and tree crops under the program are oil palm. Some of the initiatives expected to be implemented in the coming phases of the program are the provision of rural roads, irrigation, primary processing, extension services, mechanization, and inputs delivery services.

Improving agricultural financing is also another general effort to enhance agriculture. According to the Federal Government, it has strengthened institutions such as the Bank of Agriculture, Nigeria Agricultural Development Fund, and National Agricultural Insurance Corporation to mitigate risks involved in investments and bring in private investments.

According to the Ministry of Agriculture, the Nigeria Agricultural Development Fund has disbursed over ₦16 billion in its on-lending programme in the various agricultural value chains, though this is not exclusively oil palm.

The state governments are also making direct investments into the crop in their various budgets. The Kogi State Budget 2026, for example, made provision for the development of a 4,000-hectare oil-palm plantation at Aloma in addition to the upgrading of the already existing oil-palm plantations in Aloma, Kabba and Acharu. These actions show that oil palm production is getting due policy attention even at the state level.

However, the mere existence of these programmes does not imply that the current policies are enough.

The key question is no longer whether there is a policy on oil palms in Nigeria. There is. The difficult question is whether these policies will be properly and effectively implemented to help reach the millions of small farmers who produce most of the palm fruits in Nigeria. Without proper funding, availability of good seedlings, availability of credit, rural road infrastructure, extension services and processing facilities, the new policy may well end up as just another policy statement.

From Importing Palm Oil to Being Competitive Again

Nigeria faces problems not only related to the loss of competitiveness as a palm oil producer but also to the growing domestic consumption of palm oil, despite low productivity.

This nuance makes a big difference because the solution to the Nigerian problem differs from that of Indonesia.

In contrast to Indonesia, Nigeria does not have to become the biggest exporter of palm oil to be considered successful.

The initial task for Nigeria may be more modest and economically feasible, namely, to produce enough palm oil domestically to minimize imports.

Then exports may become the next stage.

While Indonesia is taking advantage of its huge palm oil industry for the sake of achieving the energy goal, Nigeria still must produce enough palm oil for its own households and industries.

This comparison highlights a crucial difference. While one country has begun to leverage its dominant production position to develop its strategy for energy and commodities, the other is still trying to bridge a relatively small gap between production and consumption.

This gap is not unavoidable. However, bridging it would entail addressing the issues that have kept productivity lower over the last decades – old plantations, underinvestment, lack of mechanization, inefficient processing, poor infrastructure, and limited access to financing.

For the producers, this means increased earnings. For the processors, an expanded and more stable local market. For the consumer, this might mean less reliance on supplies from abroad.

And for the Nigerian economy, this means converting an ongoing import obligation into an opportunity for domestic production.

Conclusion

The oil-palm industry in Nigeria is at a crucial juncture. The policies of Indonesia might act as a catalyst in the short run in terms of increasing the scarcity of the product in international markets. However, the more difficult task would be that of addressing the structural issues associated with Nigeria. There is still an important difference between domestic consumption and production levels, with ageing plantations, lower yields and a lack of finance being some of the issues involved.

Solving these problems would not be possible only through favorable market conditions. Through investment in quality seedlings, financial assistance for the farmers, proper extension and processing techniques, Nigeria will be able to reduce dependence on imports while increasing the value added from the industry.