Expert Explains: Why Indonesia’s new biofuel push could make cooking oil expensive in India

Indonesia implemented its B40 biodiesel mandate in early 2025, requiring all diesel fuel to contain a 40% blend of palm oil-based biofuel and 60% petroleum d...

What Happened

Indonesia implemented its B40 biodiesel mandate in early 2025, requiring all diesel fuel to contain a 40% blend of palm oil-based biofuel and 60% petroleum diesel.
The mandate has intensified the food-versus-fuel competition for palm oil — the same commodity that is Indonesia's dominant cooking oil — driving up cooking oil prices domestically.
In 2024, an estimated 46% of Indonesia's total domestic palm oil production was already consumed for biofuels, surpassing the food sector's share (44%) for the first time.
Cooking oil prices rose by approximately 20% in 2024, prompting tighter government controls over feedstock allocation.
Industry projections warn that the B40 mandate could push Indonesia toward a palm oil supply deficit as early as 2026, with ambitions to expand further to B50 in the second half of 2026.
The policy illustrates a structural tension between energy security goals and food price stability — a dilemma relevant to any country with large biofuel ambitions.

Static Topic Bridges

Biofuel Blending Mandates: How They Work

A biofuel blending mandate requires that a specified percentage of a fossil fuel (petrol or diesel) be replaced with a biofuel derived from biological sources such as vegetable oils, sugarcane, or agricultural waste. Indonesia's programme — called the Biodiesel Programme — started with B10 (10% palm oil blend) and has progressively expanded: B20 (2016), B30 (2020), B35 (August 2023), B40 (January 2025), and B50 (planned for late 2026). The "B" refers to biodiesel; the number indicates the percentage of palm oil-derived fatty acid methyl esters (FAME) in the blend.

Indonesia's biodiesel programme timeline: B10 (2008) → B20 (2016) → B30 (2020) → B35 (Aug 2023) → B40 (Jan 2025) → B50 (planned 2026)
Feedstock: Crude palm oil (CPO) is the primary input
Indonesia is the world's largest palm oil producer, accounting for approximately 57% of global production
The programme is funded partly through a levy on palm oil exports, managed by the Palm Oil Plantation Fund Management Agency (BPDPKS)

Connection to this news: Each step up the B-mandate ladder requires more palm oil for fuel, directly reducing the supply available for food and industrial uses. The B40 transition is the point at which the supply competition has become visibly inflationary.

The Food-vs-Fuel Debate

The food-versus-fuel debate refers to the competition between using agricultural land and crops for food production versus energy production (biofuels). When a large proportion of an edible crop — such as palm oil, corn, or sugarcane — is diverted to fuel production, it reduces supply for food use, raising prices for consumers. In Indonesia's case, crude palm oil (CPO) is both the raw material for biodiesel and the dominant cooking oil (sold as refined palm olein). The same commodity feeds families and fuels vehicles, creating a direct price transmission mechanism.

Palm oil's dual role: Cooking oil + biodiesel feedstock
2024 breakdown: 46% of domestic palm oil used for biofuels; 44% for food
Price impact: 20% rise in cooking oil prices in 2024
Global relevance: Palm oil is used in approximately 50% of all packaged food products worldwide

Connection to this news: Indonesia's B40 experience is a live case study of the food-vs-fuel tension. As mandates escalate, the marginal unit of palm oil that could have gone to a cooking pot instead goes into a fuel tank — with immediate consequences for household food budgets.

Domestic Market Obligation (DMO)

Indonesia manages the food-fuel trade-off partly through a Domestic Market Obligation (DMO), which requires palm oil producers and exporters to sell a fixed percentage of their production domestically at a government-capped price before being permitted to export. The subsidised cooking oil sold through this scheme is branded as "Minyakita" (literally "my oil"). Exporters who comply with DMO requirements receive export permits; non-compliance leads to export restrictions. The government periodically adjusts the DMO ceiling price to compensate producers for forgoing higher international prices.

DMO mechanism: Mandatory domestic sale at capped price in exchange for export permits
Minyakita: Subsidised cooking oil brand distributed through the DMO scheme
September 2024: Government raised the DMO ceiling price to reflect higher international CPO prices
Enforcement challenge: Producers prefer exports due to higher international prices; DMO compliance is imperfect

Connection to this news: The DMO is Indonesia's primary tool to keep cooking oil affordable despite rising biofuel demand. However, as B40 absorbs more palm oil into the fuel sector, the DMO's effectiveness in stabilising food prices is under increasing strain.

Biofuels and India's Energy Policy

India has its own biofuel blending programme. India's National Policy on Biofuels (2018, revised 2022) targets 20% ethanol blending in petrol (E20) by 2025 and uses sugarcane, damaged foodgrains, and agricultural waste as feedstocks. India also mandates biodiesel blending using non-edible oils, jatropha, and waste cooking oil — deliberately avoiding edible oils to prevent food price inflation. This is a key design distinction from Indonesia's palm oil-based approach.

India's ethanol blending target: E20 (20% ethanol in petrol) by 2025
India's biofuel feedstocks: Sugarcane (molasses), damaged food grains, cellulosic waste — NOT edible oils
Indonesia's feedstock: Crude palm oil (edible)
India's National Biofuel Policy: 2018, amended 2022 to advance E20 target
India achieved ~15% ethanol blending in petrol in 2023–24

Connection to this news: Indonesia's experience highlights why India deliberately excluded edible vegetable oils from its biofuel feedstock list. For UPSC, this contrast illustrates different policy design choices and their food security implications.

Key Facts & Data

Indonesia: World's largest palm oil producer (~57% of global supply)
B40 mandate: 40% palm biodiesel + 60% petroleum diesel; implemented January 2025
2024 palm oil use split: 46% biofuels, 44% food — biofuel sector exceeded food sector for first time
B40 requirement: ~13.9 million tonnes of palm oil per year (up from ~11 million tonnes under B35)
Cooking oil price increase: ~20% in 2024
Projected supply risk: Palm oil deficit as early as 2026 if B40 demand continues
Next target: B50 (50% blend) planned for second half of 2026
BPDPKS: Palm Oil Plantation Fund Management Agency — administers biofuel levy-subsidy system
Minyakita: Indonesia's DMO-subsidised cooking oil brand
India's E20 target: 20% ethanol in petrol by 2025 (feedstock: sugarcane, damaged grains — not edible oils)
India's ethanol blending in petrol: ~15% achieved in 2023–24
India's National Policy on Biofuels: 2018, revised 2022