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JP/4

Plantation firms merged

The reorganization of the 32 state plantation companies into nine groups, as announced by Minister of Agriculture Sjarifudin Baharsjah on Monday, is part of the reform measures meant to improve the operational and financial performances of state enterprises.

The reform, based on a 1988 presidential decree, can take one of the following forms: merger, joint ventures with private companies, management contracts, public share issues and outright liquidation of commercially unviable firms.

The consolidation of the state plantation companies, which are popularly known under their local acronym PTP, was made in preparation for their merger to enhance optimum economies of scale, to better integrate the plantations and their processing units and to better gear them up for coping with commodity market fluctuations. The ultimate objective obviously is to improve their operational and financial performances.

The rationale of the consolidation is obvious. Though state companies now account for only about 7.5 percent of the country's 12 million hectares of tree and annual cash crops, their roles as employer and earner of foreign exchange remain quite significant. Even more significant is their role as what Minister Baharsjah terms as the agent of development for the millions of smallholders who own more than 80 percent of the plantations.

However, the trends in the expansion of state plantations over the past 15 years have weakened many companies, notably those based in the northern part of Sumatra island where such tree crops as oil palms, rubber and tobacco have been well developed since the Dutch colonial era. Before the large entry by domestic private investors into the plantation sector, it was the state plantation firms in the northern part of Sumatra that were assigned to implement the government's massive tree-crop expansion program throughout the country.

The consequence of such development is that those firms have tried to do too much in too many areas across the vast archipelago. North Sumatra-based state plantation companies, for example, have opened oil palm estates in Irian Jaya, more than 4,500 kilometers away from their base of operations. In fact, the bulk of state oil palm plantations in Kalimantan, Sulawesi and Irian Jaya have been developed by state firms from North Sumatra. No wonder, those companies have become weak in several areas. Their overhead costs have been unusually high and their span of control inadequate.

Hence, the geographical consolidation and the eventual merger of the companies into nine firms is aimed at improving their efficiency. Also, plantation projects currently being developed by North Sumatra-based state firms in the provinces of Riau, Jambi and West Sumatra and in Kalimantan will be put under the management of two state plantation firms that have yet to be set up.

Efficiency is especially crucial for such labor-intensive agribusiness ventures as plantations because of the seasonal nature of their operations. The seasonal aspect often causes wide volatility in their commodity market prices and seasonal fluctuations in their labor needs. This consequently affects their cash flows and requirements. The integration of plantations and processing units is also imperative in view of the season-linked aspects of capacity utilization. All these special characteristics require effective management control of operations, especially because state companies also are assigned as the agents of development for smallholders in their surrounding areas.