RI needs new palm oil markets, says LIPI study

RI needs new palm oil markets, says LIPI study

JAKARTA (JP): Indonesia should not be too dependent on the
West European market for its palm oil exports and should explore
new markets in the Middle East, the Mediterranean, Eastern Europe
and Asia, according to researchers.

Indonesian Institute of Science (LIPI) researchers said this
during their presentation of a study on Indonesia's readiness for
the ASEAN Free Trade Area (AFTA) in the next century.

They used palm oil as a study case.

The researchers were Asvi Warman Adam, Zatni Arbi, Mahmud
Thoha, Syamsumar Dam and Adriana Elisabeth.

Their presentation was organized by LIPI's department of
Analysis on Political and Sociocultural Strategic Issues.

The researchers said palm oil was one of Indonesia's most
important commodities in the fast-track scheme under AFTA's
common effective preferential tariff agreement.

This means that before 2003 import duty on palm oil must not
exceed 5 percent in all ASEAN countries.

They concluded the palm oil industry had bright prospects.

Indonesia, particularly in Sulawesi and Irian Jaya, offers
ample opportunities for new plantations, the researchers said.

Average productivity per hectare had risen rapidly from 1.6
tons in 1969 to 2.2 tons in 1994 although large state-owned
plantations had managed to produce up to four tons a hectare.

In provinces with long experience in managing oil palm estates
like North Sumatra, productivity has even reached 4.9 a hectare
tons at state-owned plantation and 5.4 tons a hectare at large
foreign investment estates.

The researchers said low productivity in several other
provinces was mostly because of poor managerial skills and poor
quality staff.

They said Indonesia's palm oil productivity could still be
increased because 40 percent of Indonesia's oil palm plantations
had not begun harvesting. Oil palms can be harvested once they
are three years old.

On the demand side world vegetable oil consumption has been
increasing by about 3.5 percent a year because of population
growth and increases in per capita palm oil consumption.

World per capita consumption of vegetable oil rose from 8.9 kg
a year to 10.9 kg a year between 1980 and 1992.

Palm oil consumption during this period rose from only 0.95 kg
a year to 2.36 kg a year on a per capita basis.

"The per capita consumption of palm oil is lower than other
types of vegetable oil but the trend shows there has been a shift
in consumer preference towards palm oil," the researchers said.

Palm oil consumption growth reached 9.7 percent during this
period, higher than soybean oil (2.7 percent) and other vegetable
oils (2.3 percent).

As a result palm oil's share of the vegetable oils market rose
from only 10 percent to 21 percent during this period.

The researchers estimated that by the time Indonesia fully
joined APEC free trade in 2020, world palm oil consumption would
be about 179 million tons.

Quality

But the researchers said that despite the commodity's bright
outlook, Indonesia should apply more technology to improve the
quality of its palm oil and increase its yield.

"Indonesia must use all the market opportunities there are,
both at home and overseas," the researchers said.

The researchers calculated that if the rapid growth of
Indonesia's palm oil production could be maintained Indonesia
would have no trouble marketing the product overseas.

Almost half of Indonesia's palm oil exports go to four West
European countries: the Netherlands, Germany, the United Kingdom
and Italy. About 60 percent goes to the Netherlands.

But West Europe could only absorb about 12 percent of world
palm oil consumption.

The world's largest palm oil market is Asia, which makes up 55
percent of the market. Next is Africa (16 percent) and America
(8.4 percent).

Most of the Asian market had been captured by Malaysia which
is the world's biggest palm oil producer.

The researchers said Indonesia should increase the value of
its palm oil products by exporting more processed products, like
cooking oil, instead of crude palm oil.

Apart from being made into cooking oil, palm oil is used as
raw material in the manufacturing of soap, cosmetics and
medicines.

Exports

Indonesian palm oil exports rose from 179,000 tons worth US$24
million in 1969 to 1.63 million tons worth $717 million in 1994.

The researchers said Indonesia would probably take over
Malaysia's domination in palm oil production because of
Malaysia's limited plantation area.

The researchers said palm oil prices followed a five-to-seven-
year cycle. This means that in the first two or three years,
prices climbed to their peak in the third or fourth year.

Prices then fell and reached their lowest levels during the
fifth to seventh year. The cycle then starts again.

Price fluctuations occur because of a combination of climatic
and economic factors.

The stock and production of other vegetable oils -- like
coconut oil, sunflower seed oil and soybean oil -- also cause
competitive palm oil prices because the oils can substitute each
other, particularly as raw materials in several industries.

There are oil palm plantations in 16 provinces.

From 105,000 hectares in 1967 it was estimated that estate
hectarage reached 1.8 million hectares in 1994 and to more than
two million hectares last year.

Production is expected to reach 6.7 million tons this year,
7.2 million tons in 2000 and 9.9 million tons in 2005.

The growth of plantation areas has increased Indonesia's share
of the export market from 13.5 percent in 1980 to 26 percent in
1994. (pwn)