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)