IMPACTS OF GLOBAL CPO PRICES AND EXCHANGE RATES ON PRODUCTION, COOKING OIL, AND BIO-DIESEL DEMAND DYNAMICS IN INDONESIA

Abstract

Indonesia is a significant producer and exporter of crude palm oil (CPO), and palm oil industry contributes greatly to the economy of the country. The industry, however, is very sensitive to the changes in global CPO prices in the exchange rates which can significantly affect the dynamics of production, supply, and demand. This paper will explore the relationship between international CPO prices and exchange rate and domestic performance with reference to palm oil production, cooking oil demand and bio-diesel demand in the Indonesian market. The study employs time-series econometric models to determine the impacts of global CPO price variations and exchange rate variations on the palm oil market in Indonesia between 2000-2024 using the ARDL model. This analysis emphasizes how global price shocks impact domestic palm oil production, cooking oil demand and increasing demand of bio-diesel that is currently becoming an important alternative to fossil fuels in the Indonesian energy policy. The paper is also on the conflict between food (cooking oil) and non-food (bio-diesel) uses of palm oil, especially with Indonesia bio-diesel blending requirements. The findings indicate that global price changes and exchange rate fluctuations have a significant effect on the production levels and demand of cooking oil and bio-diesel with considerable implication of food and energy security in Indonesia. This study provides insights into price transmission within the palm oil sector as well as valuable information on the part of the policymakers in terms of how to balance local supply and global competitiveness and maintain food and energy security.