Indonesia’s biodiesel policy is a major driver of palm oil demand. With B40 already in place and B50 under preparation, domestic palm-based biodiesel consumption is increasing, affecting FFB demand, CPO prices, mill utilization, equipment investment, and long-term profitability. For palm oil mills, the message is clear: Indonesia’s palm oil demand is becoming stronger, more domestic, and more policy-driven. What Are B40 and B50 Biodiesels? B40 means a diesel fuel blend containing 40% palm oil-based biodiesel and 60% fossil diesel. B50 means the biodiesel portion increases to 50%, reducing the fossil diesel portion to 50%. Biodiesel Blend Palm-Based Biodiesel Share Fossil Diesel Share Market Meaning B35 35% 65% Previous mandate level B40 40% 60% Current Indonesia mandate B50 50% 50% Planned next-stage mandate B100 100% 0% Pure biodiesel, not common for general diesel use The higher the biodiesel blend, the more palm oil is needed for energy use. This creates new demand for CPO and related feedstock, but it also increases pressure on supply, logistics, refinery capacity, subsidies, and export balance. Indonesia’s Biodiesel Demand Is Rising Indonesia is the world’s largest palm oil producer, so its domestic biodiesel policy has a major impact on the global palm oil market. Indonesia is expected to produce 48 million metric tons of palm oil in 2026–2027, up from 46.7 million metric tons, according to USDA/FAS projections. At the same time, Indonesia’s domestic palm oil consumption is expected to remain high because of biodiesel and food demand. GAPKI reported that Indonesia’s 2025 CPO production reached 51.66 million tons, up 7.26% from 2024. GAPKI also reported that exports reached about 32.34 million tons with export value around IDR 590 trillion, showing that Indonesia must balance both domestic biodiesel demand and export demand. Indicator Recent Data Business Meaning for Palm Oil Mills Indonesia 2025 CPO production 51.66 million tons Large domestic processing base 2026/27 palm oil production forecast 48 million metric tons Supply growth expected, but not unlimited 2025 biodiesel use 14.2 million kilolitres Strong domestic energy demand 2026 biodiesel allocation 15.65 million kilolitres B40 continues to absorb CPO B50 biodiesel demand estimate Around 19 million kilolitres Higher future feedstock demand APROBI, Indonesia’s biodiesel producer group, estimated that moving to B50 could increase biodiesel demand to about 19 million kilolitres, compared with about 15.6 million kilolitres under B40. It also said Indonesia would need around 4 million kilolitres of additional biodiesel production capacity to support B50. Why B40 and B50 Matter for Palm Oil Mills For palm oil mills, biodiesel demand changes the business environment in several ways. First, it creates a stronger domestic buyer base. Mills and refineries are no longer only dependent on export markets, food processors, oleochemical companies, or traders. Biodiesel producers become a major demand source. Second, it can support CPO prices. When biodiesel demand absorbs more palm oil, export availability may tighten. Reuters reported that palm oil prices were expected to average higher in 2025 partly because Indonesia’s B40 mandate would absorb an additional 1.2 to 1.7 million tons of CPO. Third, it raises competition for raw materials. If more CPO is directed into biodiesel, mills with a stable FFB supply, high oil extraction rates, and efficient processing will have an advantage. Fourth, it increases the value of efficiency. When CPO prices rise, every percentage point of oil extraction becomes more valuable. Demand Impact from B40 to B50 The move from B40 to B50 is not a small adjustment. It means a much larger share of Indonesia’s diesel pool would be replaced by palm-based fuel. Item B40 Situation B50 Situation Change Biodiesel blend ratio 40% 50% +10 percentage points Estimated biodiesel demand About 15.6 million KL About 19 million KL +3.4 million KL Capacity pressure Manageable but tight Requires expansion Higher investment need CPO feedstock demand High Higher More domestic absorption Export availability Reduced Could reduce further More market competition For palm oil mills, the important point is not only the higher volume. It is the direction of demand. Biodiesel policy makes palm oil consumption more linked to energy security, diesel imports, subsidy funding, and government policy. B50 Timeline: Opportunity with Uncertainty Indonesia’s B50 plan has moved through several stages. In early 2026, Reuters reported that Indonesia had scrapped a plan to launch B50 that year and would maintain B40 due to technical and funding concerns. Later, government statements suggested the plan could be revived, with Reuters reporting in April 2026 that Indonesia set a timeline for biodiesel users to shift toward B50 by 2028. For palm oil mills, this means B50 should be treated as a strategic direction, but not as a guaranteed immediate demand shock. Investors should prepare for higher biodiesel demand, but capacity expansion should still be based on verified FFB supply, local mill economics, and buyer contracts. Policy Factor Impact on B50 Timing CPO price vs fossil diesel price Affects subsidy burden Biodiesel production capacity Determines whether supply can meet mandate Engine and fuel testing Affects technical approval Export levy funding Supports biodiesel subsidy Domestic CPO availability Determines feedstock security Export market pressure Affects government policy balance What It Means for CPO Prices B40 and B50 can support palm oil prices by creating stable domestic demand. However, the price effect is not automatic. It depends on crude oil prices, CPO production, export demand, soybean oil competition, weather, inventory, and policy subsidies. If crude oil prices rise, biodiesel becomes more attractive because replacing diesel imports becomes more valuable. If CPO prices rise too far above diesel prices, the subsidy burden becomes heavier. Reuters reported in January 2026 that B50 implementation depended partly on the price gap between crude oil and CPO. Scenario Possible Market Effect Impact on Mills Higher crude oil price Biodiesel more attractive Stronger CPO demand Higher CPO price Subsidy cost increases Policy may slow down Higher palm oil output More supply available Price pressure may ease Lower exports More domestic supply Biodiesel can absorb volume Weak FFB supply Tight CPO market Better margins for efficient mills Why Mill Efficiency Becomes More Important When biodiesel demand grows, palm oil mills should