Indonesia Agribusiness Industry Outook 2011

INDONESIAN COMMERCIAL NEWSLETTER

December 2010

OUTLOOK OF INDONESIA'S AGRIBUSINESS, 2011

Current Issue

The country's agribusiness sector is expected to grow faster in 2011 than in 2010. Production of crude palm oil, cacao, rubber and coffee is expected to continue to grow as in 2010.

According to the prediction of the Indonesian Cacao Association (Askindo) cacao production will reach 1,074 million tons in 2011, up from 795,000 tons in 2010. The increase is predicted with improved productivity especially in production centers in Sulawesi. Increase in production is also expected with the intensification program, replanting and rehabilitation of plantations.

Increase in production will contribute to rise in exports. In 2011, the country's exports of cacao are predicted to reach 600,000 tons, up from 552,892 tons in 2010. Increase in exports is also boosted by growing demand especially from Malaysia. The price of cacao beans at present is around US$ 3500 per ton in the New York Commodity Exchange.

Meanwhile, the price of crude palm oil (CPO) is also predicted to scale up in 2011. The increase in the price of CPO followed a decline in production of that commodity and soybean as the main basic materials for vegetable oils.

The Indonesian Association of Palm Oil Companies (GAPKI) set a target for the country's production of CPO at 22.5 million tons in 2011, from 21 million tons. Last year. In the past three years Indonesia has been the world's largest producer of CPO taking over from Malaysia, which fell in rank to the second. Together, Indonesia and Malaysia dominate 85% of the world's CPO market.

Rubber and coffee are other major export commodities of Indonesia. He prices of the two commodities also have tended to increase in the world market.

Agribusiness sector grew 45.6% in 2010

In general, the country's agribusiness sector grew in 2010 with the improved condition of the global economy after the slump in 2009. The improvement was shown by a 6% growth in the third quarter of 2010 compared to a 4.12% growth n the same period in 2009.

Exports of a number of Indonesia's major export commodities like palm oil, rubber, coffee and cacao increased in 2010 with the growing demand in international market.

The prices of a number of the primary commodities scaled up. Demand for CPO rose with growing demand from bio-diesel industry. In addition there has been change in the market demand for vegetable oils in favor of palm oil after it was reported that soybean oil contains fat called transfat that could endanger human health. Meanwhile supplies to the world market have fallen short of demand triggering price hike.

The price of rubber surged to follow the rise in the price of synthetic rubber which is an oil-based product. The price of synthetic rubber will increase if the oil price rises.

In 2010, palm oil, rubber, cacao, and coffee were major export commodities contributing considerably to the country's foreign exchange earning from the agribusiness sector.

Apart from volume being larger, the prices have increased after the soaring prices of crude oil in the world market. In 2010, exports of palm oil reached 20.4 million tons valued at US$ 15.414 million, rubber 2.4. million tons valued at US$ 7,470 million, cacao 552 thousand tons valued at US$ 1,643 million and coffee 433 thousand tons valued at US$ 814 million .

over a total area of 5,323 hectares in 27 regencies in various provinces .

Prospects of Agribusiness 2011

CPO

o The world's demand for CPO is forecast to grow 6.9% to 49.4 million tons from 46.2 million tons in 2010. The growth, however, is not expected to be enough to push up the price as production and supplies remain higher than consumption . The world's production of CPO is predicted to reach 49 million tons.

o The increase in the world's demand for CPO is partly caused by growing number of power plants using CPO-based bio-diesel for fuel in the United States and Europe, and growing demand for palm oil-based cooking oil and other consumer goods in other countries like China and India.

o The price of CPO is forecast to rise to US$ 1.200, still below the peak price of US$ 1,250 in March , 2008.

o According to GAPKI, the country's CPO production will rise to 22.5 million tons in 2011. The increase is attributable to expansion of plantations and higher productivity.

o The country's exports of CPO are predicted to reach 17 million tons with largest buyers India and China , followed by the Netherlands in Europe.

o Indonesia has succeeded in expanding CPO market. According to the Indonesian Palm Oil Council (DMSI), the country exports 78% of its CPO production. Exports have been made to around 150 countries with largest markets including China, India, Malaysia, Singapore and the Netherlands.

o Domestic demand for CPO is predicted to grow 55% partly as a result of the government's policy requiring the use of bio-diesel for fuel in a mixture with a ratio of 5% to oil fuel.

Cacao

o The country's production of cacao in 2011 is forecast to rise to 1,074 million tons from 795,000 tons in 2010 with improved productivity of the plantations especially in Sulawesi, the largest producing region. Intensification, rehabilitation and replanting contribute to higher productivity.

o Since 2009 the government has launched revitalization of cacao plantations in South Sulawesi with a total cost of Rp13.75 trillion. Revitalization has been carried with replanting over 70 hectares, rehabilitation over 235 hectares, and intensification over 145 hectares of plantations as well as pest and disease control over 450 hectares.

o Indonesia still has ample potential lands for expansion of cacao plantations estimated at around 6.2 million hectares in Irian Jaya, East Kalimantan, Central Sulawesi, Maluku and Southeast Sulawesi. The existing plantations also could still be improved in productivity . The productivity of existing plantations is still below 50% . The problem faced by country's cacao producers or growers is poor quality.

Rubber

o The National Rubber Committee predicted that the rubber prices in the world market will continue to climb to reach US$ 4.5 per kg in the first quarter of 2011 from US$ 3 per kg in 2010 on growing demand and decline in production.

o The world's production of natural rubber is predicted to reach 11.151 million tons, up 9.1% from 10,219 million tons in 2010. The world's largest producer of natural rubber is Thailand, followed by Indonesia and Malaysia. The three account for 70% of the world's total supplies. The largest consumer is China.

o In 2011, Indonesia's production of natural rubber is forecast to rise 7.4% to 2.9 million tons from 2.7 million tons in 2010. Thailand's production of natural rubber averages 3.1 million tons a year and Malaysia's production is around 1.21 million tons.

o Starting 2010, the government has revitalized 300,000 hectares of rubber plantations and completed replanting over 400,000 hectares of plantations. Indonesia hopes to become the world's largest producer of natural rubber in 2020.

Coffee

o The price of robusta coffee in the world market is forecast to rise to US$2.6 per kg, from US$1.6 per kg. In 2010. The crisis in the United States had bad impact on the coffee prices . The benchmark for coffee prices in the world is the market price in New York. The prices in other regions follow the trend in New York..

o According to the International Coffee Organization (ICO) the world's production of coffee in 2011 will rise to 133 million bags from 123 million bags in 2010. In 2010, Brazil, the world's largest producer of coffee, contributed 47.2 million bags or 2.8 million tons to the world's total production However, in 2011, its production is forecast to fall to 36 million bags or 2.1 million tons.

o According to the Indonesian Association of Coffee Exporters (AEKI), the country's exports of coffee in 2011 would rise 5.6^ to 570,000 tons, from 540,000 tons in 2010. Indonesia could not face Vietnam in price competition. In the London market, Vietnam offered a big discount that Indonesia could not give. Vietnam, therefore, succeeds in maintaining strong foothold in international market. Indonesian coffee is known to be expensive but the quality is good.

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