Palm oil industry needs Rp 20t in investments

JAKARTA (JP): Indonesia will need Rp 20 trillion (US$2.8 billion) in new investments to fulfill a 10-year undertaking to become the world's largest crude palm oil (CPO) producer with a total annual output of 15 million tons, a business intelligence company said on Wednesday.

Business Intelligence Report (BIRO) said in its report that with this projected total output, Indonesia would account for 40 percent of the world's CPO output in 2010, well above projections for Malaysia's output of 14 million tons.

With an estimated output of 6.2 million tons this year, Indonesia is currently the world's second largest CPO producer after Malaysia, which will produce an estimated 9 million tons this year.

The report said the Rp 20 trillion investment was needed for the expansion of oil palm plantations and CPO production plants. He said such developments had been put on hold by the industry due to the economic crisis which has crippled the country's economy for more than two years.

BIRO said there were excellent opportunities for the country's CPO industry to broaden its domestic market and export market customer base on the domestic market.

The report said that as the world's third most populous country Indonesia was the world's second largest CPO consumer. The country has a consumption rate of 13.3 kilograms per head, lagging behind Malaysia, the world's largest CPO consumer, which has a CPO consumption rate of 44.7 kilograms per head.

In comparison to Malaysia, Indonesia has not sufficiently exploited three major export markets -- India, China and Pakistan, the report said.

Last year Indonesia accounted for only 17.5 percent of India's 1.6 tons of CPO imports, 10 percent of China's 1.3 tons of CPO imports and 1.3 percent of Pakistan's 1.1 million tons of CPO imports.

The report said that most of the remaining CPO imports to the three countries were sourced from Malaysia.

According to BIRO, Indonesia's palm oil industry is dominated by 27 big business groups, who mostly focus on the upstream sector and lack interest in the downstream sector.

All the 27 business groups, except for the Wing group, operate oil palm plantations, with 15 of them also possessing cooking oil plants and six of them also operating margarine plants.

Three of the business groups have oleochemical plants and six of them also operate soap plants.

According to BIRO, only the Sinar Mas group has an integrated CPO business. This means that it operates oil palm plantations and also has production facilities to produce all types of oil palm-based products, including soap.

BIRO said that due to the economic crisis, some of the 27 business groups were now facing debt problems and bankruptcy, but also said that some of the business groups had prospered as a result of their dollar-based earnings.

BIRO noted the trend by many companies to expand their oil palm plantations to the eastern part of Indonesia, and called on authorities in the region to prepare for the flood of CPO investors in the near future.

The report said the 27 companies, which currently control 45 percent of the country's oil palm plantations, would see their domination decline in the next five years as smallholders, state companies and foreign investors increased the size of their plantations.

The report called on the new government to provide more credit facilities for smallholders to expand their plantation areas. (jsk)