The routine of frying samosas with Indonesian palm oil in Karachi and other places in Pakistan produces inexpensive street food which connects Pakistan's 220 million citizens to the Indonesian rainforest. Palm oil functions as a vital export for Indonesian's economy whereas Pakistan's food supply and overall industrial sector depend on it as a lifeline. However, this interdependence comes with a price: the spread of palm oil farms has had a significant impact on the surroundings. Rising urgent issues about sustainability, the trade in palm oil between Indonesia and Pakistan raises both an economic need and an environmental issue.

Economic Lifeline: Pakistan’s Reliance on Indonesian Palm Oil

For Pakistan, palm oil is used in everything from cooking oil and ghee to processed foods and soaps. In fact, palm oil is the 4th most imported product in Pakistan, reflecting its critical role in the national economy. Pakistan produces very little edible oil domestically and meets nearly 80% of its consumption through imports. Among these, Indonesia is by far the dominant supplier. Pakistan imports roughly 75% of its palm oil from Indonesia, amounting to over $2.5 billion worth of Indonesian palm oil each year. This heavy reliance makes Pakistan the world’s third-largest palm oil importer (after India and China) and it consistently ranks among Indonesia’s top buyers.

Such dependency has created a tight economic bond. For Indonesia, who are the world’s biggest palm oil producer, Pakistan’s demand is an important source of reliable market and is vital to millions of Indonesian jobs from plantation smallholders to refinery and port workers. For Pakistan, Indonesian palm oil has been essential for keeping food prices in check and industries running. This trade was obviously a vital one in 2022, for example, when Indonesia suddenly made its palms unavailable, subjecting them to export ban to avoid harming its people. That sent shockwaves through Pakistan: domestic cooking oil prices spiked, supplies tightened and that hit both ordinary consumers and food industries . “The ban had impacted both the industrial and domestic consumers in Pakistan, until Indonesia lifted it and shipments resumed.

Environmental Cost: Deforestation and Carbon Footprints

Behind the lucrative trade, however, lies an environmental story that is impossible to ignore.

Indonesia’s vast palm oil estates were not carved out of empty land in many cases, they replaced rich tropical forests and peatlands. The development of new palm oil fields leads to extensive forest clearing including carbon-based peatland territories which serve as habitat for Indonesian native orangutans. Essentially, the landscape is fundamentally changed as lush green expanse of biodiversity rich jungle is cleared, drained and replaced by orderly rows of oil palm. It is this process that has pushed Indonesia to the status of having some of the world’s fastest forest loss rates, for which it is currently saddled with. The worst impacts have fallen on iconic wildlife as orangutans, Sumatran tigers along with pygmy elephants and numerous other species have seen their habitats shrink as a result of expanding growth of plantations . 

The environmental concerns extend to the global climate. Indonesia’s forests and peat soils are massive carbon sinks their destruction releases huge quantities of greenhouse gases. By one estimate, Indonesia’s forests store around 300 billion tons of carbon, so deforestation here has planetary impact. The clearing and burning also produce a choking haze that blankets not only Indonesian cities but also on some occasions, drifts into neighboring countries, contributing to a sticky layer of air pollution that endangers regional air quality and public health. Indeed, deforestation has made Indonesia one of the world’s top emitters of greenhouse gases.

However, serious challenges remain. The moratorium enforcement shows inconsistent results with illegitimate clearing activities prevailing in specific regions. There are reports of protected areas being infiltrated by rogue plantations feeding palm fruit into the supply chains of major palm oil companies. Additionally, the 2018 moratorium itself was not reinstated in 2021, fuelling the fear that the deforestation could kick back in if economic pressures instigate seek of new land to cultivate. That urgency is heightened by the climate crisis: preserving Indonesia’s last forests is also very crucial to curb carbon emissions in addition to preserving wildlife. For consumers of palm oil like Pakistan which is highly vulnerable to climate change there is a vested interest in seeing Indonesia succeed in curbing deforestation. In a globalized world, the carbon emitted from cleared Sumatran peatlands contributes to the warming and erratic weather that affect all countries, including Pakistan. In short, the sustainability of palm oil production in Indonesia is not just Indonesia’s problem; it is a regional and global concern that Pakistan shares by virtue of being a major customer in the palm oil supply chain.

Policy Crossroads: Trade, Tariffs, and Tensions

From a policy front, Indonesia–Pakistan palm oil nexus is shaped from both domestic decisions and international trade dynamics. As the producer, Indonesia must balance its dual role of being a reliable exporter and satisfying domestic needs and global scrutiny. Pakistan, as the importer, focuses on securing affordable supply, but with little leverage over how that oil is produced. The result is a complex policy landscape with economic and geopolitical implications.

Indonesia’s policies in recent years have sometimes prioritized domestic welfare at the expense of foreign customers. The clearest example of this was when palm oil export ban in April 2022 when Jakarta banned any overseas exportation of palm oil to combat a sudden cooking oil shortage and price spike at home. The ban was short but triggered by Indonesia rattling the world's trade and underlining how easily the nation could turn on trade. Indonesia has not been new to export restrictions and quotas; it regularly uses an export levy and quota system to ensure a piece of the production remains in the country for local consumption. It also has an ambitious biofuel program (B30 mandate) that diverts a chunk of palm oil to be blended into biodiesel, which can tighten export availability. These measures, aimed to secure energy and control price at home, could indirectly hurt Pakistan which depends on Indonesian exports. When Indonesia’s policies change, Pakistan’s consumers feel it in their wallets. For Pakistani policymakers, this leaves them caught between the positions of monitoring as well as engaging diplomatically with Indonesia’s trade decisions that they cannot really influence.

Pakistan’s own trade policy has been geared toward keeping palm oil imports flowing smoothly. Pakistan keeps its palm oil import tariffs very low, around 5–6%. This low-duty regime makes palm oil cheaper for Pakistani buyers and encourages high import volumes. In 2013, Pakistan even signed a Preferential Trade Agreement (PTA) with Indonesia that further reduced tariffs on palm oil, giving Indonesian refined oil an edge over competitors. The result was a sharp rise in imports from Indonesia, cementing its dominance in Pakistan’s market. Today, both Indonesia and Malaysia (the second-largest palm producer) enjoy similar tariff concessions in Pakistan, but Indonesia’s larger scale and lower costs have kept it the primary supplier. Pakistani authorities have, in essence, decided on a policy: procuring the cheapest edible oil possible for its people even if that means almost total dependency on imports. The upside is evident in consumer prices and plentiful supply in normal times. The downside of this is exposure to external disruptions and a tacit sidelining of sustainability, price often dictates over environmental considerations in Pakistani import decisions.

In addition to the bilateral realm, palm oil is being affected by global trade trends and regulations. And ripples are appearing across Europe, given that the European Union is far tougher on unsustainable palm oil. The EU has started phasing out palm oil biodiesel by 2030 and its recently passed Deforestation Regulation bans imports of commodities (including palm oil) connected to deforestation^. . From the EU perspective, this is to curb the loss of tropical forests and meet consumer expectations for ethical products.

For Pakistan, these global trends are a two-edged sword. On one hand, if Western markets shun unsustainable palm oil, Indonesia will rely even more on buyers like Pakistan, potentially giving Islamabad some bargaining power (and perhaps discounts) as a major willing customer. On the other hand, Pakistan could face pressure in the future directly or indirectly to align with sustainable sourcing norms. For example, multinational food companies with presence in Pakistan may start a demand for certified sustainable palm oil to abide by global standards. If this continues and other major importers, such as China or India,  increase sustainability requirements, Pakistan could suddenly become a dumping ground for the least sustainable palm oil unless it does so as well. For Pakistan, good relations with Indonesia (a fellow Muslim-majority country and ASEAN heavyweight) is geopolitically important, and palm oil is the centrepiece of that relationship.. Both countries have leveraged their palm oil ties in diplomacy for example, Indonesia has shown readiness to prioritize Pakistan’s needs in times of shortage, and Pakistan has reciprocated by supporting Indonesia’s positions in international forums. The palm oil trade moving forward will put the two countries to the test on the trade-offs between economics, sustainability, sovereignty and global norms.

Toward Sustainable Trade: Initiatives and Recommendations

Can Indonesia and Pakistan develop a greener course for their palm oil partnership? There are some promising signs. Over the past decade, there has been a plethora of sustainability initiatives created within the realm of the palm oil industry. In 2004, a global organisation was formed, the Roundtable on Sustainable Palm Oil (RSPO), which sets out environmental and social standards for ‘Certified Sustainable Palm Oil.’ Many Indonesian growers and international buyers participate in RSPO as of 2022, an estimated 4.5 million hectares of palm plantations worldwide are RSPO-certified. Major consumer goods corporations have committed to purchase palm oil that is free from deforestation. Indonesian palm oil giants are now usually bound by “no deforestation, no peat, no exploitation” (NDPE) policies under pressure from buyers and financiers. The measures are, of course, voluntary but are part of a shift in the industry culture toward sustainability.

The Indonesian government has also instituted its own standards. In 2011 it launched the Indonesian Sustainable Palm Oil (ISPO) certification essentially a mandatory baseline for all palm producers to meet certain environmental criteria. On the Pakistani side, the top agenda item in terms of sustainable sourcing has not yet come to fruition but awareness is rising. Industry groups in Pakistan like Pakistan Vanaspati Manufacturers Association and key importers are aware of global trends. Incentivizing them can cause them to start preferring certified sustainable palm oil. It is also possible that Pakistan could diversify its edible oil basket, for example, by introducing oilseed crops at the domestic scale or by importing more from other vegetable oils (sunflower, soybean) that are available commercially. However, such shifts are easier said than done given cost differences. In the end, ensuring the future and long-term viability of the palm oil trade hinges on cooperation. Indonesia does not want its forests to be subsumed and Pakistan doesn’t want to be associated (or left hanging dry if the world turns against unsustainable palm oil). They are both interested in finding and striking a balance between economic development and environmental protection.

Policy Recommendations

There are several steps that Indonesia and Pakistan can take jointly and individually  to foster a more sustainable palm oil trade without undermining economic benefits:

• Build a Bilateral Sustainability Pact:  The two governments should consider a Pakistan–Indonesia Sustainable Palm Oil Agreement. It could serve as a platform for Pakistan to commit to preferring sustainably grown palm oil while Indonesia ensures greater transparency in its supply chain for the exports to Pakistan. This pact could include agreeing on data from sourcing regions, inducing direct procurement from RSPO certified producers, and even co funding reforestation projects. Such cooperation would indicate that both countries care about sustainability and are working together.

• Support and Educate Smallholders:  Both countries can push for development programs that aid small palm oil farmers in Indonesia to adopt sustainable methods. In many ways, Indonesian smallholders are operating on thin margins and if Pakistan funds training, better seedlings or financial incentives not to clear new forest, it will help make sustainability on the ground to work better. By empowering farmers in this way, the pressure to expand into the sensitive areas is reduced and the supply chain is shielded from future shocks. The idea is a human centered approach focusing on the people behind the product.

• Leverage Trade Incentives:  Pakistan could change its policies of import to favor sustainability. For instance, lower tariffs or faster customs clearance of certified sustainable palm oil would give the suppliers a reason to go green. If a major buyer like Pakistan creates a financial reward for sustainable oil, Indonesian exporters will take note and possibly invest more in certification and compliance. Conversely, in the Pakistan context, the country may warn of future imports curbs on palm oil resulting from illegal deforestation, echoing global trends. Even the hint of such policy shifts can nudge industry behavior, given Pakistan’s market size.

• Regional Collaboration and Diplomacy:  Equally, Indonesia and Pakistan should utilize platforms such as ASEAN (Indonesia) and SAARC (Pakistan) and South South cooperation forums as forums to advocate for sustainable commodity trade. More importantly, they can collaborate with other palm oil players (including Malaysia) in sharing best practices with the hope of presenting a united front toward receiving climate finance or technology transfer from developed nations. The palm oil challenge merges trade and climate change in a way that makes a multilateral approach useful at unlocking resources and new ideas that bilateral diplomacy might not. Furthermore, Indonesia can engage with the EU’s concerns with dialogue (rather than defensiveness), paving way for Indonesia’s palm oil to meet new standards and keeping its key markets for Pakistan, ensuring that Pakistan’s supply of palm oil is future proof.

Conclusion

The palm oil trade between Indonesia and Pakistan is a microcosm of the challenge to deal with the effective sustainability of our globalized world. It poses the short term need for economics against the long term need of environmental stewardship. On one hand, it have performed an essential role in lifting farmers out of poverty, filling government coffers and providing cheap cooking oil to millions. On the other, it has eaten through irreplaceable rainforests and released carbon into the atmosphere. Both of these realities need to be reconciled for the path forward. Indonesia and Pakistan have a great opportunity to show that South South trade can contribute to sustainability goals, as much as for profit goals. If they plan ahead and work together they can help keep the bond of palm oil as an asset that feeds people and economies rather than a liability that costs too much ecological price. In an era of climate change and increased awareness among consumers, greening the palm oil supply chain has become both a moral necessity and a wise business approach to future proof an economic relationship that is so essential to the two nations.