Indonesia's rubber farmers pivot to palm oil as output slides

A quiet revolution is underway in Indonesia's plantations. Farmers, squeezed by low rubber prices and rising costs, are increasingly tearing up rubber trees to plant oil palms, a shift that is reshaping the global supply of a commodity essential to everything from car tyres to medical gloves.

Sumaryono, a 45-year-old smallholder in South Sumatra, invested his life savings of about $2,200 three years ago to convert his 10-hectare rubber plot to oil palm. His reasoning is simple: palm fruit can be harvested twice a month and sold for immediate cash, unlike rubber, which requires tapping every other day for years before it yields returns.

That daily labour requirement is becoming a critical bottleneck. The pool of skilled tappers is shrinking, making rubber increasingly difficult to farm. Oil palm, by contrast, is less labour-intensive, a decisive advantage for ageing farmers.

The numbers tell the story. Indonesia's rubber plantation area has fallen 17% over five years, from 3.78 million hectares in 2021 to an estimated 3.13 million hectares in 2026. Production has dropped from over 3 million metric tons in 2021 to a projected 2 million tons this year. The rubber farmers' association Apkarindo estimates that up to 500,000 hectares may have already shifted from rubber to oil palm in South Sumatra alone.

"The main trigger is simple: prices," said Arif Susanto, head of Apkarindo. Rubber prices, after a record high in 2011, entered a prolonged slump. While palm oil prices have also been volatile, they surged during the pandemic and now receive support from biofuel mandates.

Kastolani, 63, who grew rubber for four decades, converted seven of his 11 hectares in the past two years, citing ageing trees, labour shortages, and stronger palm oil prices. Indonesia, the world's largest palm oil producer, has actively promoted the industry, which now accounts for 8.3% of exports and 3.5% of GDP.

The agriculture ministry acknowledges falling rubber prices have fuelled the switch but says it is seeking to boost the sector's competitiveness while urging farmers to consider long-term sustainability.

The impact is rippling through the tyre industry, which uses about half of Indonesia's natural rubber. Michelin, which owns a plantation in Indonesia, says sourcing from the country has declined due to limited availability, though it remains a strategic supplier.

Market dynamics are shifting. Indonesian SIR20 rubber has traded at parity with, and sometimes a premium to, Thai STR20 in recent weeks—a reversal from the past year when Thai material was consistently pricier. This gives buyers less room to substitute Thai rubber for the Indonesian shortfall.

Some of the gap is being filled by West Africa. Ivory Coast has picked up share, with African cargoes seeing more activity as the EU's December 2026 deforestation-regulation deadline approaches.