NAVIGATING UNCERTAINTY: PALM OIL SECTOR OUTLOOK FOR 2026 THROUGH THE LENS OF SMALLHOLDER WELFARE AND SUSTAINABILITY IMPERATIVES
DOI:
https://doi.org/10.56238/revgeov17n1-127Keywords:
Palm Oil Outlook, Smallholder Welfare, Biodiesel Policy, ISPO Certification, Replanting Program, EUDR Compliance, Farmers' Terms of Trade, Sustainable Intensification, Indonesian Agriculture, Climate AdaptationAbstract
This qualitative literature review examines the outlook for Indonesia's palm oil sector in 2026, with particular emphasis on smallholder farmers' welfare and the interplay between production dynamics, policy drivers, and sustainability imperatives. Synthesizing evidence from the 2026 IPOSS Palm Oil Outlook, literature publications (2020-2025), and government reports. In industry analyses, we identify critical determinants shaping the sector's trajectory: biodiesel mandate expansion (B40-B50), climate variability following El Niño-La Niña cycles, implementation of the European Union Deforestation Regulation (EUDR), and persistent productivity gaps in smallholder plantations. Global crude palm oil (CPO) production is projected at 83 million metric tons in 2026, with Indonesia maintaining 59% market share despite land expansion constraints and bottlenecks in the replanting program (PSR). Domestic consumption intensification through bioenergy mandates creates a dual pressure on export capacity and farmer income stability. Price forecasts range from USD 1,050 to 1,200/MT, influenced by energy policy, geopolitical tensions, and sustainability compliance costs. Thematic findings reveal that smallholder welfare—measured through Farmers Terms of Trade (NTP) and multidimensional welfare indices—remains vulnerable to price volatility, limited market access, and certification barriers. We propose six evidence-based policy recommendations prioritizing accelerated replanting (200,000 ha/year target), price stabilization mechanisms, subsidized ISPO certification pathways, enhanced extension services, comprehensive welfare monitoring systems, and income diversification strategies. This review contributes to agricultural economics literature by synthesizing fragmented research streams and providing actionable insights for policymakers navigating the sustainability-development nexus in commodity-dependent economies.
Downloads
References
Abubakar, A., Ishak, M. Y., & Makmom, A. A. (2021). Impacts of and adaptation to climate change on the oil palm in Malaysia: a systematic review. Environmental Science and Pollution Research, 28(39), 54339–54361. https://doi.org/10.1007/s11356-021-15890-3
Adiatma, J. C., & Prasojo, H. (2021). Critical review on the biofuel development policy in Indonesia. https://iesr.or.id/wp-content/uploads/2021/05/Critical-review-on-biofuel_IESR040521.pdf
Arintoko, A., Sambodo, H., & Priyono, R. (2024). Do International Oil Prices, Exchange Rates and Agricultural Credit Matter for Farmers’ Term of Trade in Indonesia? Empirical Evidence of Multiple Thresholds and Asymmetric Effects. Research on World Agricultural Economy, 71–87. https://doi.org/10.36956/rwae.v6i1.1305
Arumdhani, M. P. (2025). The impact of biodiesel policy on the availability of cooking oil: An analysis of sustainable food strategies. JIPAGI: Jurnal Inovasi Pangan Dan Gizi, 2(2), 111–126. https://doi.org/10.61511/jipagi.v2i2.1876
Asdep Setkab. (2025). Gov’t Delivers Massive Food Aid, Ensures Secure Rice Stocks in Disaster-Hit Regions. Cabinet Secretariat of the Republic of Indonesia Bews. https://setkab.go.id/en/govt-delivers-massive-food-aid-ensures-secure-rice-stocks-in-disaster-hit-regions/
Astari, A. J., Lovett, J. C., & Wasesa, M. (2025). Sustainable pathways in Indonesia’s palm oil industry through historical institutionalism. World Development Sustainability, 6, 100200. https://doi.org/10.1016/j.wds.2024.100200
Barisaux, M., Gasselin, P., Laurens, L., & Ollivier, G. (2024). Why and how to conduct a Scoping Review of literature in the Humanities and Social Sciences? Application to free labour in agriculture. Bulletin of Sociological Methodology/Bulletin de Méthodologie Sociologique, 162(1), 212–242. https://doi.org/10.1177/07591063241236069
Bastidas-Orrego, L. M., Jaramillo, N., Castillo-Grisales, J. A., & Ceballos, Y. F. (2023). A systematic review of the evaluation of agricultural policies: Using prisma. Heliyon, 9(10), e20292. https://doi.org/10.1016/j.heliyon.2023.e20292
Benedict, J. J., & Heilmayr, R. (2024). Indonesian palm oil exports and deforestation. Trase Earth.
Dodson, A., Guindon, M., & Lam, J. (2019). Smallholders: key to building sustainable supply chains. Disclosure and support by palm oil companies assessed on SPOTT. https://www.spott.org/news/smallholders-key-to-building-sustainable-supply-chains
Eggen, M., Heilmayr, R., Anderson, P., Armson, R., Austin, K., Azmi, R., Bayliss, P., Burns, D., Erbaugh, J. T., Ekaputri, A. D., Gaveau, D. L. A., Grabs, J., Greenbury, A., Gulagnar, I., Hanu, M. A., Hill, T., Leegwater, M., Limberg, G., Opal, C., … Carlson, K. M. (2024). Smallholder participation in zero-deforestation supply chain initiatives in the Indonesian palm oil sector: Challenges, opportunities, and limitations. Elem Sci Anth, 12(1). https://doi.org/10.1525/elementa.2023.00099
Ekaputri, A. D., Gaveau, D. L. A., Heilmayr, R., & Carlson, K. M. (2025). Uneven participation of independent and contract smallholders in certified palm oil mill markets in Indonesia. Communications Earth & Environment, 6(1), 721. https://doi.org/10.1038/s43247-025-02683-6
Erdi, Nawireja, I. K., Wibowo, L. R., Hutabarat, S., Utomo, M. M. B., Kurniasari, D. R., Pramudya, E. P., Hapsari, M., Fuad, Z., Kurniadi, R., Santosa, A., Nugraha, I., Hakim, I., Rizieq, R., Ramawati, & Satwiko, A. A. (2025). Acceleration of Smallholder Palm Oil Certification in Riau: Between Rationality and Policy Utopia. Forest Science and Technology, 1–12. https://doi.org/10.1080/21580103.2025.2565629
Fleiss, S., Hill, J. K., McClean, C., & Lucey, J. M. (2017). Potential Impacts of Climate Change on Oil Palm Cultivation: A science-for-policy paper by the SenSOR programme. https://www.sensorproject.net/wp-content/uploads/2018/01/Climate-change-report-FINAL.pdf
Halimatussadiah, A., Nainggolan, D., Yui, S., Moeis, F. R., & Siregar, A. A. (2021). Progressive biodiesel policy in Indonesia: Does the Government’s economic proposition hold? Renewable and Sustainable Energy Reviews, 150, 111431. https://doi.org/10.1016/j.rser.2021.111431
Haniff, M. H., Yahya, Z., Razak, Af. A., Latif, J., Khomeini, M. A., Rahman, A., & Kamarudin, N. (2016). Impact of El Nino and La Nina on Oil Palm FFB Yield Production in Malaysia. IJAER: International Journal of Agriculture and Environmental Research, 2(5), 1084–1100. https://ijaer.in/uploads/ijaer_02__74.pdf
Hartono, R. (2024). Persiapan Sertifikasi ISPO pada Koperasi Produsen Fajar Lestari Studi Kasus di Dusun Cabang Anduk, Kecamatan Batu Ampar, Kabupaten Kubu Raya, Kalimantan Barat. Jurnal Ilmu Sosial Dan Humaniora, 2(3), 86–92. https://doi.org/10.58540/isihumor.v2i3.827
Hartono, R. (2025). The Economic Impact of the Presence of Oil Palm Plantations towards ISPO Certification: Case Study of Jaya Usaha Sempurna Producer Cooperative in Mega Timur Village. IJMEBE: International Journal of Management and Business Economics, 3(2), 66–69.
Hicks, R. (2025). EU delays deforestation law again, as Indonesian palm oil sector pushes for smallholder exemptions. Eco-Business: Food and Agriculture. https://www.eco-business.com/news/eu-delays-deforestation-law-again-as-indonesian-palm-oil-sector-pushes-for-smallholder-exemptions/
Hutajulu, J. P. (2023). Factors Influencing Public Decision-Making in Oil Palm Replanting Program in Sekadau District. Jurnal Social Economic of Agriculture, 12(2), 119. https://doi.org/10.26418/j.sea.v12i2.72421
IPOSS. (2026). 2026 Palm Oil Outlook.
Iswara, M. A., Nurshadrina, D. S., & Suharyadi, A. (2023). European Union Palming off Deforestation Regulation to Smallholders in Indonesia. East Asia Forum. https://eastasiaforum.org/2023/10/10/european-union-palming-off-deforestation-regulation-to-smallholders-in-indonesia/
Jong, H. N. (2025). Indonesia raises concerns over EU deforestation law’s impact on smallholders. Mongabay Asia. https://news.mongabay.com/2025/04/indonesia-raises-concerns-over-eu-deforestation-laws-impact-on-smallholders/
Judijanto, L. (2025a). Empowerment of Oil Palm Smallholders for Sustainable Palm Oil. Veredas Do Direito, 22(2), e3323. https://doi.org/10.18623/rvd.v22.n2.3323
Judijanto, L. (2025b). From Voluntary to Mandatory: A Review of Prospects and Challenges in Implementing Palm Oil Sustainability Certifications in Indonesia. ERR01, 10(2), 232–254. https://doi.org/10.56238/ERR01v10n2-013
Judijanto, L. (2025c). Who Pays for Climate Action? The Disproportionate Impact of Deforestation-Free Regulations on Smallholder Farmers. European Journal of Management, Economics and Business, 3(1), 3–13. https://doi.org/10.59324/ejmeb.2026.3(1).01
Judijanto, L., & Pamungkas, D. H. (2024). Fair Pricing Formulation for Palm Oil Fresh Fruit Bunch Produced by Smallholder Farmers: A Development Method to Form a More Effective Formula for Palm Oil Fresh Fruit Bunch Pricing to Achieve a Fair Price for Smallhoder Farmers. Journal of Lifestyle and SDGs Review, 4, 1–28. https://doi.org/https://doi.org/10.47172/2965-730X.SDGsReview.v4.n04.pe03859
Kamil, N. N., & Omar, S. F. (2016). Climate Variability and Its Impact on the Palm Oil Industry. Oil Palm Industry Economic Journal, 16(1), 18–30. https://palmoilis.mpob.gov.my/publications/OPIEJ/opiejv16n1-nadia.pdf
Kamil, N. N., & Omar, S. F. (2017). The Impact of El Niño and La Niña on Malaysian Palm Oil Industry. Oil Palm Industry Economic Journal, 74(May 2017), 1–6.
Kamil, N. N., Xiao, S., Syed Salleh, S. N., Xu, H., & Zhuang, C. C. (2024). Nonlinear impacts of climate anomalies on oil palm productivity. Heliyon, 10(15), e35798. https://doi.org/10.1016/j.heliyon.2024.e35798
Khatiwada, D., Palmén, C., & Silveira, S. (2021). Evaluating the palm oil demand in Indonesia: production trends, yields, and emerging issues. Biofuels, 12(2), 135–147.
Koutsos, T. M., Menexes, G. C., & Dordas, C. A. (2019). An efficient framework for conducting systematic literature reviews in agricultural sciences. Science of The Total Environment, 682, 106–117. https://doi.org/10.1016/j.scitotenv.2019.04.354
Lestari, Y. S., Kresna, M., Endah, N. H., Atmaja, N. N., Irwanto, E. P., & Pratistha, B. (2025). Policy Strategy to Stimulate Indonesia’s Palm Oil Downstream Industries. The Journal of Indonesia Sustainable Development Planning, 6(2), 214–224. https://doi.org/10.46456/jisdep.v6i2.726
Lifianthi, Andy, M., & Wulan, S. D. (2022). Price Transmission Elasticity Analysis of Crude Palm Oil and Farmer’ Share in Indonesia: A Case of Self-Reliance Palm Oil Farmer in Musi Banyuasin District, Indonesia. RJOAS:, 11(131), 248=257. https://doi.org/10.18551/rjoas.2022-11.25
Mai, L. (2024). Palm oil powerhouses: why EU’s deforestation-free regulation does not work in Southeast Asia. CSIS New Perspectives.
Maria, B., Roy, N. D., Siska, E., & Dinah, L. M. (2023). Exploring the Dynamics of Food Prices and Farmer’s Terms of Trade: Reflecting on the Welfare of Indonesian Farmers. EURASIA: Economics & Business, 12(78), 81–90. https://doi.org/10.18551/econeurasia.2023-12
Maridjo, H., & Ignasiak-Szulc, A. (2023). Affecting Factors Farmer Welfare in Indonesia. Jurnal Ilmu Ekonomi Dan Pembangunan, 23(2), 79. https://doi.org/10.20961/jiep.v23i2.60442
Moeis, F. R., Dartanto, T., Moeis, J. P., & Ikhsan, M. (2020). A longitudinal study of agriculture households in Indonesia: The effect of land and labor mobility on welfare and poverty dynamics. World Development Perspectives, 20, 100261. https://scholar.ui.ac.id/en/publications/a-longitudinal-study-of-agriculture-households-in-indonesia-the-e/
Prayoga, Y., & Harahap, F. S. (2025). Analysis of Income and Welfare of Oil Palm Farmers in Tanjung Pasir Village, South Kualuh District North Labuhan Batu Regency. ECOBISMA: Jurnal Ekonomi, Bisnis , Dan Manajemen, 12(1), 150–159. https://jurnal.ulb.ac.id/index.php/ecobisma/article/viewFile/7552/4897
Rahman, F. H., Arif, N. F., & Rifani, S. K. (2025). Analysis of Quality Management in the Sustainable Palm Oil Industry in Riau: A Qualitative Study of Independent Farmers. JIM UPB (Jurnal Ilmiah Manajemen Universitas Putera Batam), 13(2), 27–36. https://doi.org/10.33884/jimupb.v13i2.10025
Rahutomo, A. B., Karuniasa, M., & Frimawaty, E. (2023). Peningkatan Produktivitas Lahan Pekebun melalui Sertifikasi Kelapa Sawit Berkelanjutan di Indonesia. Analisis Kebijakan Pertanian, 21(1), 43–55. https://doi.org/10.21082/akp.v21i1.43-55
Rahutomo, A. B., Karuniasa, M., & Frimawaty, E. (2025a). Enhancing farmers’ land productivity through sustainable oil certification: Strategies for promoting environmental and economic benefits in agricultural practices. JASSU: Journal of Agrosociology and Sustainability, 2(2), 97–112. https://doi.org/10.61511/jassu.v2i2.2025.1131
Rahutomo, A. B., Karuniasa, M., & Frimawaty, E. (2025b). Enhancing farmers’ land productivity through sustainable palm oil certification: Strategies for promoting environmental and economic benefits in agricultural practices. Journal of Agrosociology and Sustainability, 2(2), 97–112.
Reich, C., & Musshoff, O. (2025). Oil palm smallholders and the road to certification: Insights from Indonesia. Journal of Environmental Management, 375, 124303. https://doi.org/10.1016/j.jenvman.2025.124303
Ridani, Budi, S., & Sinta, I. (2023). Farmers’ Perceptions of Smallholdeer Oil Palm Replanting in Simpang Kanan District Aceh Singkil Regency (Case Study of Oil Palm Farmer in Lipat Kajang Village). Agribusiness Student Scientific Journal, 1(2), 75–87. https://doi.org/http://dx.doi.org/10.29103/jima.v1i1.xxx
Rochmyaningsih, D. (2024). For Indonesian oil palm farmers, EU’s deforestation law is another top-down imposition. Mongabay. https://news.mongabay.com/2024/09/for-indonesian-oil-palm-farmers-eus-deforestation-law-is-another-top-down-imposition/
Roswaldy, P. P. (2025). Profiting off the Future Loss: Land Speculations and Brokerage in Indonesia’s Oil Palm Plantation [Northwestern Univesity]. https://www.proquest.com/openview/d2bb8b3dd75bf793a8c31f0149971847/1?pq-origsite=gscholar&cbl=18750&diss=y
Sahara, Dermawan, A., Amaliah, S., Irawan, T., & Dilla, S. (2022). Economic impacts of biodiesel policy in Indonesia: a computable general equilibrium approach. Journal of Economic Structures, 11(1), 22. https://doi.org/10.1186/s40008-022-00281-9
Saleh, S., Bagja, B., Suhada, T., Widyapratami, H., Putra, S., Said, Z., & Putraditama, A. (2021). Intensification of Smallholder Oil Palm Plantations: Where Do We Start? (1; WRI Working Paper). https://wri-indonesia.org/sites/default/files/Intensification of Smallholder Oil Palm Plantations.pdf
Siregar, A. A., Halimatussadiah, A., Moeis, F. R., Anky, W. A. K., & Nainggolan, D. (2024). The oil palm replanting imperative: Are smallholder farmers willing to participate? Forest Policy and Economics, 169, 103362. https://doi.org/10.1016/j.forpol.2024.103362
Sokoastri, V., Setiadi, D., Hakim, A. R., Mawardhi, A. D., & Fadli, M. L. (2019). Smallholders Oil Palm: Problems and Solutions. Sodality: Jurnal Sosiologi Pedesaan, 7(3), 182–194. https://doi.org/10.22500/sodality.v7i3.27221
Syahza, A., Bakce, D., & Asmit, B. (2018). Increasing the awareness of palm oil plantation replanting through farmers training. Riau Journal of Empowerment, 1(1). https://doi.org/10.31258/raje.1.1.1
Syahza, A., Tampubolon, D., Irianti, M., Meiwanda, G., & Asmit, B. (2023). The Impact of Small-Scale Oil Palm Plantation Development on the Economy Multiplier Effect and Rural Communities Welfare. International Journal of Sustainable Development and Planning, 18(5), 1407–1415. https://doi.org/10.18280/ijsdp.180511
Varqa, S. (2025). Palm oil price forecast and production outlook 2026. Fastnarkets. https://www.fastmarkets.com/insights/palm-oil-price-forecast-and-production-outlook-2026/
Varwasih, M. W., Sandra, I. K., & M, J. M. (2025). Transmisi Asimetris Harga Tandan Buah Segar (TBS) Domestik dengan Harga Crude Palm Oil (CPO) Pasar Domestik. Mimbar Agribisnis : Jurnal Pemikiran Masyarakat Ilmiah Berwawasan Agribisnis, 11(1), 1072. https://doi.org/10.25157/ma.v11i1.16794
Wibowo, L. R., Erdi, Hutabarat, S., Nurfatriani, F. N., Utomo, M., Nawireja, I. K., & Pramudya, E. P. (2023). Accelerating Certification of Oil Palm Smallholders through Institutionalization of Various Incentives. Forest and Society, 7(2), 263–294.
Wong, A., Jauhari, K. Z., & Choy, R. (2025). MARC Ratings: Crude palm oil price to soften in 2026. MARC Economic Views. https://www.marc.com.my/views/marc-ratings-crude-palm-oil-price-to-soften-in-2026/
WWF. (2023). Supporting Indonesia’s Biodiesel Policy: Do We Need to Expand the Oil Palm Plantation. https://www.wwf.id/sites/default/files/2024-01/Supporting Indonesias Biodiesel Policy_Do We Need to Expand the Oil Palm Plantation_final.pdf
Yuda, T. K., & Kühner, S. (2023). Bringing Indonesia into the global welfare regime debate: A literature review and future research agenda. Asian Social Work and Policy Review, 17(2), 103–114. https://doi.org/10.1111/aswp.12275
Zafriana, L., Marjono, M., Qurbani, I. D., & Sugiono, S. (2021). Determination of the palm based biodiesel policy integration model as a renewable energy commodity. Decision Science Letters, 10(3), 263–276. https://doi.org/10.5267/j.dsl.2021.3.003
Zhao, J., Elmore, A. J., Lee, J. S. H., Numata, I., Zhang, X., & Cochrane, M. A. (2023). Replanting and yield increase strategies for alleviating the potential decline in palm oil production in Indonesia. Agricultural Systems, 210. https://doi.org/10.1016/j.agsy.2023.103714
