The outcome of this setup is clear: a drop in our price
In Jakarta, President Prabowo Subianto has proposed concentrating Indonesia's palm oil, coal, and ferroalloy exports within a single state-owned enterprise, seeking to close the gap between what commodities are worth and what the government actually collects. The ambition is ancient and familiar: a sovereign attempting to reclaim value from the edges of its own economy. Yet history offers a quiet warning — centralized control over global commodities rarely bends world markets to national will, and the costs of trying are often borne by the very producers the policy meant to protect.
- President Prabowo announced a state monopoly over Indonesia's most lucrative commodity exports, framing it as a weapon against under-invoicing and revenue loss — but the plan arrived without a blueprint for how it would actually work.
- Industry associations sounded immediate alarms: small trading firms, specialized buyer contracts, and years of cultivated market relationships could all be swept aside by a single bureaucratic entity unprepared for the complexity it would inherit.
- Economists identified a structural trap at the heart of the proposal — a state firm acting as both sole domestic buyer and sole exporter would suppress producer prices without gaining any real leverage over global commodity markets where Indonesia is a price-taker, not a price-setter.
- Ripples reached beyond Indonesia's borders, with Indian palm oil importers watching closely, aware that any supply disruption from the world's largest exporter would cascade through their own industries.
- The debate has crystallized around a single unanswered question: whether the government consulted the industries it intends to reshape, or whether a solution to a real problem — under-invoicing — risks becoming a far more expensive problem of its own making.
On Wednesday, President Prabowo Subianto announced before parliament that Indonesia would create a state-owned enterprise to manage all exports of palm oil, coal, and ferroalloy. The goal was to tighten oversight, maximize government revenue, and eliminate under-invoicing — the practice of deliberately understating export values to evade taxes or shift money across borders.
The announcement immediately drew scrutiny from industry leaders. The head of Indonesia's palm oil producers association noted that many exporters are small trading firms, not large plantations, and that buyers often require precise product specifications. He questioned whether a centralized state firm could handle such diversity — and whether poor management might cost Indonesian exporters the buyer relationships they had spent years building. India, which relies heavily on Indonesian palm oil, said it was watching developments carefully before assessing the impact.
The coal sector raised parallel concerns. A state monopoly, the mining association argued, would need to manage long-term contracts, quality specifications, shipping logistics, financing arrangements, and regulatory obligations — none of which the government had explained how it intended to handle. One industry CEO acknowledged potential upsides, including greater bargaining power and improved data collection, but listed the risks just as plainly: lower prices for producers, reduced investor appeal, and dangerous concentration of economic power.
An economist at the University of Indonesia identified what he considered a fundamental contradiction. The new entity would act as a monopsonist — the only buyer from domestic producers — while simultaneously controlling all exports. In practice, it could suppress what it pays Indonesian producers, but it could not raise what foreign buyers pay, because palm oil and coal are globally traded commodities with prices set far beyond Jakarta's reach. The likely outcome, he argued, would be exactly what the policy sought to prevent: reduced returns for Indonesian producers.
He also noted that Indonesia's exporters already face higher bribery rates and logistics costs than regional competitors, structural problems rooted in corruption and inefficiency. Adding a state monopoly, he suggested, would layer new distortions onto existing ones rather than resolve them. President Prabowo had identified a genuine problem, but the remedy, as designed, risked proving more damaging than the disease it was meant to cure.
President Prabowo Subianto stood before parliament on Wednesday with a plan to reshape how Indonesia sells some of its most valuable commodities to the world. The government would create a state-owned company to manage all exports of palm oil, coal, and ferroalloy—three resources that generate billions in annual revenue. The stated purpose was straightforward: optimize what the government collects, tighten oversight of shipments, and stamp out the practice of under-invoicing, where exporters deliberately understate the value of goods to evade taxes or move money across borders.
The announcement landed like a stone in still water. Within hours, industry leaders began raising their hands with questions that suggested the government had not fully thought through what it was proposing. Eddy Martono, who chairs the Indonesian palm oil producers association, pointed out a basic problem: not every exporter is a large plantation company with its own processing facilities. Many are trading firms that handle modest volumes bound for specific countries. What happens to them under this new system? He also noted that buyers often demand precise compositions tailored to their needs—specifications that vary even within the same industry. Would a centralized state firm be nimble enough to accommodate such demands? And perhaps most urgently: exporters have spent years building relationships with their customers. Would poor management of this new entity cause them to lose those hard-won markets?
The concerns rippled outward. In India, which depends on Indonesia for the bulk of its palm oil imports, officials said they were waiting to see the details before assessing the damage. B.V. Mehta, who leads India's solvent extractors association, made clear that any disruption to supply could reverberate through Indian industry. Across the coal sector, Gita Mahyarani of the Indonesian coal mining association emphasized that exporting coal is not simply an administrative matter. It involves long-term contracts with buyers, precise quality specifications, payment arrangements, shipping schedules, financing structures, and obligations to both government and business partners. A state monopoly, she suggested, would need to navigate all of this—and the government had offered no explanation of how.
Yet not all voices were skeptical. H Kristiono, CEO of Indonesia's Ucoal Resources, acknowledged potential benefits: the government could align exports with national interests, leverage greater bargaining power through scale, optimize revenue if managed well, and improve data collection and planning. But he also listed the risks plainly. Producers might face lower prices if they lose the ability to shop around. Investors could find the arrangement less attractive. Innovation and efficiency might stall. And concentrating so much power in a single entity created dangerous concentration risk.
Rizki Siregar, an economist at the University of Indonesia, went further and identified what he saw as a fundamental flaw in the logic. The new state firm would function as a monopsonist—the sole buyer from Indonesia's producers—and simultaneously as a monopolist controlling all exports. In theory, such an entity would try to pay producers less while charging foreign buyers more. The first part is achievable: domestic producers have limited alternatives, since selling on the black market is risky and illegal. But the second part is nearly impossible. Palm oil and coal are commodities, traded on global markets where Indonesia has little power to move prices. The result, Siregar argued, would be exactly what President Prabowo wanted to avoid: lower prices for Indonesian producers.
Siregar also pointed to a broader context the government appeared to be overlooking. World Bank surveys show that Indonesian exporters already face higher rates of bribery than their regional peers, and they already pay more to move goods in and out of the country. These are structural problems rooted in corruption and inefficiency. A new state monopoly, he suggested, would likely create additional distortions rather than solve the existing ones. The agency might end up making things worse, not better, layering bureaucratic complexity onto an already difficult operating environment.
As the debate unfolded, one question hung in the air: had the government consulted with the industries it was about to reshape? The coal mining association called for further explanation. The palm oil producers wanted clarity on how their members would fit into the new structure. And economists were warning that the policy, as conceived, might achieve the opposite of its stated aims. President Prabowo had identified a real problem—under-invoicing costs the government money—but the solution he had chosen might prove far more costly than the disease.
Notable Quotes
Exporters usually already have their own markets. We must ensure that we do not lose these markets due to poor management.— Eddy Martono, chairman of the Indonesian palm oil producers association
The agency will be the monopsonist to Indonesia's producers and the monopolist for Indonesia's export. Naturally, its strategy will be to depress its buying price and increase its selling price.— Rizki Siregar, economist at the University of Indonesia
The Hearth Conversation Another angle on the story
Why would Indonesia's government want to centralize control over these particular exports?
The stated reason is revenue and oversight. Under-invoicing is real—exporters deliberately understate values to move money or dodge taxes. A state monopoly would theoretically catch that. But there's also a political logic: control over major commodity flows gives the government leverage.
But wouldn't that just mean the government becomes the middleman, taking a cut?
Exactly. And that's where the economists see the trap. The state firm would be the only buyer from domestic producers and the only seller to foreign markets. It can squeeze producers on price because they have nowhere else to go. But it can't squeeze foreign buyers because palm oil and coal trade on global markets—the price is set worldwide, not in Jakarta.
So producers lose, the government doesn't gain what it hoped, and what about the exporters who've built relationships with specific buyers?
They're caught in the middle. A trading company that's spent years supplying a particular buyer with a particular product mix now has to go through a state bureaucracy. If that bureaucracy is slow or inflexible, the buyer goes elsewhere. The exporter loses the relationship.
Has the government thought about this?
The industry associations are asking that exact question. They're saying the government hasn't explained how it will handle the complexity—long-term contracts, quality specs, payment terms, shipping logistics. It's not just paperwork.
What would make this work?
Competence and speed. If the state firm operated like a private trading company—responsive, efficient, protective of client relationships—it might work. But state enterprises in Indonesia often move slowly and face pressure to extract revenue. That's the real risk.