Indonesia’s Coconut Crisis: Layoffs and Supply Shortages Hit Processing Industry

A deepening crisis in Indonesia’s coconut processing industry has led to the layoffs of 3,500 workers across two major companies in Riau, as a severe shortage of raw materials threatens production. The scarcity, attributed to extreme weather, pests, and export policies, has exposed vulnerabilities in one of the country’s key agricultural sectors, prompting calls for government intervention to stabilise domestic supply.

PT Pulau Sambu, also known as Sambu Group, has laid off 1,700 workers, while PT Riau Sakti United Plantations has cut 1,800 employees, primarily those with less than five years of service. The news, first highlighted through social media posts on Instagram, was confirmed by Said Iqbal, chair of the Confederation of Indonesian Trade Unions (KSPI). “The layoffs are true. We have checked it. It was because of a shortage in raw materials,” Said told Bisnis..

The coconut shortfall has been linked to a combination of environmental and policy challenges. Extreme weather patterns, particularly the El Niño phenomenon, have disrupted production across Indonesia, the world’s largest exporter of coconuts. Pests have compounded the issue, damaging crops and reducing yields. At the same time, a surge in global demand has driven exports, leaving domestic processors struggling to secure sufficient supply.

A Perfect Storm of Challenges

Indonesia exported 431,815 tonnes of coconuts in 2024, a 13% increase from the previous year, according to Statistics Indonesia (BPS). In the first two months of 2025 alone, the country shipped 71,077 tonnes, valued at US$30.8 million, with China accounting for the vast majority at 68,065 tonnes. Vietnam and Thailand followed with 2,180 tonnes and 550 tonnes, respectively. While these figures highlight the strength of Indonesia’s export market, they also underscore the strain on domestic availability.

Trade Ministry official Farid Amir acknowledged the crisis, noting that El Niño had significantly reduced coconut production. “Simultaneously, there was an increasing demand in the global market, causing raw material supply for [the domestic] coconut processing industry to be scarce,” Farid told Bisnis.com on Sunday. He added that coconut exports have historically been unregulated due to a balance between supply and demand, but the current imbalance has forced a rethink.

The government is now considering measures to address the shortfall. Farid confirmed that a levy on coconut exports and derivatives has been agreed upon, while an export moratorium—proposed by the industry—remains under deliberation. Such steps, if implemented, could prioritise domestic needs but risk impacting Indonesia’s trade relationships and foreign exchange earnings.

Human Cost of the Crisis

The layoffs in Riau, a province in Sumatra known for its agricultural output, have hit workers hard. Many of those affected have been informed that compensation will be provided, with the possibility of rehiring once raw material supplies stabilise. However, uncertainty looms over when—or if—such stability will be achieved.

The scale of the layoffs has raised eyebrows at the national level. Deputy Manpower Minister Immanuel Ebenezer Gerungan admitted to being unaware of the specific situation but did not dismiss the reports. “I have just heard about that information, we’ll check it. If it’s a raw material crisis, that happens a lot; importing is difficult,” Immanuel told Bisnis.com. He also pointed fingers at the Customs and Excise Office, alleging that bureaucratic hurdles often hinder raw material imports—a claim that, if confirmed, could add another layer of complexity to the crisis.

For the workers, the immediate concern is financial survival. The coconut processing industry is a significant employer in regions like Riau, where alternative job opportunities may be limited. The layoffs, affecting thousands of families, highlight the broader socioeconomic implications of agricultural supply chain disruptions.

Export Policies Under Scrutiny

Indonesia’s export-driven approach to coconuts has come under fire amid the domestic shortage. Critics argue that the lack of restrictions has prioritised international markets over local industries, leaving processors vulnerable. The industry has long urged for export controls to ensure a steady supply for domestic use, a plea that appears to be gaining traction with the government’s consideration of a levy and potential moratorium.

However, any move to curb exports must be balanced against Indonesia’s position as a leading global supplier. Restricting shipments could affect trade ties with major buyers like China, which dominates demand. It may also impact rural farmers who rely on export markets for income, creating a delicate balancing act for policymakers.

If a moratorium or levy is introduced, it could set a precedent for how Indonesia manages other agricultural commodities facing similar pressures. Yet, as Farid cautioned, such decisions require careful deliberation to avoid unintended consequences. For now, the government’s response remains a work in progress, leaving the industry in limbo.

Environmental Factors and Long-Term Risks

Beyond policy, environmental challenges pose a significant threat to the coconut sector’s sustainability. El Niño, a climate pattern associated with warmer and drier conditions in the Pacific, has been blamed for reduced rainfall and poor harvests in Indonesia. Coconut trees, which thrive in tropical climates, are particularly sensitive to prolonged droughts and erratic weather.

Pests, another key factor in the shortfall, have further eroded yields. While specific data on the extent of pest damage in Riau is unavailable, anecdotal reports suggest that infestations have worsened in recent years, possibly exacerbated by changing climate conditions. Addressing these issues will require investment in agricultural research, pest control measures, and climate-resilient farming practices—initiatives that may take years to yield results.

If unaddressed, these environmental risks could have far-reaching consequences for Indonesia’s agricultural economy. Coconuts are not only a raw material for processing industries but also a cultural and economic staple in many communities. A sustained decline in production could ripple through supply chains, affecting everything from food products to cosmetics and biofuels.

A Path Forward?

As the coconut crisis unfolds, stakeholders are looking to the government for solutions. The proposed export levy and moratorium are steps in the right direction, but their effectiveness remains to be seen. In the meantime, companies like PT Pulau Sambu and PT Riau Sakti United Plantations face the daunting task of maintaining operations with limited resources.

For the 3,500 workers who have lost their jobs, the priority is immediate support. While compensation offers some relief, the uncertainty surrounding rehiring underscores the need for broader safety nets in Indonesia’s agricultural sector. Retraining programmes or temporary employment schemes could help bridge the gap until the industry recovers.

The coconut shortage also serves as a wake-up call for Indonesia to diversify its agricultural base and reduce reliance on volatile commodities. Strengthening domestic supply chains, investing in sustainable farming, and balancing export ambitions with local needs are critical to preventing future crises.

Broader Implications for South East Asia

Indonesia’s coconut woes are not an isolated issue. Across South East Asia, agricultural industries face similar challenges from climate change, global demand pressures, and policy gaps. Thailand, for instance, has also grappled with coconut supply issues, as evidenced by the return of sprouted coconuts from Palembang in 2019 due to quality concerns. Regional cooperation on agricultural resilience and trade policies could offer a way forward, though such efforts are often hampered by competing national interests.

For now, the focus remains on Indonesia’s response to the current crisis. If the government can strike a balance between supporting domestic industries and maintaining export markets, it could provide a model for other nations facing similar dilemmas. However, with thousands of livelihoods at stake, the urgency for action is clear.

The coconut processing industry’s struggles are a stark reminder of the fragility of agricultural economies in the face of environmental and economic shocks. As Indonesia navigates this challenging terrain, the outcomes will likely shape the future of its rural communities and global trade standing for years to come.