Indonesia, Malaysia Form OPEC-Like Palm Oil Council

A truck transporting palm oil seeds at a plantation area in Pelalawan, Riau Province in Indonesia's Sumatra Island on Sept. 16, 2015. Indonesia has some of the world's most extensive and biodiverse rainforests, but huge swathes have been chopped down by palm oil, mining and timber companies. Palm oil—used primarily in the cosmetics, food, and bio-fuel sectors—is a controversial industry, with campaigns mounted by environmental groups and consumers. The main cause of choking haze across much of Southeast Asia is illegal fires started in peatland and forest on Sumatra and the Indonesian part of Borneo to quickly and cheaply clear land for palm oil and pulp and paper plantations. The illegal fires increased in number as plantations expanded, in particular due to rising global demand for palm oil. (Adek Berry/AFP/Getty Images)

KUALA LUMPUR, Malaysia—Indonesia and Malaysia, the world’s top two palm oil producers, signed an agreement Saturday to set up a council for palm oil producing countries in a bid to ensure price stability by managing production and stock in the global market.

Officials said the Jakarta-based council will be a body similar to that of OPEC for oil producers.

Indonesian Resources Minister Rizal Ramli said the council will be a “game changer” for an industry under pressure from falling prices and unsustainable farming practices.

The two countries account for 85 percent of the world’s palm oil production, and the plunge in prices have hurt their economies.

Rizal said the council will address impediments to trade to boost competitiveness in the world market, and promote green and sustainable farming. It will also aim to improve the livelihoods of more than 4 million oil palm smallholders in Indonesia and some 500,000 in Malaysia, he said.

“It will be a game changer for the palm oil industry in many ways,” Rizal said after a signing ceremony to establish the council.

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Malaysian Plantation, Industries and Commodities Minister Amar Douglas Unggah Embas said the council will not fix the price of palm oil, but will seek to ensure a sustainable price by organizing and harmonizing stock management.

He said membership will be extended to other producers such as Brazil, Colombia, Thailand, Ghana, Liberia, Nigeria, Papua New Guinea, the Philippines and Uganda.

Rizal said the council will develop a framework for sustainable palm oil. By pushing for high standards of sustainable farming, he said it will help to prevent the burning of forests to clear land for agriculture in Indonesia that has caused a thick dusty haze across the region every year.

“We know we still have to work hard to minimize the impact” of haze, he said.

The two countries will each contribute $5 million to the council’s operations and operational details are still being ironed out, officials said.

Palm oil is commonly used in food, fuel and other products.