The Riau government, already good at attracting investment, is moving aggressively to set up the nation's first downstream industrial cluster for the palm oil industry, to start to catch up with Malaysia.
The Riau regional government supported by palm oil industry stakeholders held an ambitious meeting Wednesday to generate a consensus on incentives, infrastructure, and support measures needed to develop a downstream industry.
The workshop, organized with the help of the Bogor-based Institute of Agriculture (IPB) and ministry of industry in Jakarta identified Riau, with a plantation area of 1.6 million hectares and production capacity of 5.1 million tons per year, as the ideal base for the downstream industry.
In line with the ministry-backed palm oil industry road map, Riau aims to take a central role in making Indonesia a leading world producer of palm oil derived products.
The intermediary products include fatty acid, fatty alcohol, glycerine, and methyl ether, while the finished products include surfactant, pharmaceutical and cosmetic products, food products and soap.
Indonesia has a total plantation area of about 7 million hectares of palm plantations, mostly in Sumatra and Kalimantan, and total production of about 18 million tons per year, surpassing Malaysia, which produces more than 15 million tons.
But unlike Malaysia, Indonesia's palm oil exports are about 65 percent in the form of CPO and only 35 percent in processed products.
Backed by three palm oil downstream industry clusters, Malaysia currently exports about 30 percent of its palm oil production in the form of CPO and the other 70 percent in the form of intermediary and finished products.
The availability of infrastructure is another reason why the province is ideal for cluster development said Heriyan Saleh, head of the province's trade and industry agency.
"We have better infrastructure. We have a special port for palm oil that has been also used by other neighboring provinces," he said.
To do this, the provincial government is proposing that central government issue a presidential decree or governmental regulation to provide the framework for the downstream CPO industrial cluster.
"This is to help strengthen legal certainties that will help create conducive conditions for investors to enter the palm oil downstream sector," he said.
The Investment Coordinating Board's (BKPM) Riau provincial Chairman, Feizal Qamar Karim said Indonesia should not allow all of its palm oil production to just be exported as crude palm oil (CPO).
"I think it's now time for us to develop the palm oil downstream industries, which have much higher value added. If we continue to export *mostly* primary products, we'll just have to rely on international *commodity* market prices that are always fluctuating," he said.
He pointed out that by producing more processed CPO products, rather than just cooking oil, Indonesia can also rely more on local markets, even if it cannot export CPO.
"With higher value added and potentially integrated value chains ... the development of the palm oil downstream industry is very promising. We should not wait any longer to develop it for the benefit of our country," he said, adding, "We should start shifting our exports from mostly primary products to mainly processed products with higher value added."