Indonesia's crude palm oil (CPO) exporters are preparing themselves to have their products meet the "sustainable certification" requirement.
This requirement is soon to be applied in international markets, and Indonesian exporters need to comply so as not to lose their competitive edge, a minister and business players said on Tuesday.
Agriculture Minister Anton Apriyantono awarded on Tuesday the first ever Sustainable CPO Certificate to PT Musim Mas, one of the industry's major players, and said at least four other companies would follow suit in the following months.
"Crude palm oil contributed around US$10.7 billion to the country's economy in 2008 and the industry absorbs around 3.7 million laborers," Apriyantono said, speaking on how vital the commodity's contribution to the economy is.
"Right now, there are four other companies which are preparing themselves to meet the standard needed for the certification. They are PT Hindoli in South Sumatra, PT Lonsum and PTPN 3 in North Sumatra, and PT Sime Indo Agro in West Kalimantan," he added.
The certification, which is issued by the Roundtable on Sustainable Palm Oil (RSPO), is vital to the Indonesia CPO industry because it will help the world's largest CPO producing nation to maintain its market share, especially in EU countries.
The European Union EU requires that starting in 2010, all of the CPO imported into EU countries will have Sustainable CPO Certification to ensure that the production process of the commodity was carried out in an environmentally friendly way.
This measure was adopted because EU environmentalists felt the rapid expansion of Southeast Asia's oil palm estates was in part responsible for the destruction of tropical forests and wildlife.
One of the requirements for the certification test is that CPO producers must prove that their production process can reduce the greenhouse gas effect, or greenhouse effect, by as much as 35 percent.
The certification also requires CPO producing companies to meet eight main principles including transparency, legal and regulatory compliance, long term financing capability, best production practices, environmental responsibility, and labor welfare assurances along with 39 other standard criteria.
"We invested around $20 to $40 per hectare in our plantation to meet the standard. In total, the investment was around $600,000," PT Musim Mas president director Bactiar Karim said.
The secretary general of RSPO, a non profit-oriented organization grouping growers from CPO_producing countries, Vengeta Rao, said the organization, along with the government, would help smaller growers to acquire certification.
"The cost to acquire the certificate will be much lower for smaller growers, but we have yet to determine how much that will be," Rao said.
The country exported around 13 million out of 17 million tons of palm oil produced in 2007. The volume of CPO exports increased the following year to 14.5 million tons out of a total production of 18.5 million tons.
"We exported around 1.5 million tons of CPO with a value of $1 billion to the EU last year," Derom Bangun, former chairman of the Indonesia Palm Oil Producer Association (Gapki) and vice chairman of Indonesian Palm Oil Board (DMSI), said.
"Another advantage of having a certificate is that certified companies may sell their products $40 higher per ton, compared to companies who do not have certification."
DMSI marketing head Susanto said that the certification would not have much immediate impact on the industry, but it would definitely give an edge to Indonesian CPO producers in the long run.
"PT Musim Mas is just the beginning. Slowly but surely, all of the palm oil estates in Indonesia will be receive the certification," he said.
The country's CPO prices were booming in the first half of 2008. Prices hit a peak of $1,200 per ton, generating huge profits.
The global financial crisis, however, inevitably turned the tables around. Lack of demand from the market caused an oversupply that slashed the average price of the commodity by around 60 percent by October, although the prices have started to climb and stabilize again since the start of this year.
Industry players recently projected a conservative forecast of 20 million tons of production capacity this year, targeting 14 to 16 million tons of exports, with a favorable average price level at $400 per ton. (hdt)
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