The global energy crisis in recent years has significantly increased the volatility of energy and commodity markets worldwide. Geopolitical conflicts such as the Russia-Ukraine war, disruptions in global energy supply chains, and increasing pressure toward energy transition have caused sharp fluctuations in world crude oil prices, affecting the economic stability of many countries, including Indonesia (Herwartz & Saucedo, 2020; Sahara et al., 2022). These conditions have encouraged many countries to accelerate the development of renewable energy as a strategy to reduce dependence on fossil fuels while strengthening national energy security (Dharmawan et al., 2020; Gheewala et al., 2022).

As one of the world's largest palm oil producers, Indonesia holds a strategic position in the development of biofuel-based energy, particularly biodiesel derived from Crude Palm Oil (Sahara et al., 2022). The Indonesian government has gradually implemented mandatory biodiesel programs ranging from B20 and B30 to the development of B35 and B40 as part of its national energy diversification strategy (Rambe et al., 2019; Irawan & Soesilo, 2021). These programs aim to reduce fossil fuel imports, increase the added value of the domestic palm oil industry, maintain national energy stability, and support carbon emission reduction targets (Dharmawan et al., 2020; Sahara et al., 2022).

The development of biodiesel policy has directly increased domestic demand for Crude Palm Oil as the primary raw material for biodiesel production. This increase in demand has altered the structure of Indonesia's palm oil market and created increasingly complex price dynamics (Krisnamurthi & Saragih, 2023). Crude Palm Oil prices are no longer influenced solely by international trade and export mechanisms but are also affected by domestic energy policies, world oil prices, exchange rates, and the capacity of the national biodiesel industry (Manurung et al., 2019; Apriliana, 2024).

Recent developments indicate that the implementation of B35 and the expansion toward B40 in 2025 have significantly increased domestic Crude Palm Oil demand. The rising absorption of Crude Palm Oil for biodiesel purposes has strengthened the linkage between the energy market and the national palm oil market (Irawan & Soesilo, 2021; Krisnamurthi & Saragih, 2023). On the other hand, the increasing demand for biodiesel may also create pressure on Crude Palm Oil supply for domestic food consumption and exports, thereby affecting the volatility of both Crude Palm Oil prices and Fresh Fruit Bunches prices at the farmer level (Amir et al., 2022; Rambe et al., 2019).

Fresh Fruit Bunches prices, as an indicator of palm oil farmers' welfare, are closely related to the dynamics of Crude Palm Oil prices. When Crude Palm Oil prices increase due to rising biodiesel demand, Fresh Fruit Bunches prices tend to adjust through price transmission mechanisms within the palm oil supply chain (Varwasih et al., 2023). However, the price transmission process does not always occur symmetrically and efficiently because it is influenced by market structure, processing industry capacity, domestic and global market integration, as well as government policies related to exports and downstream palm oil industries (Hasanuddin, 2021; Gandhi & Fumie, 2023).

From the perspective of price transmission theory, price changes in one market are transmitted to related markets through supply and demand mechanisms (Destiarni & Jamil, 2021). In the palm oil industry, changes in domestic and international Crude Palm Oil prices affect Fresh Fruit Bunches prices through vertical relationships between upstream and downstream markets (Manurung et al., 2019). In addition, the energy-food nexus theory explains that energy policies such as biodiesel programs create direct linkages between energy and food markets, where fluctuations in energy prices can influence the stability of agricultural commodity prices (Herwartz & Saucedo, 2020; Uy & Pizarro-Uy, 2022).

Several previous studies have shown that biodiesel policy significantly affects the dynamics of Crude Palm Oil and energy commodity prices. Apriliana (2024) found that fuel prices, biodiesel prices, Crude Palm Oil prices, and domestic biodiesel consumption simultaneously influence the development of Crude Palm Oil-based biodiesel in Indonesia. Krisnamurthi and Saragih (2023) also found that international prices, Crude Palm Oil exports, Fresh Fruit Bunches prices, and biodiesel production volumes significantly affect domestic Crude Palm Oil prices in Indonesia. Furthermore, Varwasih et al. (2023) identified market integration between independent smallholder Fresh Fruit Bunches prices and international Crude Palm Oil prices through price transmission mechanisms within Indonesia's palm oil industry.

Nevertheless, studies simultaneously analyzing the relationship between biodiesel policy, Crude Palm Oil prices, and Fresh Fruit Bunches prices in Indonesia remain limited. Most previous studies focused only on Crude Palm Oil exports, international trade, or the biodiesel industry partially without specifically examining the price transmission mechanism between Crude Palm Oil and Fresh Fruit Bunches within the context of Indonesia's biodiesel policy (Manurung et al., 2019; Sahara et al., 2022). In addition, short-run and long-run dynamic relationships among these variables have rarely been analyzed using dynamic time series econometric approaches such as the Vector Error Correction Model (VECM) (Songsiengchai et al., 2018; Destiarni & Jamil, 2021).

Based on these phenomena, this study is important to analyze the dynamics of Crude Palm Oil and Fresh Fruit Bunches prices in the era of biodiesel policy in Indonesia. This study is expected to provide empirical contributions in understanding the relationship between energy policy and Indonesia's palm oil market, particularly regarding price transmission mechanisms, market volatility, and their implications for the stability of the palm oil plantation sector and the welfare of palm oil farmers in Indonesia.

Biodiesel policy in Indonesia is part of the national energy diversification strategy aimed at reducing dependence on fossil fuel imports and strengthening national energy security. The Indonesian government has gradually implemented mandatory biodiesel programs through B20, B30, and B35 policies, which require blending biodiesel derived from Crude Palm Oil into national diesel fuel (Rambe et al., 2019). The implementation of biodiesel policy has significantly increased domestic absorption of Crude Palm Oil, thereby affecting the structure of Indonesia's palm oil market. Irawan and Soesilo (2021) found that the expansion of biodiesel downstream programs increased domestic demand for Crude Palm Oil and significantly influenced domestic Crude Palm Oil prices. In addition, biodiesel policy also affects the volatility of Fresh Fruit Bunches prices at the farmer level. As demand for Crude Palm Oil for biodiesel production increases, Fresh Fruit Bunches prices tend to rise due to the increasing need for raw materials in the palm oil processing industry (Krisnamurthi & Saragih, 2023). However, rising biodiesel demand may also create pressure on domestic cooking oil supply and trigger instability in national palm oil commodity prices (Amir et al., 2022).

Crude Palm Oil is one of Indonesia's strategic commodities with substantial contributions to national exports, the food industry, and renewable energy development. Indonesia is the world's largest producer and exporter of Crude Palm Oil; therefore, Crude Palm Oil price dynamics are highly influenced by international market conditions, global demand, and domestic policies related to exports and biodiesel programs (Sari et al., 2018). Crude Palm Oil prices are highly volatile and are influenced by several factors, including world crude oil prices, exchange rates, export demand, international trade policies, and domestic biodiesel policies (Krisnamurthi & Saragih, 2023). In recent years, biodiesel policy has become one of the dominant factors affecting Crude Palm Oil price dynamics in Indonesia. Apriliana (2024) found that increasing domestic biodiesel consumption based on Crude Palm Oil led to higher national demand for Crude Palm Oil, thereby affecting domestic Crude Palm Oil prices. In addition, Sahara et al. (2022) reported that biodiesel policy has significant economic impacts on Indonesia's palm oil market through increased domestic absorption and changes in Crude Palm Oil trade patterns.

Fresh Fruit Bunches are the primary output of oil palm plantations and serve as the main source of income for palm oil farmers in Indonesia. Fresh Fruit Bunches prices are closely related to Crude Palm Oil prices because Fresh Fruit Bunches are the main raw material used in palm oil production processes. Changes in Crude Palm Oil prices affect Fresh Fruit Bunches prices through price transmission mechanisms within the palm oil supply chain. When Crude Palm Oil prices increase, palm oil mills tend to raise Fresh Fruit Bunches purchasing prices to maintain raw material supply for production activities (Varwasih et al., 2023). However, the volatility of Fresh Fruit Bunches prices is often higher than that of Crude Palm Oil prices because it is influenced by local market structures, production quality, distribution costs, and the bargaining position of palm oil farmers (Sukowati, 2022). Furthermore, biodiesel policy may also affect the volatility of Fresh Fruit Bunches prices through increasing domestic raw material demand and changes in the allocation of Crude Palm Oil usage for energy and food purposes (Amir et al., 2022).

This study employs a quantitative approach using time series analysis to examine the dynamics of Crude Palm Oil and Fresh Fruit Bunches prices in the era of biodiesel policy in Indonesia. The study applies the Vector Error Correction Model (VECM) approach because it is capable of analyzing both short-run and long-run relationships among integrated variables (Johansen, 1991; Songsiengchai et al., 2018). The data used in this study are secondary monthly time series data covering the period 2020-2025 obtained from Statistics Indonesia (BPS), Bank Indonesia (BI), the Ministry of Energy and Mineral Resources (ESDM), BPDPKS, and the World Bank Commodity Price Data. The research variables include domestic Crude Palm Oil prices, Fresh Fruit Bunches prices, world oil prices, world Crude Palm Oil prices, the Rupiah exchange rate against the US Dollar, and biodiesel policy indicators (B20, B30, B35, and B40). The analytical procedures consist of stationarity testing using the Augmented Dickey-Fuller (ADF) test, optimal lag selection, Johansen cointegration testing, Vector Error Correction Model estimation, Impulse Response Function (IRF), and Variance Decomposition (VD). The analysis is conducted to identify price transmission mechanisms and the responses of Crude Palm Oil and Fresh Fruit Bunches prices to biodiesel policy and global energy price changes (Enders, 2015; Elisha et al., 2019).

The descriptive statistics results show that Crude Palm Oil prices during the 2021-2025 period had an average value of 12,000.52 Rupiah/kg, with a maximum value of 16,961.21 Rupiah/kg and a minimum value of 7,005.72 Rupiah/kg. The relatively high standard deviation value of 3,053.56 indicates that Crude Palm Oil prices experienced substantial fluctuations during the study period. These fluctuations were influenced by changes in world oil prices, biodiesel policy, and global market dynamics. Meanwhile, Fresh Fruit Bunches prices had an average value of 2,516.97 Rupiah/kg, with a maximum value of 3,470.62 Rupiah/kg and a minimum value of 1,550.02 Rupiah/kg. The standard deviation value of 560.32 indicates that Fresh Fruit Bunches prices also experienced volatility during the study period. The movement of Fresh Fruit Bunches prices tended to follow the movement of Crude Palm Oil prices because Fresh Fruit Bunches are the main raw material in the palm oil industry. World oil prices (Brent) recorded an average value of 89.70 USD/barrel with a maximum value of 119.96 USD/barrel, indicating that the global energy market experienced considerable volatility due to geopolitical instability and changes in global energy demand during the study period.

The results of the Augmented Dickey-Fuller (ADF) test show that the LOG_Crude Palm Oil variable has a probability value of 0.4488, which is greater than the 5 percent significance level. This indicates that the Crude Palm Oil price variable is not stationary at the level form. Meanwhile, the LOG_Fresh Fruit Bunches, LOG_Brent, and LOG_Exchange Rate variables have probability values smaller than 0.05, indicating that these variables are stationary at the level form. Therefore, the research variables satisfy the requirements for cointegration analysis and Vector Error Correction Model estimation. These findings indicate that the dynamics of palm oil commodity prices and energy-related variables exhibit time series characteristics influenced by both short-run and long-run shocks, making the Vector Error Correction Model approach appropriate for this study.

The results of the Johansen cointegration test show that the Trace Statistic values are greater than the 5 percent Critical Value in all testing equations. This condition indicates the existence of a long-run equilibrium relationship among Crude Palm Oil prices, Fresh Fruit Bunches prices, world oil prices, exchange rates, and biodiesel policy. These findings suggest that Indonesia's palm oil market has a long-run linkage with the global energy market and domestic biodiesel policy. Changes in biodiesel policy not only influence Crude Palm Oil prices in the short run but also shape market equilibrium in the long run. These results are consistent with the findings of Sahara et al. (2022) and Krisnamurthi and Saragih (2023), who reported that biodiesel policy has a significant effect on the dynamics of Indonesia's palm oil market.

The results of the optimal lag length test indicate that lag 1 is the best lag selected according to the smallest Akaike Information Criterion (AIC), Schwarz Criterion (SC), and Hannan-Quinn Criterion (HQ) values compared to the other lag alternatives. Therefore, this study applies lag 1 in the estimation of the Vector Error Correction Model. The relatively short optimal lag indicates that the dynamics of Crude Palm Oil and Fresh Fruit Bunches prices in Indonesia respond relatively quickly to changes in biodiesel policy, world oil prices, and exchange rates within one previous period.

Based on the "Crude Palm Oil Price Trend 2021-2025" graph, Crude Palm Oil prices experienced relatively high fluctuations during the study period. The movement of Crude Palm Oil prices showed a dynamic pattern with several sharp increases and decreases within a relatively short period. In several periods, Crude Palm Oil prices increased significantly, reaching levels above 16,000 Rupiah/kg. This increase was likely influenced by rising domestic demand due to the implementation of the B30 biodiesel policy and the transition toward B35, as well as increases in world crude oil prices caused by global geopolitical instability. In addition, fluctuations in Crude Palm Oil prices were also influenced by changes in world oil prices, Crude Palm Oil export conditions, downstream palm oil policies, and the Rupiah exchange rate against the United States Dollar. In certain periods, Crude Palm Oil prices declined to around 7,000-8,000 Rupiah/kg. This decline indicates that the Crude Palm Oil market is highly sensitive to changes in global market conditions and international trade policies. Overall, the graph shows that Indonesia's Crude Palm Oil market experienced a high level of volatility during the 2021-2025 period.

Meanwhile, based on the "Fresh Fruit Bunches Price Trend 2021-2025" graph, Fresh Fruit Bunches prices also experienced fluctuations during the study period. The movement of Fresh Fruit Bunches prices tended to follow the pattern of Crude Palm Oil price movements, although with a lower level of variation. When Crude Palm Oil prices increased, Fresh Fruit Bunches prices also increased, reaching levels above 3,400 Rupiah/kg. This condition indicates the existence of a price transmission mechanism between the Crude Palm Oil market and the Fresh Fruit Bunches market within Indonesia's palm oil industry. However, the response of Fresh Fruit Bunches prices to changes in Crude Palm Oil prices did not always occur immediately and proportionally. In several periods, increases in Crude Palm Oil prices were not directly followed by significant increases in Fresh Fruit Bunches prices. This condition suggests the existence of a price transmission lag caused by market structure, pricing mechanisms implemented by palm oil mills, distribution costs, and the bargaining position of palm oil farmers. In addition, the volatility of Fresh Fruit Bunches prices was also influenced by Fresh Fruit Bunches quality, plantation productivity, processing mill capacity, and domestic biodiesel industry demand. Overall, the graph indicates that Fresh Fruit Bunches prices are closely related to the dynamics of Crude Palm Oil prices, suggesting the existence of market integration between the upstream and downstream sectors of Indonesia's palm oil industry.

The results of this study indicate that Crude Palm Oil and Fresh Fruit Bunches prices experienced relatively high fluctuations during the 2021-2025 period. These conditions suggest that Indonesia's palm oil market is influenced by biodiesel policy, world oil prices, and global market dynamics. The implementation of the B30 and B35 biodiesel programs increased domestic demand for Crude Palm Oil, thereby encouraging increases in domestic Crude Palm Oil prices. The movement of Fresh Fruit Bunches prices also tended to follow changes in Crude Palm Oil prices. This finding indicates the existence of a price transmission mechanism between the downstream and upstream sectors of Indonesia's palm oil industry. However, the response of Fresh Fruit Bunches prices to changes in Crude Palm Oil prices did not always occur immediately because it was influenced by market structure, processing mill capacity, and the bargaining position of palm oil farmers. The results of the Johansen cointegration test reveal the existence of a long-run relationship among Crude Palm Oil prices, Fresh Fruit Bunches prices, world oil prices, and the Rupiah exchange rate. These findings indicate that Indonesia's palm oil market has become integrated with the global energy market, implying that changes in global energy prices can influence domestic palm oil commodity prices.

The findings of this study are consistent with the studies of Sahara et al. (2022) and Krisnamurthi and Saragih (2023), which reported that biodiesel policy significantly affects the dynamics of Crude Palm Oil prices in Indonesia. Theoretically, this study supports the price transmission theory and the energy-food nexus theory, which explain the linkage between energy markets and agricultural commodity markets through biodiesel policy.

This study demonstrates that biodiesel policy influences the dynamics of Crude Palm Oil and Fresh Fruit Bunches prices in Indonesia during the 2021-2025 period. The implementation of biodiesel programs increased domestic demand for Crude Palm Oil, thereby affecting price movements in Indonesia's palm oil market. The findings also show that Fresh Fruit Bunches prices tend to follow the movement of Crude Palm Oil prices, indicating the existence of a price transmission mechanism between the downstream and upstream sectors of the palm oil industry. In addition, the cointegration test results reveal the existence of a long-run relationship among Crude Palm Oil prices, Fresh Fruit Bunches prices, world oil prices, and the Rupiah exchange rate. The findings indicate that Indonesia's palm oil market has become integrated with the global energy market, implying that changes in biodiesel policy and global energy prices can affect the stability of domestic palm oil commodity prices. Therefore, biodiesel policy should be managed optimally to support the stability of the palm oil industry while maintaining the welfare of palm oil farmers in Indonesia.