Industry Profie: CPO Industry in Indonesia

MARKET INTELLIGENCE REPORT ON

DEVELOPMENT PALM OIL INDUSTRY IN INDONESIA

November 2009

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Main players in oil palm plantations

PBN is no longer has the largest oil palm plantations in the country since 1990. The private sector began to take over with largest investment. Now private investors account for the largest part of oil palm plantations in the country. The change was faster after the monetary crisis in 1997 when a number of investors from Malaysia began to invest heavily in oil palm plantations in the country. They acquired plantations from local companies facing financial problems as a result of the crisis or opened new ones.

PT Astra Agro Lestari

PT Astra Agro Lestari (AAL) is a subsidiary of the Astra Group. It is a holding company for the agribusiness division of the group now having 29 oil palm plantations totaling 500.000 hectares. Most of its oil palm plantations are located in Sumatra and the rest in Kalimantan and Sulawesi.

Around 91% or 455,000 hectares of its plantations are already productive with plants aged around 11 years. The rest or 45,000 hectares are yet too young. In 2004, PT AAL sold its other plantations to concentrate on oil palm plantations.

In 2009, AAL started construction of a new palm oil processing plant in Central Kalimantan, with a processing capacity of 45 tons of fresh fruit bunches (FFB) per hour. So far AAL already has 20 CPO factories with a total processing capacity of 940 tons of FFB per hour. Including one to come on stream in December, 2009, the capacity would rise to 985 tons.

The company also has Kernel Crushing Plants. Currently it has 5 units of kernel crushing plants with a total crushing capacity of 600 tons of kernel per day. The capacity is expected to increase by 100 tons soon with the operation of a new one in Jambi.

In 2010, the company plans to build two new CPO plants with a capacity of 45 tons and 30 tons of FFB per hour respectively in South Kalimantan and East Kalimantan. The company has decided to set aside Rp 1.4 trillion for capital expenditures in 2010.

PT Asian Agri

PT Asian Agri (PT. AA) is the holding company for the agribusiness division of the Raja Garuda Mas Group. PT AA has oil palm plantations in Sumatra including in North Sumatra, Riau and Jambi. It cooperates with local farmers under the PIR scheme.

Currently Asian Agri has 28 oil palm plantations and 19 CPO factories in the three provinces. The factories have a total capacity to produce 1 million tons of CPO a year. Its plantations expanded rapidly from only 100,000 hectares in 2006 to 160,000 hectares in 2009.

The Asian Agri group through its subsidiary PT. Asianagro Agungjaya has built a bio-diesel plant in Dumai, Riau with an investment of Rp350 billion. The factory came on line in 2008 producing bio-diesel from CPO with an initial production capacity of around 200,000 tons per year. The capacity is to be doubled by phases to 400,000 tons.

PT SMART

PT SMART Tbk also operates an integrated industry including oil palm plantations, CPO plants, cooking oil factories and other production facility for downstream products of palm oil. The subsidiary of the Sinar Mas Group had 102,556 hectares of oil palm plantations in 2005 located in Sumatra and Kalimantan. Most or 91,480 hectares of the plantations have been productive. The rest have young plants that have not started producing.

SMART has 12 CPO factories with a production capacity of 2.9 million tons of CPO per year and 2 kernel crushing plants with a production capacity of 200,000 tons of palm kernel oil (PKO) per year. In 2005 it had only three CPO factories in operation in East Kalimantan and South Kalimantan with a production capacity of 450,000 tons CPO per year. PT Smart also has palm oil refinery producing cooking oil with a production capacity of 840,000 tons per year.

Currently SMART has 129,796 hectares of cultivated oil palm plantations of which 118,064 hectares have been productive in Sumatra and Kalimantan. The cultivate plantations rose from 126,295 hectares and the producing plantations expanded from 106,536 hectares in 2007.

CPO production of PT SMART in the first three months of 2009 reached 121,697 tons down 13.4% from 140,495 tons in the same period in 2008. The decline followed a 12.11% fall in the production of FFB to 474,073 tons from 539,400 tons. Its kernel production in the same period also fell 14.1% to 26,789 tons from 31,181 tons.

Its sales of CPO in the first three months of 2009 totaled 492,731 tons and 67% of which were exported.

PT Bakrie Sumatera Plantation

PT Bakrie & Brothers increased its stake in its subsidiary PT. Bakrie Sumatera Plantation by 28% in 2005 from 28.41%. Meanwhile, PT. Bakrie Sumatra Plantations acquired rubber plantation company with processing factory, PT. Huma Indah Mekar, in Lampung and oil palm plantation company with CPO plant PT. Agro Mitra Madani in Jambi at a total cost of Rp140 billion. At the same time PT. Bakrie Sumatera Plantations sold its non productive assets such as oil palm plantation under PT. Patriot Andalas in West Kalimantan.

In 2004, PT Bakrie Sumatera Plantation (BSP) operated 32,712 hectares oil palm plantations including those under its subsidiaries PT Bakrie Pesaman Plantation, PT Agrowiyana and PT Patriot Andalas. However, 2,090 hectares under PT Patriot Andalas have been sold.

The Bakrie & Brothers Group plans large expansion in oil palm and rubber plantations and build own cooking oil factories.

BSP will cooperate with International Finance Corporation (IFC), the subsidiary of the World Bank to build oil palm plantations in West Africa with an investment of US$ 200 million, to start in 2010. The company plans to acquire 200,000 hectares of land in West Africa where investors are allowed to have 100-year control of land.

BSP also plans expansion to Cambodia where it wants to open 10,000 hectares of plantations with an investment of around US$ 30 million. Around 20% or US$ 6 million of the investment will be in internal cash of the company with the rest in loan or share of foreign investors.

PT Perusahaan Perkebunan London Sumatra Indonesia Tbk (Lonsum)

PT. Lonsum has oil palm plantations totaling 41,870 hectares in North Sumatra, South Sumatra and East Kalimantan. Around 27,359 hectares of the oil palm plantations in North Sumatra have been productive. The company has 10 CPO plants with a processing capacity of 220 tons of FFB per hour.

In 2004, Robert Kuok Hock-Nien from Malaysia acquired a stake in PT Pan London Sumatera Plantation, which has a 20.94% stake in Lonsum. Kuok acquired the stake from Andre Pribadi, a younger brother of the owner of the Napan Group, Henry Pribadi.

In 2007, Lonsum was acquired by the Indofood group through PT. Indo Agri Resources Ltd at a price of Rp 8.4 trillion. ING, Standard Chartered Bank, Sumitomo Mitsui Banking, and Bank Cen¬tral Asia provided a loan of US$ 25 million for the acquisition.

PT. Indo Agri operates an integrated industry including oil palm plantations, cooking oil factory and margarine and shortenings factories with popular brands. Previously, IndoAgri already had oil palm plantation areas totaling 224,083 hectares, including 74,878 hectares already cultivated. With the acquisition, its plantations expanded to 387,483 hectares, including 138,081 hectares already cultivated. Altogether, its cultivated lands total 165,000 hectares, including rubber plantations and other plantations.

In the first half of 2009, PT. Lonsum produced 170,000 tons of CPO, with target set at 380,000 tons for the whole of the year.

Currently, Lonsum has 11 CPO processing factories including 4 units in North Sumatra, 6 units in South Sumatra, and one in East Kalimantan. The 11 factories have a processing capacity of 405 tons of FFB per hour.

PT. Lonsum plans to build a CPO factory each in South Kalimantan and East Kalimantan in 2010. It also plans to expand it’s cultivate lands by 2,000 hectares. Currently it has 110,000 hectares of oil palm plantations and 27,000 hectares of rubber plantations.

PTP Nusantara IV

PT Perkebunan Nusantara IV (PTPN IV) is a state plantation company established in 1996. It is a merger of a number of state plantation companies in North Sumatra including PTP VI, PTP VII and PTP VIII.

PTPN IV has plantations grown with oil palm, cacao and tea totaling 153,872 hectares. Its oil palm plantations total 119,585.71 hectares, cacao plantations total 7,796 hectares and tea plantations total 7,963.77 hectares. It also has plasma farms totaling 9,158.56 hectares including 8,996.56 hectares in oil palm plantations and 162 hectares in tea plantations.

PTPN IV also has 34 units of processing plants including 16 units for CPO factories and fraction facility producing palm oil derivatives such as RBD Olein, stearin and fatty acid.

PTPN IV has a CPO production capacity of 320,000 tons per year and 31,000 tons of PKO per year. The company is the largest oil palm plantation company owned by the state.

In 2007, PTPN IV took over oil palm plantation area of PT Andalas Agro Nusantara in the regency of Mandailing Natal, North Sumatra totaling 20,000 hectares. Planting over the 20,000 hectares of land is expected to be completed in 2011. With the acquisition, the oil palm plantations of PTPN IV will expand to 135,978 hectares.

Private companies dominate oil palm plantations

In 2009, private plantation companies (PBS) have the largest oil palm plantations in the country. Among the PBS, PT. Asian Agri and its subsidiaries alone have 3.7 million hectares mostly in Sumatra.

PT. Astra Agro Lestari (AAL) of he Astra Group has around 500,000 hectares located in Sumatra, Kalimantan and Sulawesi; PT. SMART has around 320,463 hectares mainly in Sumatra and Kalimantan.

State plantation companies (PBN) include PTPN Nusantara IV with plantations totaling 144,509 hectares in North Sumatra.

Malaysian Investors

Malaysian investors began to start venturing in oil palm sector in Indonesia in 1990 as they could not expand business in their country. In addition, there was no restriction on acquisition of plantations in the country early the 1990s. The price of the lands are relatively cheap averaging Rp35 million per hectare.

In Kalimantan, 30% of oil palm plantations are owned by Malaysian investors. The Malaysian investors generally acquire lands from local farmers already ready for cultivation.

It is estimated Malaysian plantations in the country total around 1 million hectares and 50% of which are in Kalimantan and Sumatra. There are at least 8 Malaysian companies groups including state companies operating in Indonesia. Among them is the Guthrie Group. This company group expanded operation to Indonesia by acquiring oil palm plantations from the Salim Group. See List of contents

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