Outlook Agribusiness in Indonesia 2012 -December 2011

INDONESIAN COMMERCIAL NEWSLETTER

December 2011

AGRIBUSINESS OUTLOOK, 2012

Current Issue

Indonesia's agribusiness sector including crude palm oil industry, cacao, rubber and coffee plantations is expected to continue grow in 2012 after encouraging growth recorded in 2011.

The prices of CPO and a number of other agricultural commodities are forecast to increase in 2012 after a decline in the third quarter of 2011. Price hikes will encourage investment in the sector. The price of CPO is expected to rise with shrinking supplies and production of palm oil and soybean as the main basic materials for vegetative oils in the world.

The Indonesian Association of Palm Oil Companies (GAPKI) predicted that the country's production of CPO in 2012 would increase to 25 million tons, from 23.5 million tons in 2011. In the past three years, Indonesia has become the largest producer of CPO in the world putting behind Malaysia, which had long held the position as the world's number one producer of that commodity. Indonesia and Malaysia account for 85% of the world's production and market of CPO.

The price of CPO has followed the oil price developments. Oil price has tended to rise in 2012. The CPO market price is based on the spot price in Rotterdam. The spot price in Rotterdam is expected to climb to an average of US$ 1,200 per ton in 2012 from US$ 1,125 per ton (cif Rotterdam) in 2011.

Meanwhile, the prices of other agricultural commodities like cacao and coffee, which are also major export earners for the country, are also expected to climb this year.

Agribusiness sector grow averagely 2.58% in 2011

In general, the country's agribusiness sector grew in 2011. In the third quarter of 2011, the sector grew 2.58%. The country's exports of a number of major commodities like palm oil, rubber, coffee and cacao increased in 2011 on strong demand in international market.

The prices of a number of commodities scaled up again. The price of palm oil on grew partly because of growing demand from the producers of bio-diesel In addition, increase in demand is also recorded from cooking oil producers with the market has shown preference to palm oil-based cooking oil over cooking oils. Consumers choose palm oil-based cooking oil over one from soybean oil as soybean is reported to contain fat, which could cause health hazard. Shortfall in supply is also expected to push up the price of CPO.

Meanwhile the price of natural rubber has increased to follow the trend in the market of synthetic rubber. The soaring price of oil has brought about an increase in the price of synthetic rubber.

In 2011, five major export commodities palm oil, rubber, cacao, coffee, and sugarcane contributed considerably to the country's income from the exports of primary commodities in the agribusiness sector.

The export earning increase because of increase in the export volume and in price of the commodities.

In the January-September of 2011, exports of palm oil reached 5.3 million tons valued at US$ 4.96 billion, rubber exports totaled 682,000 tons valued at US$ 3.047 billion, cacao exports totaled 87,500 tons valued at US$ 302 million and coffee exports reached 75,700 tons valued at US$ 249 million.

Prices forecast to rise in 2012

CPO price predicted to climb to US$ 1,200 per ton

The CPO market or price in 2012 will be determined much by the trend the oil market. In general, the CPO price is set on the spot market price in Rotterdam. The association of palm oil companies (GAPKI) said the price of CPO is estimated to hover around US$ 1,200 per ton in 2012, up from an average of US$1,125 per ton in 2011 (cif Rotterdam). Additional stock of CPO in 2012 is expected to reach only 0.92 million tons, that the price of that commodity would be driven to a higher level.

CPO production in 2012 is predicted to reach 51.1 million tons, or an increase of 1.8 % from 50.18 million tons in 2011. Meanwhile, the world's consumption of CPO is estimated to rise 1.7% to 50 million tons this year from 49.15 million tons in 2011. Indonesia will remain the largest producer of CPO in the world followed by Malaysia with production estimated at 18.8 million tons per year.

According to GAPKI, the country's production of CPO is forecast to reach 25 million tons in 2012, up 6.4% from 23.5 million tons in 2011. In 2012, exports of CPO are forecast to rise to 17.5 million tons, from 16.5 million tons in 2011. Domestic consumption of CPO is expected to reach 7.5 million tons in 2012, up from 7 million tons in 2011.

Expansion of oil palm plantations is predicted to reach only 1,000 hectares bringing the total area of oil palm plantations to 8.2 million hectares in 2012. The largest units of around 150,000 hectares of the plantations are located in Central Kalimantan, East Kalimantan and West Kalimantan. Other oil palm plantations are located in South Sumatra, Lampung, Bangka Belitung, Sulawesi, North Sumatra, Riau and Aceh.

Malaysia is the largest foreign investor in the palm oil sector in the country. Malaysian investors have 26% or around 2.1 million hectares of oil palm plantations in the country. Malaysian investors are forced to expand operation to Indonesia because of the limited land available for expansion in that country. Malaysia has only 4.5 million hectares of oil palm plantations of 14% of its land territories.

Hurdles hampering development of palm oil industry in the country this year include internal and external factors. Internal factors include human rights issue with conflicts between local people and he plantation companies, inadequate infrastructure and export tax. External factors include anti palm oil campaigns launched by non governmental organizations saying that expansion of oil palm plantations in the country has resulted in extensive destruction of forest and the environment. Indonesia, however, accused the campaigns of being commercially motivated linked to competition in the world's edible oil markets. CPO market expansion has badly hurt producers of other edible oils mainly soybean oil. Soybean oil has lost ground in the market competition against CPO especially after report of health hazardous fat in soybean oil.

The Indonesian government has slapped export tax in line with the regulation of the trade minister No. 56/M-DAG/PER/10/2009 on export benchmark price (HPE) for CPO and derivatives. The HPE of CPO by December 2011 was set at US$ 970 per ton, and he HPE of oil palm fruits and kernel of palm oil was US$ 310 per ton, crude palm olein US$ 1.007, crude palm kernel oil US$ 1.117 per tons, etc.

Cacao price increase to US$ 2.500 per ton

According to the International Cocoa Organization (ICO), the world's production of cacao beans is predicted to decline to 4 million tons in 2012, from 4.3 million tons in 2011. A decline is feared on protracted drought especially in western Africa the world's largest cacao producing region. Drought is expected to continue to hit that region until the first quarter of this year.

Demand for cacao beans in the world market is predicted to increase to 3.6 million tons in 2012, up 2.9% from 3.5 million tons in 2011. The price of cacao beans is expected to continue to scale up despite the general slump in Europe and the United Stated. The price increase is predicted because of shrinking supply from Western Africa the Ivory Coast and Ghana the world largest producers. The two countries are beset by as whether phenomenon La Nina, and from Indonesia, the world's third largest producer. Production from Indonesia is forecast to decline on heavy downpour in producing regions.

The prices of cacao beans in the world market are forecast to continue to scale up to reach US$ 2,500 per ton in 2012 up from US$ 2,400 per ton in 2011.

Meanwhile, the Association of Cacao Companies (Askindo) predicted that the country's production of cacao would rise to 500,000 tons in 2012, or an increase of 11.1% from 450,000 tons in 2011. Weather is a determinant factor in the production of cacao beans. Cacao plantations in Indonesia totaled 1.56 million hectares in 2011. ....

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