Sustainable Palm Oil Downstream Value Chain in Industrial Zones: A Case Study in Riau Province, Indonesia

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Indonesia, the world’s top palm oil producer, yielded 46.99 million tons in 2023. The province of Riau, which leads in both production and plantation area, has initiated three industrial zones focused on palm oil cultivation. Of all the industrial estates, only the Dumai Industrial Estate (DIE) is implementing downstream processing by 2025, potentially enhancing the sector’s value-added contribution. Although numerous studies have been conducted on the palm oil value chain in Indonesia, no research has focused on specific regions or examined the relationships between the entities within those regions. This study examines the structure and governance of the value chain in DIE. DIE has four distinct value chains: Wilmar International Group (WIG), First Resources Group (FRG), Permata Hijau Group (PHG), and Sumber Jaya Oleo Group (SJIOLEO). These four supply chains function independently with no horizontal integration. DIE specializes in palm oil-based products, including oleofood, oleochemicals, and oleofuel (biodiesel). Notably, only the WIG chain, through PT Wilmar Nabati Indonesia, employs RSPO-certified CPO for its export products. PT Wilmar Bioenergi Indonesia, operating within the WIG, FRG, PHG, and SJIOLEO chains, does not procure RSPO-certified CPO because its production of biofuels and oleochemicals primarily serves the domestic market. In DIE, not all downstream palm oil activities focus on exports, and value chain governance, whether based on RSPO or non-RSPO certification, follows a hierarchy type.