The oil palm sector has continued to grow in the country as indicated by the expansion of the total area of oil palm plantations from 7 million hectares in 2008 to 7.3 million hectares in 2009 with crude palm oil (CPO) production rising from year to year – from 19.2 million tons in 2008 to 19.4 million tons in 2009. Increase has also been recorded in the exports of CPO. In the first nine months of 2009, CPO exports already reached 14.9 million tons as against 18.1 million tons in the whole of 2008.
Indonesia has climbed to the top of world’s palm oil producers in the past several years with CPO production reaching 19.4 million tons in 2009. Most of the production was exported with domestic consumption totaling only 4.8 million tons or around 25%.
Indonesian CPO exporters, however, are facing hurdles in international markets especially in the European Union (EU). The EU has issued a regulation called EU Directive on Greenhouse emission to be effective in 2011. Under the regulation, EU member countries are not allowed to import CPO that could not meet the EU standard in emission. CPO from will not likely is allowed to enter the EU market under the regulation. Indonesian authorities have protested accusing the EU of discriminating against CPO. Indonesia suspected the policy has been motivated by economic interest. CPO has gained over EU products of edible oils like soybean oil, sunflower seed and rapeseed oil in international markets.
Seeking to find way to cope with the EU Directive, Indonesia will conduct research on the greenhouse gas emission in cooperation with the Netherlands and Germany. The EU is a major market for Indonesian CPO. In 2007, Indonesia exported 2.9 million tons of CPO to that region. In addition, a number of Indonesian palm oil producers have factories in Europe.
Meanwhile, Indonesia is seeking to expand its export market and boost exports to other traditional markets like Pakistan, Bangladesh, and East Europe and China.
Expansion of CPO industry in the country is hampered by inadequate infrastructure mainly access roads to and from factories and seaports. In a bid to cope with the problem, the government plans improvement of infrastructure especially roads to oil palm plantations and build CPO industry clusters northern coats of Java, eastern coast of Sumatra, East Kalimantan, Sulawesi and Merauke. The plans have been discussed in the Indonesia Palm Oil Conference and Price Outlook 2010 last November in Nusa Dua Bali.
Indonesia has not made much headway in the development of downstream palm oil industry. The country has long developed intermediate industry producing fatty acid, fatty alcohol, glycerin, and methyl ester, but has made little progress in the downstream sector such as in surfactant, pharmaceutical, cosmetic and organic base chemical industries.
Development of the downstream sector would give greater value to palm oil and create new jobs.
Structure of Industry
Oil palm plantations by operators
The country’s oil palm plantations have expanded by 8.7% per year from 3,902,000 hectares in 1999 to 7,321,897 hectares in 2009. The expansion was especially fast in late 1980s, when the private sector began to invest heavily in the sector. Previously state companies (PBN) dominate oil palm plantations.
Increase in the prices of Crude Palm Oil has attracted investors and prompted farmers to grow oil palm trees in their lands. The launching of the nucleus smallholder estate (PIR) scheme under which large companies including state and private companies developed oil palm plantations in cooperation with local farmers accelerated expansion of oil palm plantations in the country.
Currently private plantation companies (PBS) dominated oil palm plantations in Indonesia. In 2009, around 49.47% or 3,501,000 hectares of oil plantations in the country were owned by private companies, with smallholders (PR) accounting for 2,959,000 hectares or 41.80% and PBN owing the remaining 617,000 hectares (8.73%).
In 1999-2009, the plantations owned by PBN grew only 1.73% per year, PR plantation grew by 12.01% per year and PBS by 5.04% per year.
According to data from the Plantation Directorate General, oil palm plantations are found in 17 provinces in Sumatra, Java, Kalimantan, Sulawesi, Maluku and Papua. In 2005, had the largest plantations totaling 4,280,094 hectares or 76.46% of the total area of oil palm plantations in the country. Riau had the largest by provinces with 1,383,477 hectares, followed by North Sumatra with 964,257 hectares.
Kalimantan had 1,108,288 hectares (19.80%) in which West Kalimantan had the largest area of oil palm plantations totaling 466,901 hectares, followed by Central Kalimantan with 269,043 hectares.
In Java had only 26,046 hectares or 0.46% of the total area in his country. Oil palm plantations in Java are found only in West Java and Banten.
Areas and condition of plantations
Many new oil palm plantations have been opened especially in Riau, Jambi, South Sumatra and Kalimantan in the past five years. Some of the plantations, therefore, have not been ready for harvest. In 2009, there were 2,173,668 hectares (29.7%) of the total areas of oil palm plantations in the country not yet producing. Productive plantations that year totaled 5,062,019 hectares (69.1%), with damaged plantation or no longer productive making up the rest or 87,417 hectares (1.2%).
North Sumatra is among the first to develop oil palm plantations. Plantations not yet producing in that province totaled 1,256,509 hectares or 17.2% of the country’s total areas of plantation. More plantations, therefore, are expected son to contribute to increasing the country’s total production. Therefore, Malaysia, the country’s closest rival, is not expected to pose a threat to Indonesia in CPO production as it already reached its peak production and would not be expected to have additional production.
CPO Production up 14.5% per year
The country’s CPO production has increased from year to year especially after the rising prices of that commodity in the world market.
In the period of 2005-2009, the country’s CPO production grew 14.5% per year – from 11.9 million tons in 2005 to 19.4 million tons in 2009.
The increase in the CPO production, has been boosted by growing demand in export market especially to the United States and on the domestic market to feed cooking oil factories and other food processing companies. Demand ahs also increased from bio-diesel industry in the past several years.
In 2010, the country’s CPO production is forecast to rise 8% to 20.9 million tons. The increase in production follows the expansion of oil palm plantations since 2007 with a total expansion of 1.9 million hectares. Every year, there was an expansion of around 500,000 hectares in the oil palm plantations.