Indonesia confident palm oil production can be increased to meet biofuel demand

NUSA DUA, Indonesia (Reuters) -Indonesia's chief economic minister said on Thursday he is confident palm oil production can be increased in coming years to meet the country's rising demand for biofuel.

Indonesia's government plans to expand the mandatory blend of biodiesel to contain 40% of palm oil-based fuel in 2025 - called B40 - from 35% currently, and is expected to increase the mix further.

"Indonesia's biodiesel policy is primarily aimed at reducing dependence on imported fossil fuels, fostering a more sustainable energy mix, and supporting the palm oil industry," Airlangga Hartarto, the country's coordinating minister for economic affairs told participants at Indonesia Palm Oil Conference.

The plan by the world's biggest exporter of the vegetable oil has propped up global palm oil prices, as outbound shipments are seen dropping amid expectations of sluggish output.

Implementation of the B40 biofuel may result in palm oil used for energy rising to 13.9 million metric tons in 2025, from the estimated 11 million tons needed this year with B35, Indonesia's biofuel producers association APROBI had previously estimated.

However, production of the vegetable oil in Indonesia has stagnated in recent years due to aging trees.

The government is pushing for improved farming practices to increase yields and enhancing the smallholders' palm oil replanting programme to meet the higher demand, Airlangga said.

The replanting programme has been behind schedule. The launch target was to replant 180,000 hectares each year, but since 2017, Indonesia has only provided funds to replant 360,000 hectares (890,000 acres), according to Airlangga.

Accelerating the replanting programme is key to support the government's bioenergy agenda without impacting supply for domestic food needs and exports, Eddy Martono, chairman of Indonesia Palm Oil Association told the same conference.

The government needs to remain prudent in its policies to maintain competitiveness of palm oil prices against other vegetable oils, he said.

(Reporting by Bernadette Christina Munthe; Writing by Fransiska Nangoy; Editing by John Mair and Varun H K)

By Bernadette Christina