Palm oil production to dip this year<\/p>\n
The following is the first of two articles by Derom Bangun,
\nwho chairs the Indonesian Palm Oil Producers Association. The
\narticle is based on his recent address to Commex Malaysia's Palm
\nand Lauric Oil conference and exhibition in Kuala Lumpur.<\/p>\n
KUALA LUMPUR: Indonesia is not the largest exporter of palm
\nand lauric oils but the export volume is quite significant. In
\nearly 1998 Indonesia experienced a serious shortage of cooking
\noil.<\/p>\n
Large quantities of palm, palm kernel and coconut oil were
\nexported as the international price of palm oil reached US$600
\nper metric ton (CIF Rotterdam). Indonesia then banned the export
\nof palm and lauric oils.<\/p>\n
The absence of Indonesian palm oil supply and continuously
\nhigh demand for vegetable oils in the world market pushed the
\nprice up to $700 per metric ton in May 1998.<\/p>\n
This shows that Indonesia's supply of palm and lauric oils
\ndoes influence international market prices. The world market is
\nobviously different in 2001. The price of palm oil fell to below
\n$ 250 per metric ton early in the year.<\/p>\n
The area of oil palm plantations has increased yearly and as a
\nresult, the production of palm and palm kernel oils has been
\nincreasing as well. The rate of area expansion reached 11.8
\npercent in 1997. The rate then slowed to 10.5 percent in 1998 and
\nfurther reduced to 6.4 percent in 1999.<\/p>\n
The planted area of 1997 should become productive in 2001.
\nThis recently matured area has a productivity of an average of
\nsix tons of fresh fruit bunches (FFB) per year per hectare, or
\nabout one ton of palm oil per year per hectare.<\/p>\n
Further, increased production also originates from the planted
\nareas of 1996 and 1995. These mature areas would produce higher
\nyields than in the previous year due to increased age. These
\nareas would produce about 10 to 13 tons of FFB per year per
\nhectare.<\/p>\n
Given the economic and social political crisis, some negative
\naspects of production need to be taken into account. Security in
\nsome areas is not favorable to achieve maximum yield. Combined
\nwith the expensive price of fertilizers and low price of palm oil
\nin recent times, the impact of the economic crisis has resulted
\nin insufficient application of fertilizers. Insufficient
\nfertilizer use has been evident since 1999.<\/p>\n
Infrastructure like roads and bridges has also been affected
\nby the economic crisis. Poor infrastructure has resulted in high
\ntransport cost of bunches, so much so, that when the selling
\nprice of FFB was as low as Rp 200 per kilogram, some farmers were
\nnot interested in harvesting their crops.<\/p>\n
The crisis has delayed construction of palm oil mills. In
\nJambi province, it was reported that the delay has caused
\nproduction losses, since existing palm oil mills cannot cope with
\nincreasing production of FFB.<\/p>\n
The climate in 2001 is expected to be slightly different from
\nthat of 2000. At the beginning of this year, rainfall was
\nunusually high in Indonesia. Some parts of Java were flooded.
\nMarch is a transition period and next month is expected to be
\ndry. A prolonged dry spell may be experienced until August.<\/p>\n
As a result the production of palm and lauric oils will be
\nvery low during the second quarter of 2001 -- therefore estimated
\nproduction of palm oil this year is 7.2 million tons.<\/p>\n
The production of palm kernel oil will likely follow a similar
\npattern to that of palm oil. On average, kernel extraction rate
\nis 5.1 percent compared to the palm oil extraction rate of 21.5
\npercent.<\/p>\n
This year, palm kernel production is estimated to be 1.7
\nmillion tons yielding as much as 717,000 tons of palm kernel oil.<\/p>\n
In contrast to palm oil, coconut oil production has not
\nincreased. Production for 1999 and 2000 was estimated at
\n2,715,000 tons and 2,740,000 tons of copra respectively.<\/p>\n
Production may decrease slightly by 1.5 percent this year
\ngiven the less favorable climate. Reduced production can be
\nattributed partly to less use of fertilizers last year due to the
\nlow selling price of coconut. Production of coconut in 2001 is
\nestimated at 2.7 million tons of copra equivalent.<\/p>\n
Within domestic consumption of palm and lauric oils, there are
\ntwo main uses in Indonesia. The first and largest is for cooking
\noil which is about 9 kg per year per capita and the total need is
\n1.84 million tons of cooking oil, or RBD Olein which is
\nequivalent to 2.52 million tons of CPO.<\/p>\n
This demand changes from time to time; when the economy is on
\nthe decline, the demand goes down. Significant use of palm oil as
\ncooking and frying oil in Indonesia did not start until the late
\n1970's. Traditionally, coconut oil used to be the only widely
\nconsumed vegetable oil. But consumers gradually accepted the
\nintroduction of palm olein as cooking oil.<\/p>\n
The contribution of palm oil in the cooking oil industry has
\nincreased from about 40 percent in 1985 to about 70 percent in
\n1995. When the export tax for coconut oil was abolished in June
\n1999, while export tax for palm oil was maintained at 30 percent,
\nexport of coconut oil increased.<\/p>\n
From the export figures, about 100 percent of produced coconut
\noil was clearly exported and the need for domestic cooking oil is
\nfulfilled by palm oil. This is due to the easy availability and
\nattractive price.<\/p>\n
The second use is for industrial purposes like soap-making and
\noleo-chemical industries. The soap industry has consumed palm oil
\nsince the beginning of oil palm cultivation in Indonesia. Other
\nindustrial uses of palm and lauric oil started in the late 1980s
\nwhen the oleochemical industry begun operation.<\/p>\n
Today there are at least seven oleochemical plants using palm
\nkernel oil, coconut oil and palm oil as raw materials.<\/p>\n
Some oleochemical plants change their raw materials according
\nto market demand. When the selling prices of products derived
\nfrom coconut oil are better, the use of CPO as raw material is
\nstopped.<\/p>\n
Other times, palm stearine may be the preferred raw material.
\nIt is not unusual to change the raw material to PKO when the
\nmarket shows a strong demand for its products. Hence consumption
\nof CPO by oleochemical industries varies from time to time.<\/p>\n
The quantity consumed by the soap-making and oleochemical
\nindustries is in the range of 500,000 to 800,000 tons. Total
\ndomestic consumption in 2001 is estimated to be between 3 million
\nto 3.5 million tons of CPO.<\/p>\n
Palm oil exports in 2000 increased by 847,000 tons or 25.67
\npercent to 4.14 million tons from 1999 or more than tripled the
\n1.2 million tons shipped overseas in 1995. The increase of 0.85
\nmillion tons in 2000 was higher than the increase in production
\nwhich was only 0.53 million tons. The difference of 0.32 million
\nton resulted from the decrease in domestic consumption and the
\nreduction of inventory.<\/p>\n
The decrease in domestic consumption was due to the lower
\npurchasing power of consumers given the weakening of the rupiah
\nto the U.S dollar, from Rp 8,000 at the end of 1999, to Rp 9,500
\nat end 2000.<\/p>\n
Less inventory resulted from the fluctuating price of CPO and
\nRBD Olein. In early 2000 the inventory was rather high in
\nanticipation of the typically high demand in the domestic market
\nprior to and during religious festive days.<\/p>\n
The high inventory reduced gradually until the third quarter
\nof 2000 by increasing the volume of export. Total exports from
\nJanuary to September 2000 for crude and processed products
\nreached 2.98 million tons.<\/p>",
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