Indonesia's policy, growth, and political-economic shifts

The robust nature of Forest management policies from Jokowi to the Prabowo Regime

According to the Haze Outlook 2025, the Prabowo administration is set to continue Indonesia’s forest governance by building on the policies established under President Jokowi. Key measures carried over include:

• The establishment of the Peatland Restoration Agency and the continuation of its restoration targets.

• High-profile rulings and prosecutions of companies responsible for fires, setting a precedent for the high cost of non-compliance.

• Jokowi’s commitment to achieving a net carbon sink in the forestry and other land use (FOLU) sector by 2030, along with the issuance of carbon pricing and trading regulations, has opened the door to carbon credit generation through ecosystem conservation and restoration projects.

Under Prabowo, it is hoped that this enforcement remains in fire monitoring and land-use compliance, even as the government shifts economic priorities toward domestic food and fuel production.

The Realities: Rapid Growth and Agricultural Expansion with Environmental Protection

The Prabowo administration has set a target of 8% GDP growth by the end of his first term, part of a broader vision to transition Indonesia into a high-income economy by 2045.

Yet, as the Haze Outlook 2025 notes, this goal presents a difficult balancing act. Indonesia enters this next phase of development with limited fiscal space and relatively high debt levels, even before factoring in the added strain of recent global economic uncertainty. While initiatives such as free school meals may help stimulate domestic consumption and economic growth, they also risk placing additional pressure on public spending.

Palm oil remains central to Indonesia’s economic strategy, contributing 2.5–5% of GDP and supporting 16 million jobs. However, the report warns that “this intensifies the need to manage competing demands: boosting food security, meeting energy needs, and sustaining export revenues, all while avoiding environmental degradation.” 

The Outlook further notes, the administration must ensure that agricultural development moves in step with meaningful environmental protection. Several policy initiatives now underway will serve as critical tests of whether this balance can be maintained.

The future of Indonesia through Agrinas, Papua, and Biofuel mandates, amidst constrained fiscal space, high debt levels

Central to the Prabowo administration's development strategy is Agrinas, a new state-owned enterprise formed through the merger of three companies and backed by the Danantara sovereign wealth fund. The Haze Outlook 2025 notes that Agrinas Palma Nusantara aims to manage up to one million hectares of plantations, potentially accounting for 6–7% of national palm oil output. This reflects a broader push to consolidate land control and accelerate downstream industrialization.

The report also highlights Indonesia’s plan to raise its biodiesel blend from B35 to B40 in early 2025, “consuming palm oil volumes comparable to major export markets like the US and EU.” A B50 target is set for Prabowo’s term, alongside the introduction of E5 bioethanol in gasoline by 2026, policies aimed at bolstering energy security and domestic palm oil demand.

Papua is identified as a strategic frontier for agricultural and energy expansion. However, the report cautions that “high land costs and the need to respect indigenous rights and sustainability” must be taken into account.

Despite these ambitions, fiscal constraints and high public debt limit the government’s capacity to fully fund sustainability efforts. At the same time, the expansion of agriculture, food security programs, and biofuel mandates continues to place pressure on land use and forest governance.

The Outlook underscores the central challenge ahead: balancing economic growth, energy and food security, and environmental protection without undermining fire prevention and emissions reduction targets.

The Annual Haze Outlook Report 2025 can be found here. Part 1 of the analysis of the Haze Outlook report 2025 can be found here.

Reach us at khorreports[at]gmail.com

Outlook on forest fires, market indicators, farmers, and EU trade compliance

The Shift from Low to Medium Haze Risk in 2025 (Transboundary Haze in Sumatra)

The Haze Outlook 2025 has raised the regional risk level from green (low risk) to amber (medium risk), citing elevated agricultural prices, an uptick in deforestation, and economic and policy shifts driven by pressure to boost agricultural output for food security as attributes to this change.

Key points to note from the report:

• While deforestation declined between 2017 and 2022, it has increased again from 2023 into 2024, particularly in Sumatran provinces near Singapore and Peninsular Malaysia, where fire activity surged in July 2025.

• Despite forecasts of a shorter dry season, hotspots and smoke haze in parts of Sumatra in mid-July have already affected air quality in parts of Peninsular Malaysia, indicating that fire risk remains elevated even under average weather conditions.

With climate trends pointing to another unusually dry season between 2027 and 2030, and structural drivers like land clearing and commodity demand continuing to fuel haze episodes, the report recommends prioritizing sustainability measures “to avoid creating more fire-prone conditions.”

The surging of commodity prices with deforestation on the uptick (Most especially, palm oil prices surpassing soybean)

Linked to these structural pressures, the Outlook notes that agricultural commodity prices, especially for palm oil, have surged due to supply failing to keep pace with rising global demand.

According to the report, palm oil from Indonesia and Malaysia, typically the world’s cheapest vegetable oil, has traded above soybean oil prices at key destinations for nine consecutive months, an unprecedented trend. This price surge is significant because historical spikes in commodity prices have often preceded increased deforestation in subsequent years. 

Although the rate of primary forest loss between 2015 and 2019 remained largely flat or declined despite fluctuations in commodity prices, the report notes that the current cycle may differ: “estimates show some uptick in deforestation in Indonesia from 2023–2024.”

Will EUDR be further delayed to 2028? How will smallholders cope with these regulations

The report also highlights the approaching enforcement of the European Union’s Regulation on Deforestation-free Products (EUDR), scheduled to take effect for large companies on 30 December 2025. The regulation targets seven commodities, palm oil, soy, wood, cocoa, coffee, cattle, and natural rubber, and requires proof that imports are not linked to deforestation after 31 December 2020.

According to the report, key developments related to the EUDR include:

• The regulation imposes strict reporting requirements, which critics argue may exclude smallholder farmers unable to meet compliance standards.

• In response, the EU has simplified some administrative rules, allowing annual submissions and reuse of due diligence statements for reimported goods, cutting estimated compliance costs by 30%.

• Indonesia and Malaysia have developed national digital platforms to provide legality and traceability data, while respecting data protection laws. These systems aim to support smallholders and enable international buyers to file EUDR-compliant submissions through national dashboards.

• Indonesia has urged the EU to postpone full implementation until 2028 to allow more time for preparation and alignment across all stakeholders.

The report suggests that while the EUDR aims to curb deforestation linked to commodity trade, its real-world impact will depend on how effectively origin countries and the EU implement and enforce these measures, especially regarding smallholder inclusion.

The Annual Haze Outlook Report can be found here.

Reach us at khorreports[at]gmail.com