Title:
Defying the Ghost of Commodities Past: A Review of Indonesian Palm Oil Governance and the Risk of Historical Repetition

Authors:
Loso Judijanto, Indonesia

Abstract:

Indonesia's palm oil industry currently stands as the cornerstone of the national economy, reminiscent of the historical dominance of the sugar and rubber industries. However, historical precedents suggest that global commodity booms are often followed by precipitous declines due to governance problems and the inability to adapt to external pressures. This study employs a qualitative literature review to analyse the trajectory of the palm oil sector through the lens of institutional economics and historical comparative analysis. Specifically, it investigates whether the current regulatory landscape — characterized by the external pressure of the European Union Deforestation Regulation (EUDR), the internal challenges of the Indonesian Sustainable Palm Oil (ISPO) certification, and the landmark May 2026 Government Regulation (Peraturan Pemerintah) establishing PT Danantara Sumberdaya Indonesia (DSI) as the country's sole exporter of strategic commodities including crude palm oil — supports long-term sustainability or inadvertently triggers the sector's demise, mirroring the fate of the sugar and rubber industries. The review synthesises data from reputable sources (2020–2026) to identify thematic risks: the exclusion of smallholders due to high compliance costs, regulatory fragmentation, stagnating productivity, and the new monopsony risk created by a centralised state export monopoly. The study finds that while downstreaming provides a temporary economic buffer, the exclusion of smallholders from the formal supply chain creates a structural vulnerability similar to the neglect that destroyed the rubber sector. The DSI policy, while designed to curb under-invoicing, mis-invoicing, transfer pricing, and increase state revenues, risks introducing transactional bottlenecks, market dualism, and a monopsony dynamic that could further marginalise independent smallholders. The paper concludes that without a radical shift toward "inclusive regulatory architecture" that prioritises smallholder legality, harmonises national standards with global demands, and ensures the DSI operates as a transparent exporting facilitator, palm oil risks becoming a "sunset commodity." Recommendations include shifting from defensive diplomacy to adaptive compliance, improving subsidies toward upstream revitalisation, and ensuring DSI's governance architecture is designed to strengthen market-driven export networks.

DOI: https://doi.org/10.51505/IJEBMR.2026.10614