The main objective of this paper is to specify and estimate a structural model of the Indonesian palm oil industry. The principal variables considered are mature planted area, production of palm oil and domestic consumption of palm oil in Indonesia. The ordinary least squares (OLS) technique is used as equations for mature area and production have a recursive structure, and because domestic consumption of palm oil is related only to exogenous variables. The main results are as follows; Mature area is influenced inversely by lagged wage rates and directly by lagged investment in oil palm, two important determinants of planting decisions. The only variable that is significant in the estimated production function is the time trend variable, a proxy for disembodied technical progress. Finally, domestic consumption of palm oil is found to be highly elastic with respect to the own-price and the price of final goods.

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