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.
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 SMART Tbk
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.
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 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.
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.
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.
Table--1 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 Note: PR : Smallholder plantations PBN : State plantations PBS : Plantations owned by private companies Table--2 Width of oil palm plantations by regions, 2008 - 2012 (hectares) 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 Table--3 Major producers of CPO, 2013 Palm oil processing 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 Plantation 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 Table--4 Main PBS and PBN in oil palm plantations 2012 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 Table--5 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 Table--6 CPO production by owners 2008-2012 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 Note: PR: Smallholders' plantations PBN: State plantations PBS: Private companies' plantations Table--7 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 Table--8 New investment and expansion projects, 2012-2013 Name of company Status Location PT. Citra Borneo PMDN N.a Indah 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 Exchange PT Dharma Satya PMDN Kutai Timur, Nusantara Tbk East Kalimantan Minanga Group PMDN Baturaja, South Sumatra 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 billion Lestari Pacific Bhd Bioetanol from oil US$ 350 2015 and PT Inkud palm waste - million Exchange 6,5 million liters /year 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 billion PTPN III 30 tons /hour Rp 90 2013 billion PTPN VI 60 tons /hour Rp 140 2015 billion Source: ICN processed Table--9 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 Table--10 Exports and imports of CPO and derivatives 2009-2013 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 Table--11 Largest countries of destination of CPO exports 2013 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 Table--12 Domestic consumption of CPO, 2008-2012 (tons) 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 Table--13 Average prices of CPO, PK and FFB in Indonesia, 2009-2013 (Rp/tons) 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 Table--14 Prices of CPO and PKO in international markets, 2009-2013 (US$/ton) CPO/Rotterdam PKO/ Rotterdam Year (US$/Tons) (US$/Tons) 2009 758 611 2010 1,205 964 2011 1,095 876 2012 1,022 810 2013 * 1,251 1,122 Source: ICN processed Note: * until November Table--15 HPE for CPO and derivatives, October 2013 HPE Description (US$ 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 Table--16 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 smallholders: a. Rubber Rp 2/kg b. Cocoa Rp 3/kg c. Tobacco Rp 2/kg d. Oil palm Rp 2/kg e. Sugarcane Rp 1,000/tons 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 Table--17 Projection of world's CPO consumption, 2013-2017 Year Consumption (million tons) 2013 57.1 2014 60.0 2015 63.0 2016 66.7 2017 70.8 Source : ICN processed Table--18 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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|Title Annotation:||INDUSTRY PROFILE|
|Publication:||Indonesian Commercial Newsletter|
|Date:||Sep 1, 2013|
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