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Development of palm oil industry in Indonesia.


Palm oil (Crude Palm Oil/CPO) industry in Indonesia has continued to grow from year to year. The country's production of CPO totaled 26.5 million ton in 2012 or an increase of 12.7% from 23.5 million tons in 2011. Exports rose to 18.14 million tons in 2012 from 16.5 million tons in 2011.

The increase in production is in line with the expansion of oil palm plantations and improvement in productivity. The country had 9 million hectares of oil palm plantations in 2012 or an increase of 1.12% from 2011. The plantations are dominated by foreign company groups mainly from Malaysia and Singapore.

Currently Indonesia is the world's largest producer of CPO with Malaysia the second largest. Indonesia and Malaysia combined account for 85.3 % of the world's total CPO production of 53.2 million tons in 2012.

Expansion of CPO market abroad is hampered by negative campaigns. Indonesia has been accused of destroying its tropical forests to give space for oil palm plantations causing global heat.

In a bid to protect the country's CPO industry, the Indonesian Association of Oil Palm Companies (Gapki) withdrew from the Roundtable Sustainable Palm Oil (RSPO), and gave its support to the Indonesian Sustainable Palm Oil (ISPO) in 2012.

In January, 2013 the government imposed a 9% export tax on CPO is aimed at boosting development of downstream palm oil industry in the country. Gapki, however, said the export tax is too high and proposed a cut to 3% to offset the falling trend of CPO price in the world market.

Industrial Structure

Oil palm plantations by owners

In the past 10 years, the country's oil palm plantations has expanded 8.1% per year on the average--from 7.3 million hectares in 2008 to 9.07 million hectares in 2012.

Rapid expansion of oil palm plantations began in the 1980s when large private plantation companies (PBS) began to start business in oil palm plantations and palm oil processing industry. Earlier oil palm plantations were dominated by state plantation companies (PBN).

The increase in the price of palm oil has also encouraged farmers to grow oil palm trees. Farmers began as plasma farmers under the scheme of nucleus plasma plantations (PIR) with large plantation companies either private and state companies as the nucleus. Later smallholder plantations (PR) expanded outside the PIR scheme.

Currently PBS dominate oil palm plantations in Indonesia. In 2012, of the country's oil palm plantations which totaled 9.07 million hectares, around 5.08 million hectares (55.6%) are PBS, with PR totaling 3.31 million hectares (36.5%) and PBN totaling 680,000 hectares or 7.5%.

In 2005-2012, PBN expanded only 1.03% per year with PR expanding faster by 8.13% and PBS by 1.6% per year.

Oil palm plantations controlled by foreign companies

Indonesia has 9 million hectares of land for oil palm plantations but only 5.7 million hectares were already cultivated in 2012. Based on data at the Gapki and the forestry ministry, there are 30 million hectares of lands that are potential to be used for oil palm plantations in Indonesia. They are found mainly in Sumatra and Kalimantan.

Currently competition is tighter in the procurement of land for oil palm plantations with the expansion of foreign plantation companies. Malaysian companies already has 2 million hectares of concession for oil palm plantations. According to the Association of Oil Palm Farmers (Apkasindo), in 2010, Malaysian investors already acquired 230 oil palm plantations in Indonesia.

Golden Hope and Syme Darbi from Malaysia, Wilmar Group from Singapore have large concessions in Kalimantan and Sumatra.

Foreign investors are still eyeing more lands in the country with 30 million hectares of former forest lands that could be used for rubber, oil palm and sugar plantations.

However, in 2011, the forestry ministry has cancelled principle license for 3 million hectares of land reserves of 251 investors in oil palm plantations after they failed to show progress in the utilization of the land. The government then gave to serious local investors.

Locations of plantations

Based on data at the plantation directorate general, oil palm plantations are found in 17 provinces including in Sumatra, Java, Kalimantan, Sulawesi, Maluku and Papua. In 2012, Sumatra had the largest plantations of 7 million hectares or 77.8% of the total oil palm plantations of 9 million hectares in the country. In Sumatra, Riau had the largest land of 1.9 million hectares for oil palm plantation, followed by North Sumatra having 1.1 million hectares.

Kalimantan had 2.8 million hectares (31.1%) with Central Kalimantan having the largest or 1 million hectares, followed by West Kalimantan having 685,000 hectares.

Java had only 25,000 hectares of oil palm plantations, mainly in West Java and Banten.

Main Players in CPO Industry

Big companies including foreign investors mainly from Malaysia dominate business in palm oil processing industry in the country.

PT Astra Agro Lestari

PT Astra Agro Lestari (AAL) is a subsidiary of the Astra Group as the holding company for agribusiness division of the group. Since 2004, AAL has focused more oil palm plantations by divesting its non oil palm plantation such as rubber plantations.

Currently, AAL operates 26 units of CPO mills with a total production capacity of 1,130 tons of CPO per hour. AAL also has a CPO refinery in North Sumatra with a capacity of 300 tons per day , Kernel Processing plants with a capacity of 700 tons per day in Sumatra , Kalimantan, and Sulawesi.

PT Asian Agri

PT Asian Agri (PT. AA) as a holding company from the agribusiness division of the Raja Garuda Mas Group has the largest oil palm plantations in Sumatra.

PT AA is the parent company of the Asian Agri group that includes AA Plantation I in North Sumatra. The Asian Agri group has expanded to Riau and Jambi, with the nucleus plasma (PIR) scheme.

Currently Asian Agri has 28 oil palm plantations and operates 19 palm oil factories in North Sumatra , Riau and Jambi. The factories have a total capacity to produce 1 million metric tons of CPO per year.

The Asian Agri group through subsidiary PT. Asianagro Agungjaya built a biodiesel factory in Dumai, Riau with an investment of Rp350 billion. The factory started operation in 2008, processing CPO into biodiesel with a production capacity of 200,000 tons per year. The capacity is to be doubled to 400,000 tons.

Asian Agri also planned to build a bio-diesel plant in Marunda, Jakarta with a capacity of 200,000 tons per year.

The factory could produce biodiesel with a purity of 100% that could be used for fuel without being mixed with oil. Asian Agri relies on its oil plantation for CPO feedstock. Asian Agri has oil palm plantations in North Sumatra, Jambi and Riau totaling 160,000 hectares, including 100,000 hectares nucleus and 60,000 hectares plasma farm land. It has a total production capacity of 240,000 tons of biodiesel per month.


PT Sinar Mas Agro Resources and Technology Tbk (SMART) is a subsidiary of the Sinar Mas Group. It is an integrated oil palm company operating oil palm plantations, CPO processing plants and cooking oil plants as well as CPO derivative plants.

SMART has 12 palm oil processing plants with a total production capacity of 2.9 million tons of CPO per year and 2 palm kernel processing factories with a total production capacity of 200,000 tons of palm kernel oil per year.

Currently SMART and subsidiaries have 480 hectares of land for oil palm plantations in Sumatra and Kalimantan.

SMART has adopted the Indonesia Sustainable Palm Oil (ISPO) regulation which was required for large companies as from March 2011. In 2014, all oil palm plantations are required to adopt ISPO.

PT Bakrie Sumatra Plantation

In 2005, the Bakrie & Brothers Group through subsidiary PT. Bakrie & Brothers Tbk increase its stake in PT. Bakrie Sumatra Plantation by 28%. It already had a 28.41% stake in the company earlier.

In addition, PT. Bakrie Sumatra Plantations acquired rubber plantations and facilities of PT. Huma Indah Mekar in Lampung and oil palm plantations and facilities of PT. Agro Mitra Madani in Jambi at a total price of Rp140 billion. Meanwhile, PT. Bakrie Sumatra Plantations divested non productive assess such as oil palm plantation of PT. Patriot Andalas in West Kalimantan.

In 2010 BSP acquired the Domba Mas Group at a price of Rp2.06 trillion. The Domba Mas Group had three subsidiaries--PT Flora Sawita Chemindo (FSC), PT Domas Agrointi Perkasa (DAP), and PT Domas Sawitinti Regulation na (DSP). PT. FSC had a total production capacity of 54,000 tons of fatty acid per year, including 49,000 tons of stearic acid and 5,000 tons of glycerin per year. The factory is located at Tanjung Morawa, Medan, North Sumatra. PT. FSC started operation in 1998, but in 2007 it suspended operation on financial difficulties. After being acquired by BSP, renovation was made with an investment of US$ 2 million, before it resumed operation later. DAP and DSP have a total production capacity of around 50,000 tons of fatty acid per year and 132,000 tons of fatty alcohol per year.

PT ASD-Bakrie Oil Palm Seed Indonesia operates in oil palm seedling producing industry with a capacity of 20 million oil palm seedlings per year. ASD-Bakrie will produce new variety of oil palm trees. The variety could turn out 8 to 10 tons of CPO. PT. ASD Bakrie is a joint venture between BSP and Agricultural Service and Development LLC from Costa Rica

Currently BSP had 200,000 hectares of oil palm plantations and 117,118 hectares of rubber plantations in 2012 in North Sumatra, Riau, Jambi, South Sumatra and West Sumatra. BSP will expand its oil palm plantations to 200,000 hectares in 2014. Its palm oil processing capacity is 2.3 million tons of fresh fruit bunches (FFB) per year.

PT Perusahaan Perkebunan London Sumatra Indonesia Tbk (Lonsum).

PT. Lonsum has oil palm plantations in North Sumatra , South Sumatra and East Kalimantan. The company has rehabilitated around 14,000 hectares of nucleus plantations and is seeking to operate 15,000 hectares of oil palm plantations in South Sumatra.

In 2004, Robert Kuok Hock-Nien from Malaysia acquired a big stake in PT Pan London Sumatra Plantation, which owns 20.94% of PT PP London Sumatra Tbk. (Lonsum). Kuok acquired the shares of Pan London Sumatra Plantation from Andre Pribadi, a younger brother of Henry Pribadi, the owner of the Napan Group.

In 2007 Lonsum was acquired by the Indofood Group through PT. Indo Agri Resources Ltd at a price of Rp8.4 trillion. The acquisition was backed by financially by ING, Standard Chartered Bank, Sumitomo Mitsui Banking, and Bank Central Asia. The banks provided a loan of US$ 20 million-US$25 million.

The Salim family which owns PT Indosiar Karya Media Tbk and the Sariaatmaja family were reported to barter oil palm plantations with Indosiar TV station. The Salim family acquired PT Lonsum and Sariaatmaja, who owns SCTV and O Channel television stations took over Indosiar TV station from Salim.

PT. Indo Agri operates an integrated business in the palm oil sector including plantations, processing industries producing cooking oil, margarine, and shortenings.

Earlier, IndoAgri had 224,083 hectares of land for oil palm plantations, of 74,878 hectares of which have been cultivated. With the acquisitions its plantation lands expanded to 387,483 hectares with 165,000 hectares already cultivated including with rubber and other crops.

Currently Lonsum operates 11 palm oil processing plants including 4 units in North Sumatra , 6 units in South Sumatra , and 1 unit in East Kalimantan--all with total processing capacity of 2.29 million tons FFB per year.

PT Wilmar International Plantation

PT. Wilmar International Plantation (WIP) is a subsidiary of the Singapore based Wilmar International Ltd. Currently WPI has seven subsidiaries in Central Kalimantan including PT Mustika Sembuluh, PT Kerry Sawit Indonesia, PT Sarana Titian Permana, PT Rimba Harapan Sakti, PT Bumi Sawit Kencana, PT Mentaya Sawit Mas, and PT Karunia Kencana Permai Sejati under the coordination of the Central Kalimantan Project Group.

Currently WPI operates five palm oil processing factories with a processing capacity of 45 tons of FFB per hour each and a total production capacity of 300,000 tons per year.

Central Kalimantan Project Group controls 84,000 hectares of oil palm plantations in Central Kalimantan and 70,000 hectares of the plantations have been productive.

CPO production of WPI totaled 240,000 tons in 2013. WPI has set production target for CPO at 400,000 tons per year in 2015, or an increase of 81% onyear. The increase in CPO production is expected to be reached after all oil palm plantations of the Wilmar Group have been productive.

In 2013, its oil palm plantations were expanded by 21,000 hectares which have been harvestable with a productivity of 6-8 tons per hectare.

With the expansion, its FFB production in Central Kalimantan rose to 1.24 million tons and its CPO production increased 8,000 tons to 248,000 tons in 2013.

Most of CPO production of Wilmar from Central Kalimantan is exported such as to India , Europe, and Turkey.

PT. BW Plantation Tbk

The company, which was originally named PT Bumi Regulation Prima International, was established in 2000. In 2007, the name was changed with PT.

BW Plantation (BWP).

Currently BWP has two palm oil processing factories with a processing capacity of 105 tons of FFB per hour. By the end of 2012, BWP operated its third palm oil processing factory with a processing capacity of 30 tons per hour.

BWP has 7 subsidiaries including PT Bumilanggeng Regulation natrada ("BLP"), PT Bumihutani Lestari, PT Adhyaksa Dharmasatya, PT Sawit Sukses Sejahtera, PT Wana Catur Jaya Utama, PT Satria Manunggal Sejahtera and PT Agrolestari Kencana Makmur. Together the seven companies have 94,669 hectares of land for plantations and 60.064 hectares of which have been productive.

In 2012 BWP, acquired PT Prima Cipta Selaras, an oil palm plantation company having 11,203 hectares plantation land with 8,694 hectares already cultivated.

PTP Nusantara IV

PT Perkebunan Nusantara IV (PTPN IV) is a state company established in 1996. The company is a merger of a number of plantation companies in North Sumatra including PTP VI, PTP VII and PTP VIII.

In 2007 PTPN IV expanded its cultivated oil palm plantation land through acquisition of 20,000 hectares oil palm plantation of PT Andalas Agro Nusantara in the regency of Mandailing Natal (Madina), North Sumatra.

PTPN IV has 15 units of palm oil processing plants (PKS) with a total processing capacity of 575 tons of FFB per hour, 2 units of tea factory with a total capacity of 154 tons of wet tea leaves per day, and 1 unit palm kernel processing plant with a capacity of 450 tons per day.

By 2012 PTPN IV had 136,000 hectares of oil palm plantations and 2,000 hectares of tea plantations. Its production of FFB reached 2.9 million tons , with a productivity of 23.53 tons per hectare. Its tea production was around 20,000 tons.

In 2012, PTPN IV spent Rp 1.5 trillion for expansion of oil palm plantations, Rp694 billion for tea p[plantation , Rp575 billion for housing, and infrastructure.

SMART has 12 units of palm oil processing plant with a total production capacity of 2.9 million tons of CPO per year and 2 units of palm kernel processing factory with a production capacity of 200,000 tons of PKO per year.

Private Companies Have Largest Plantation Lands

In 2012, plantation companies (PBS) had largest oil palm plantation lands. PT. SMART alone had 480,000 hectares mainly in Sumatra and Kalimantan.

Guthrie Group had 287,000 hectares ; PT. Astra Agro Lestari (AAL) had 266,000 hectares located in Sumatra, Kalimantan and Sulawesi; Wilmar Group and subsidiaries have 210,000 hectares in Sumatra.

Among state plantation companies (PBN) is PTPN Nusantara IV having 136,000 hectares or the largest located in North Sumatra.


Production of CPO up 10% per year

The country's production of CPO has increased from year to year with the expansion of plantations mainly in Sumatra and Kalimantan.

According to GAPKI, the country's production of CPO in 2012 rose to 26.5 million tons from 23.5 million tons in 2011.

Oil palm trees will be fully productive after reaching an age of 4 years. In the first year production is 7 tons of FFB per hectare, up to 12 tons of FFB per hectare in the second year, to 18 tons in the third year and to 20-25 tons in the fourth year.

The increase in the country's CPO production is also boosted by growing demand in the world market to feed food processing industry such as cooking oil factories, and to feed bio-diesel industry.

In 2013, the country's production of CPO was estimated to reach 28 million tons or an increase of 7.5% from 2012

PBS largest producers

In 2012, PBS produced 12.2 million tons of CPO or an increase of 6.5% from 11.4 million tons in 2011. The CPO production of PBS made up 52% of the country's total CPO production of 23.5 million tons.

Smallholders' plantation (PR) produced only around 8.6 million tons or around 36.6% of the country's total production; and PBN contributed only 11.4% or 2.5 million tons to the country's total production of CPO in the same year.

Indonesia Takes Over Lead From Malaysia

Malaysia and Indonesia dominate the world's production of palm oil. In 2012 Indonesia with production totaling 26.5 million tons , was the largest producer of CPO, followed by Malaysia with production of 18.9 million tons. That year, the world's total production was 53.2 million tons. Indonesia and Malaysia therefore, accounted for the bulk or 79.6% of the world's production and supply to international market.

Malaysia, therefore, is Indonesia's closest rival. In the previous 10 years Malaysia still led over Indonesia in palm oil production although for five years, Indonesia already had larger oil palm plantations. Malaysia maintained lead in production because is has higher productivity.

However, in the past three years Indonesia began to take over the lead in CPO production.

In 2012, oil palm plantations of Malaysia totaled 5 million hectares, almost half of Indonesia's 9 million hectares.

Technical Aspect

Oil palm plantations

Oil palm grows well in tropical areas between 10 degree north latitude and 10 degree south latitude such as Malaysia, Indonesia, Nigeria, Thailand , etc.

The crop would grow better in loose soil, clayey soil and peat land (less than 1 meter deep).

Peat land (more than 1 meter deep), acid land and swampy land are not suitable for the crop. However, with proper irrigation system the plant could grow well in land with those types of soil.

Generally, oil palm trees grow for 20-30 years. In the first three year the crop is categorized as young and they have not bear fruit. Oil palm trees begin to bear fruits after they are 4 years to 6 years old. They are in their peak when they are in 7 to 11 years in age. After reaching that age they began to be less productive. Their production of fresh fruit bunches would decline. At the age of 20-28 years the plantations would need replanting with new seedlings.

A fruit bunch has up to thousands of seeds. A bunch is around 10-20 kg. A tree could produce a number of bunches a year.

Generally, a hectare of plantation has 136-160 oil palm trees. They are planted separately 8.5 meter--9 meters from each other. FFB production could be 10 tons -30 tons depending on the quality of the seedlings and maintenance. The oil palm plantations of PT SMART produce around 18.2 tons of FFB/hectare. A plan with an age of 7-18 years would produce 20-24 tons of FFB per hectare.

Processing of Palm Oil

All components of oil palm fruits could be made commercially useful. The fruits have the flesh and kernels. The flesh is processed to turn out CPO (crude palm oil) and the kernel is processed into palm kernel (PK). CPO could extracted as much as 20% of the flesh and PK 2.5%. The fiber and the shells could be used as fuel for steam kettle.

Palm oil is processed into cooking oil and other foodstuff and as industrial feedstock through the process of refining, deodorization, bleaching to turn out RBDPO (Refined, Bleached and Deodorized Palm Oil). CPO could also be decomposed to turn out solid palm oil (RBD Stearin) and liquid palm oil (RBD Olein). RBD Olein is used mainly for cooking oil and RBD Stearin is used mainly for margarine and shortening, and feedstock for soap and detergent industry.

Decomposition of CPO and PK could turn out basic oleo-chemicals including fatty acid and glycerol. Refinery of palm oil could produce olein making up 73%, stearin making up 21%, PFAD (Palm Fatty Acid Distillate) 5% and waste 0.5%.

CPO has been widely used for fuel known as bio-fuel. CPO-based bio-fuel is produced from fatty acid.

Milling Processing of palm oil

Fresh fruit bunches (FFB) of oil palm trees need to be processed within 24 hours after being picked from the trees, otherwise the CPO quality would decline by free fatty acid. Therefore, the factories must not be too far from the oil palm plantations.

In the CPO factory, the fruits are sterilized and the fruit and the kernels are separated mechanically. The fruits are pressed to extract CPO. The CPO is then cleaned and refined. Generally the CPO to fruit ratio is 20% in weight. Therefore, a hectare of plantations could turn out 2 tons to 7 tons of CPO. In Indonesia the productivity averaged 3.55 tons per hectare in 2010. The highest productivity was recorded by Bangka Belitung reaching 4 tons per hectare.

The kernels after being separated from the fruits are sent to the palm kernel crushing plant. The palm kernel factory will turn out palm kernel oil and palm kernel meal respectively 45% and 55%.

A CPO mill has at least a processing capacity of 30 tons of FFB per hour to be feasible. However, currently there are CPO mills with a smaller processing capacity of 10 tons , even 5 tons of FFB per hour.


Interest in investment still strong

Interest is still strong in venturing in palm oil sector. Malaysia has utilized the opportunity opened for foreign investors in the sector including in oil palm plantations and palm oil industry.

Among the major foreign investors in the palm oil sector, Sime Darby Bhd of Malaysia through subsidiary PT Golden Hope Nusantara, plan to build a CPO processing factory with a processing capacity of 750,000 tons per year to cost around Rp 936.97 billion. The factory will be built over a 6 hectare plot of land on Pulau Laut, South Kalimantan.

PT Citra Borneo Indah (CBI) plans to build three units of CPO processing plants with a capacity of 1 million tons /year to cost around Rp 300 billion.

PT Dharma Satya Nusantara Tbk (DSNG) plans to build 2 new factories in Muara Wahau, Kutai Timur, East Kalimantan. The factories will have a processing capacity of 60 tons of FFB per hour each with an investment of US$ 90 million to be completed in 20156.

PT Jaya Agra Wattie Tbk (JAW) plans to build a new factor and expand its oil palm plantations with an investment of Rp1.8 trillion.

In 2012, the company expanded its rubber plantations by 4,500 hectares and oil palm plantations by 3,500 hectares. It also planned acquisition of rubber and oil palm plantations totaling 15,000 hectares in Kalimantan.

JAW planned to build four factories including palm oil factory in South Kalimantan with a processing capacity of 45 tons of FFB per hour to cost around Rp135 billion. It also planned to build a crumb rubber plants with a capacity 3 tons per hour to cost Rp45 billion -Rp46 billion, sheet rubber plants in West Java and East Java respectively to have a capacity of 150 kilogram per hour to cost Rp8 billion each.

PT Rajawali Nusantara Indonesia (RNI) planned to expand its production capacity. Through its subsidiaries PT Mitra Ogan and PT Laskar, RNI planned to open more oil palm plantations to bring its totalo plantations to 100,000 hectares with an investment of Rp 200 billion.

PT Mitra Ogan also planned to build a power plant with a capacity of 10 MW. Part of the power is needed by its factory bur the rest is to be sold to PLN, the state electricity company. The power plant will use renewable energy source in the form of oil palm shells.

Industrial Scale and Investment in Oil Palm Industry

Each oil palm plantation has different characteristics, but following are data used for reference.

The processing capacity of a CPO plant is at least 30 tons of FFB per hour to be feasible. The 30 tons of FFB per hour with a CPO grade of 21% and a palm kernel grade of 5% is equivalent to 28,350 tons of CPO per year. A factory with a processing capacity of 30 tons of FFB per hour would need 9,000 to 10,000 hectares of oil palm plantations based on assumption that a hectare could produce an equivalent of 3.29 tons of CPO per year. Averagely a hectare oil palm plantation has 136 to 160 oil palm trees. A plantation of 9,000-10,000 hectares would need 1.25 million--1.5 million seedlings.

CPO Trade

CPO is a major export earner for Indonesia. In 2012, exports of CPO and derivatives totaled 18.14 million tons, up from 1.64 million tons from 16.5 million tons in 2011.

The export value in 2012 was US$ 20.786 billion, down from US$21.665 billion in 2011.

Major export destinations are India, Pakistan, China and Europe. Imports of CPO are relatively small.

India Largest Market

Indonesia has exported CPO to more than 100 countries in Asia, Europe, Africa and America. Until September 2013, exports to India totaled 4.9 million tons or the largest. The second largest were to the Netherlands followed by Italy.

India is the largest market to which exports reached 2.31 million tons in 2013. India needs around 11 million tons of vegetable oils to feed its cooking oil industry every year. More than 50% or 6 million tons of the feedstock is produced domestically including soybean, peanut, corn and rice oils. The rest of 5 million tons are in CPO. India could need more than 5 million tons of CPO if domestic production of vegetable oils decline such as when the weather is not favorable.

The Netherlands is the second largest market to which exports totaled 776,000 tons, followed by Italy to which exports totaled 487,000 tons until September 2013.

Consumption Up

CPO consumption is assumed to be equivalent to production plus imports and minus exports in a year.

Imports of CPO are small and almost insignificant compared to exports. The largest consumer of CPO in Indonesia is cooking oil industry. Fractionation industry which produce the feedstock for cooking oil accounts for around 80% of CPO consumption in the country. Other smaller consumers include soap, margarine/shortening and oleo chemical industries. Non food industries account for only 7000,000-800,000 tons of total consumption of CPO in the country.

In the past five years (2008-2012, domestic consumption of CPO has tended to increase. In 2008, consumption of CPO was around 2.45 million tons, up to 4.46 million tons in 2009, and to 5.3 million tons in 2010, to 7 million tons in 2011 and to 9.4 million tons in 2012.

CPO Price Developments in Domestic and World Markets

The price of CPO in the country follows the developments in the world market. The prices references are those of Rotterdam, Kuala Lumpur Commodity Exchange (KLCE) and Chicago. CPO producers always monitor the CPO prices in the three markets, as a source of price information to set domestic prices.

Based on experience, the CPO prices follow a 10-year cycle. Growing demand in Europe, India and China sent the prices of CPO soaring high since 2007. In 2013, the price averaged Rp 6,735,000 per tons.

The increase in CPO price in the world market in 2010, greatly benefited the country as production also increased.

The CPO price in Rotterdam was US$1,095 per ton in 2011, down to US$1,022 in 2012. In 2013, the price rose again to US$1,251 per ton. Similarly the price of PKO fell from US$876 in 2010 to US$810 in 2012 before rising again to US$ 1,122 per ton in 2013.

Despite the government policy restricting CPO export to boost domestic processing industry, CPO exports rose from 16.6 million tons in 2011 to 18.1 million tons in 2012 because of the high price in international market.

Government Policy in Trade

Indonesia Sustainable Palm Oil (ISPO)

Based on the regulation of the trade minister, ISPO principles will be compulsory for oil palm plantation companies in Indonesia, after GAPKI withdrew from Roundtable Sustainable Palm Oil (RSPO) in 2010. This program is a step toward preserving all plantation supporting resources and at the same time to maintain and promote the country plantation industry.

ISPO was officially effective in March 2012, under which all oil palm plantation companies are required to comply with ISPO not later than 31 December 2014. Oil palm plantations of class I, II and III would be degraded to class IV if failed to have the ISPO certificate until the deadline.

After being officially implemented, the agriculture ministry will rule ISPO certification for 20 companies in a year as a pioneering policy in the country's oil palm plantation industry. Under ISPO, an oil palm plantation company is required to meet seven principles, 41 criteria and 28 indicators before being granted the ISPO certificate.

ISPO is aimed at improving the awareness of the importance of to sustain production of palm oil and to speed up production , improve competitiveness of Indonesian palm oil products and to support the country's commitment to reducing green house gas.

Palm oil is important as a major export earner and the sector provides more than 3.9 million jobs

Export reference price (HPE) up

In October 2013 the government set the HPE for CPO at and derivatives after the price of the commodities rose in international market. HPE is set based on the prevailing price in the world market or average price free on board (FOB) at several Indonesia port every month.

Based on the stipulation, HPE for oil palm fruits and kernels was US$304 per ton, the HPE for CPO fell to US$764 per ton, the HPE for Crude Olein fell to US$759 per ton, etc.

Government Policy

CPO clusters

The government will build five industrial clusters to develop downstream palm oil industry in Indonesia agar as part of the government program to promote processing industry reducing exports of raw materials.

Development of the clusters already started in 2011 in northern coastal areas of Java, eastern coastal area of Sumatra, Kalimantan, Sulawesi, and Merauke. The government, however, needs the support of the private sector to effectively implement the program.

The biggest difficulty in the implementation of the program is inadequate infrastructure. Indonesia is the largest producer of palm oil but the country is still far lagging behind Malaysia in productivity of plantations and in the development of palm oil industry. Based on data at the agriculture ministry, Indonesia has 7.9 million hectares of oil palm plantations producing around 19 million tons, but Malaysia which has only 4 million hectares of plantations could supply 16 million tons palm oil per year.

Regional regulations discourage investment

After the implementation of the regional autonomy law , regional administrations have issued own regulations. Many of the regional regulations have been conflicting, caused high cost economy and discouraged investors. For example, South Sumatra's regional regulation No. 10/2002 in South Sumatra imposes a Rp5 levy for a kg of FFB.

Conclusion and Prospects

CPO demand is expected to be strong in 2014 than in 2013 with expected recovery of major economies like China and India, which are major consumers of CPO.

Investment in CPO industry, therefore, will remain attractive. The government, however, hopes that investment would be directed more to downstream sector.

Prospects of CPO as the largest source of edible oil in the world

Currently and in the coming years, palm oil will remain an important commodity for Indonesia as well as the world. CPO is highly competitive facing other edible oils such as soybean oil and sunflower seed oil especially after other vegetable oils such as soybean is known to have trans fatty acid content which is dangerous to human health.

Recovery of Chinese and Indian economy would boost demand for CPO making palm oil as the largest source edible oil in the world.

Soaring oil price would also bring on an increase in demand for palm oil as feed for bio-diesel as an alternative to oil fuel.

In the next five years , the world consumption of CPO is forecast to rise 6% per year from an estimated 57.1 million tons in 2013 to 70.8 million tons in 2017.

Projection of width of Indonesia's oil palm plantation and CPO production

In 2013, the country's productive oil palm plantations were estimated to total 9.8 million hectares, to expand in the following years to reach 12.4 million hectares in 2017. The country's CPO production is forecast to rise from an estimated 28 million tons in 2013 to 37.4 million tons in 2017.


Expansion of oil palm plantations by owners, 2008-2012

                      Width (hectares)

Year      PR         PBN        PBS        Total

2008   2,881,898   602,963   3,878,986   7,363,847
2009   3,013,973   608,580   4,624,775   8,248,328
2010   3,072,998   616,575   4,695,821   8,385,394
2011   3,282,381   674,492   5,035,951   8.992.824
2012   3,312,237   680,596   5,081,788   9,074,621

Source: Plantation directorate general


PR : Smallholder plantations

PBN : State plantations

PBS : Plantations owned by private companies


Width of oil palm plantations by regions, 2008 - 2012

Provinces                        2008         2009         2010

Nanggroe Aceh Darussalam      274,135      292.813      306.085
North Sumatra               1,026,644    1.096.168    1.142.395
West Sumatra                  305,871      322.844      336.432
Riau                        1,623,458    1.734.348    1.815.313
Riau Islands                      547          585          610
Jambi                         454,771      480.512      500.736
South Sumatra                 718,068      765.816      798.048
Bengkulu                      161,505      165.176      172.128
Lampung                       158,488      169.296      176.422
Bangka Belitung               171,535      180.192      187.776
West Java                      11,573       11.786       12.283
Banten                         15,046       16.072       16.748
West Kalimantan               476,891      510.033      532.034
Central Kalimantan            709,206      759.693      791.667
South Kalimantan              265,187      283.947      295.898
East Kalimantan               368,504      394.312      410.908
Centra Sulawesi                52,169       55.221       58.063
South Sulawesi                 16,232       17.144       17.865
Southeast Sulawesi             21,213       22.300       23.449
West Sulawesi                  94.319      107.249       95.770
Papua                          25,925       26.787       27.915
West Papua                     33,646       35.044       36.847
Total                       7.363.847    8.248.328    8.385.394

Provinces                         2011        2012

Nanggroe Aceh Darussalam      364.615      358.224
North Sumatra               1.175.078    1.183.278
West Sumatra                  374.211      377.124
Riau                        1.912.009    1.926.859
Riau Islands                    8.535        8.612
Jambi                         625.974      630.614
South Sumatra                 820.787      828.114
Bengkulu                      299.886      301.965
Lampung                       117.673      118.634
Bangka Belitung               178.408      180.161
West Java                       9.196        9.299
Banten                         16.491       16.813
West Kalimantan               683.276      689.060
Central Kalimantan          1.003.100    1.015.321
South Kalimantan              420.158      424.754
East Kalimantan               676.395      685.647
Centra Sulawesi                95.820       96.705
South Sulawesi                 23.416       23.625
Southeast Sulawesi             38.660       39.003
West Sulawesi                 100.059      101.255
Papua                          35.502       35.849
West Papua                     23.575       23.705
Total                       8.992.824    9.074.621

Source: Plantation directorate general


Major producers of CPO, 2013

                                  Palm oil
Producers                       plants (unit)      Production capacity

PT. Astra Agro Lestari Tbk           26               1,130 tons /hour
PT. Asian Agri                       19                 240,000 /month
PT. SMART Tbk                        12         2.9 million tons /year
PT. Bakrie Sumatra Plantation                        2.3 million /year
PT. Lonsum                           11             2.29 million /year
PTPN V                               15                 575 tons /hour
PT. Wilmar International              5             300,000 tons /year
PT. BW Plantation Tbk                 3                 165 tons /hour
PT. Gozco Plantation Tbk              2                 135 tons /hour
PT. Agro Sukses Lestari               1             125,000 tons /year
PT. Musim Mas                         1             102,250 tons /year

Source: ICN processed


Main PBS and PBN in oil palm plantations

Companies                         Area (000 hectares)

Private plantation companies
  PT SMART Tbk                            480
  Guthrie Group                           287
  PT Astra Agro Lestari Tbk               269
  Wilmar Group                            210
  PT Bakrie Sumatra Plantation            200
  PT Asian Agri                           180
  PT. Sampoerna Agro Tbk                  114
  PT PP Lonsum Tbk                         99
  PT. BW Plantation Tbk                    94
  PT. Gozco Plantations Tbk                36
State plantation companies
  PTPN IV                                 136

Source: ICN processed


Indonesia's production CPO 2008-2012

Year             Production (million tons)   Growth (%)

2008                       18.0                  --
2009                       19.4                 7.5
2010                       21.0                  8
2011                       23.5                 11.9
2012                       26.5                 12.7
Average growth                                   10

Source: GAPKI


CPO production by owners

           Production (000 tons)

Year    PR      PBN     PBS     Total

2008   6,923   1,938   9,238    18,000
2009   7,247   1,961   10,230   19,440
2010   7,774   2,089   11,136   21,000
2011   8,500   2,525   11,475   22,500
2012   8,695   2,585   12,220   23,500

Source: Plantation directorate general


PR: Smallholders' plantations

PBN: State plantations

PBS: Private companies' plantations


CPO industry of Indonesia and Malaysia, 2008 - 2012

       Total production
       (million tons)

Year   Indonesia   Malaysia

2008     18.0        17.7
2009     19.4        17.8
2010     21.0        17.8
2011     23.5        18.5
2012     26.5        18.9

Source: ICN processed


New investment and expansion projects, 2012-2013

Name of company        Status   Location

PT. Citra Borneo       PMDN     N.a

PT. Golden Hope        PMA      South
Nusantara                       Kalimantan

PT. Gozco              PMA      Kalimantan
Plantations Tbk
                                Muara Enim,
                                South Sumatra

Lestari Pacific Bhd    PMA      North Sumatra
and PT Inkud

PT Dharma Satya        PMDN     Kutai Timur,
Nusantara Tbk                   East Kalimantan

Minanga Group          PMDN     Baturaja, South

PT First Lamandau      PMA      Lamandau, Central
Timber International            Kalimantan

PT Sampoerna           PMDN     N.a
Agro Tbk.

PTPN VII               PMDN     Musi Banyuasin,
                                South Sumatra

PT BW Plantation Tbk   PMDN     East Kalimantan

PTPN III               PMDN     North Sumatra

PTPN VI                PMDN     Tanjung Jabung

                                                            To start
Name of company        Production capacity    Investment     up in

PT. Citra Borneo       CPO - 1 million         Rp 300         2013
Indah                  tons /year              billion

PT. Golden Hope        CPO - 750,000          Rp 936,97       2013
Nusantara              tons /year              billion

PT. Gozco              Oil palm                Rp 300         2013
Plantations Tbk        plantations -           billion
                       7,550 hectares

                       45 tons /hour           Rp 155         2014

Lestari Pacific Bhd    Bioetanol from oil      US$ 350        2015
and PT Inkud           palm waste -            million
Exchange               6,5 million liters

PT Dharma Satya        60 tons /hour            US$ 90        2015
Nusantara Tbk                                  million

Minanga Group          45 tons /hour            Rp 100      December
                                               billion        2013

PT First Lamandau      N.a                      Rp 95         N.a
Timber International                           billion

PT Sampoerna           45 tons /hour            Rp 90         2014
Agro Tbk.                                      billion

PTPN VII               80 tons /hour             N.a          N.a

PT BW Plantation Tbk   75 tons /hour            Rp 150        N.a

PTPN III               30 tons /hour            Rp 90         2013

PTPN VI                60 tons /hour           Rp 140         2015
Source: ICN processed


Reference for oil palm plantations and processing

Condition of plant                           Description

Age                                          20-30 years
Starting production at the age of             4-6 years
Peak production at the age of                8-18 years
Number of trees per hectare                 136-160 trees
FFB production per hectare                10-30 tons /year
CPO production per hectare                 2-7 tons /year
Average productivity in             3.6 tons of CPO/hectare/year
  Indonesia in 2012

Source: Data Consult


Exports and imports of CPO and derivatives

                 Exports                      Imports

          Volume          Value         Volume         Value
Year     (000 tons)   (US$ million)   (000 tons)   (US$ million)

2009       14,981        15,580           10            7.0
2010       15,650        19,717           4             3.6
2011       16,500        21,665           22           24.5
2012       18,140        20,786         1,100          1,171
2013 *     4,938          3,176          N.a            N.a

Source: BPS

Note: * until September


Largest countries of destination of CPO exports

Countries                  Export volume (000 tons)    %

India                               2,316             46.9
The Netherlands                      776              15.7
Italy                                487              9.9
Singapore                            407              8.3
Spain                                319              6.4
Germany                              202              4.1
Malaysia                             164              3.3
Other countries                      267              6.6
(more than 20 countries)
Total                               4,938             100

Source : BPS


Domestic consumption of CPO, 2008-2012


Year   Production   Exports      Imports     Consumption

2008   18,089.503   15,647,565      11.721     2,453.659
2009   19,440.291   14.981467       10.591     4,469.415
2010   21,000,000   15,650,000       4.000     5,354.000
2011   23,500,000   16,500,000      22.000     7,022.000
2012   26,500,000   18,140,000   1.100.000     9.460.000

Source : ICN processed


Average prices of CPO, PK and FFB in Indonesia, 2009-2013


         CPO/Belawan   Palm Kernel      FFB
Year      (Rp/tons)     (Rp/tons)    (Rp/tons)

2009      8,000,000     5,399,000    1,314,000
2010     10,507,000     7,039,690    1,470,000
2011      8,659,000     6,523,000    1,212,000
2012      7,774,000     4,001,000    1,500,000
2013 *    6,735,000     3,707,000    1,551,000

Source : ICN processed
Note: * until November


Prices of CPO and PKO in international markets, 2009-2013


         CPO/Rotterdam   PKO/ Rotterdam
Year      (US$/Tons)       (US$/Tons)

2009          758             611
2010         1,205            964
2011         1,095            876
2012         1,022            810
2013 *       1,251           1,122

Source: ICN processed

Note: * until November


HPE for CPO and derivatives, October 2013

Description                   (US$ per ton)

Oil palm fruits and kernels        304
Crude Palm Oil (CPO)               764
Crude Olein (CRD Olein)            754
Crude Palm Stearin                 822
Crude Palm Kernel Olein            822
Crude Palm Kernel Stearin          822
Palm Fatty Acid Distillate         642
RBD Palm Olein                     765
RBD Palm Oil                       754
RBD Olein                          815
RBD Palm Kernel Oil                864
RBD Palm Kernel Olein              857
RBD Palm Kernel Stearin           1,018

Source: Trade Ministry


A number of regional regulations still effective

Regulation      Issued by                Content of policy

SK of regent    District                 Contribution of oil
054/2001        administration of        palm companies
                Musi Banyuasin,          Rp 1000/ FFB
                South Sumatra

Regulation      Regional adm. of         Contribution of
No. 56/2002     Pelalawan, Riau          plantation companies
                                         to the government
                                         Rp 1/kg of FFB

Regulation      Regional adm. of         Fee on products of :
No. 15/2002     Indragiri Hulu, Riau     a. Forestry Rp 1/kg
                                         b. Plantation Rp 1/kg
                                         of FFB
                                         c. CPO Rp 2/kg
                                         d. PKO Rp 0,5/kg
                                         e. Oil palm seedlings
                                         Rp 100/each

Regulation      Regional adm. of         Collected Rp 15/kg of
                Morowali,                nucleus FFB and Rp
                Centra Sulawesi          5/kg of FFB of plasma
                                         plantations and Rp 100
                                         for each of CPO

Regulation      Regency of               Fee of plantation
No. 6/2004      Kotawaringin Timur,      products and sales of
                West Kalimantan          seedlings:
                                         a. CPO production of
                                         Kotawaringin Timur
                                         Rp 10/kg
                                         b. CPO production from
                                         areas other than
                                         Kotawaringin Timur
                                         Rp 5/kg
                                         c. PKO production of
                                         Kotawaringin Timur
                                         Rp 5/kg
                                         d. PKO production from
                                         areas other than
                                         Kotawaringin Timur
                                         Rp 1.5/kg
                                         e. Fee for FFB Rp 3/kg
                                         f. Kernel fee Rp 1/kg

Regulation      Regency of Deli          Tax on production of
No. 7/2000      Serdang, North           plantations of state/
                Sumatra                  regional adm., private
                                         companies and
                                         a. Rubber Rp 2/kg
                                         b. Cocoa Rp 3/kg
                                         c. Tobacco Rp 2/kg
                                         d. Oil palm Rp 2/kg
                                         e. Sugarcane Rp

Regulation      Regency of Langkat,      Payment and collection
                and Regency of Asahan,   of fee for the use of
                North Sumatra            district roads, by
                                         trucks carrying FFB

Source : Data Consult processed


Projection of world's CPO consumption,

Year   Consumption (million tons)

2013              57.1
2014              60.0
2015              63.0
2016              66.7
2017              70.8

Source : ICN processed


Projection of width of productive oil palm plantation and
CPO production, 2013-2017

       Productive plantations     Production
Year     (million hectares)     (million tons)

2013             9.8                 28.0
2014            10.8                 30.8
2015            11.3                 33.3
2016            11.9                 35.3
2017            12.4                 37.4

Source: ICN processed
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Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Sep 1, 2013
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