Thu, 24 Feb 2011

Rising commodity prices are driving palm oil producers to find more land to boost output, but doing so in Indonesia may be too difficult, some producers claim.

Sime Darby, the world’s largest listed palm oil producer, wants to acquire more land, including in Indonesia, the world’s top producing nation. However, it may turn to Africa if obstacles such as a ban on forest clearing and conflicting zoning regulations prove too much of a headache.

“Sime Darby is always open to any proposition to expand its oil palm investment in Indonesia, both via greenfield and brownfield,” said Mohd Bakke Salleh, Sime’s president and group chief executive, referring to starting plantations from scratch and reviving old plantations.

Sime has the largest land holdings among palm oil firms. It has added three new estates to its Indonesian portfolio this fiscal year, Bakke said. It still has 40,000 hectares of vacant land in Indonesia after planting 208,049 hectares, which represents almost 40 percent of its total planted Southeast Asian holdings.

The move was taken as part of a global grab for arable land as food prices remain high. Land hunting was done at a time of high palm oil prices - they stood at 3,967 ringgit ($1,300) in early February, just 12 percent off a 2008 record .

“Many palm oil companies are interested in expanding business here, but land availability may be difficult due to the moratorium and conflicting spacial planning,” Derom Bangun, vice chairman of the Indonesian Palm Oil Board (DMSI), told the Jakarta Globe on Wednesday.

Fadil Hasan, executive director of the Association of Indonesian Palm Oil Producers (Gapki), said those obstacles would create uncertainty.

“I have seen a number of conflicts emerge due to a mess in spacial planning. Palm oil producers in Central Kalimantan, Riau and North Sumatera met with trouble when they wanted to acquire land as spacial planning is unclear. The regulations between the local government and the Forestry Ministry contradict each other,” Fadil said.

“The government’s stance about banning new concessions in secondary forests and peatlands is not clear. A presidential decree should have been issued. Whatever it is, it will limit palm oil producers’ ability to expand plantation areas.”

The two-year moratorium on new concessions in peatland and primary forests is part of a bilateral agreement with Norway, in which Indonesia receives $1 billion in funding for efforts to reduce emissions from deforestation and forest degradation in exchange. For the moratorium to be legally binding from its Jan. 1 start date, it must be backed by a presidential decree, which has yet to be issued.

Two versions of the draft presidential decree exist, one by the Forestry Ministry and the other by a presidentially appointed task force. The ministry’s version states the moratorium should apply only to primary forests and peatlands, while the task force’s version says secondary forests in peat areas should be included.

Sime Darby is hedging its bets. It has a concession pact with Liberia, and other firms have stated their interest in Africa.

Hariyanto Wijaya, an analyst at Mandiri Sekuritas, said Indonesia still had its appeal. He said palm oil demand here is 5 million tons per year while output is 12 million tons, generating excess capacity that can be sold to top consumers China and India.

JG, Reuters