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Cargill to invest $500m in Indonesia until 2020
United States commodities giant Cargill Inc
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nited States commodities giant Cargill Inc. plans to invest more than US$500 million until 2020 to expand its business in Indonesia as it gears to tap into enormous opportunities presented by its huge market.
The investment, which is part of $1 billion investment for five years disbursed since 2015, will be funneled into enlarging production capacities of its facilities as well as carrying out mergers and acquisitions of local firms, according to Cargill chairman and chief executive officer David W. MacLennan.
MacLennan expressed his positive feelings about Cargill’s business run by its local unit, PT Cargill Indonesia, but highlighted the great unexplored potential available in the world’s fourth-most populous nation.
“It’s [Cargill’s local operation] a good business for us, but given the size of the country, its young population and its growing economy, we should be bigger here,” MacLennan told The Jakarta Post during an exclusive interview recently.
The next phase of investment could be realized as soon as this year, he added.
Its Indonesian subsidiary contributes only 1.16 percent to Cargill’s global revenue, which as of the third quarter of the 2016 fiscal year to end in May, amounted to $107.14 billion.
Despite the former’s small share of revenue, its 19,000 people represent 12.6 percent of the latter’s total workforce of 150,000 people spread over 70 countries.
Of the overall $1 billion investment, nearly half has been spent on various projects in the past two years. The biggest chunk of $60 million was taken by the construction of a new sweetener plant in Cikande, Serang regency, West Java, in 2015. The second-biggest pledge of $57 million was dedicated to building palm mills and a kernel-crushing plant in West Kalimantan and South Sumatra.
Other expenditure has included a $30 million investment to develop a livestock feed plant in Pasuruan, East Java, in 2015 and a $6 million investment to set up a joint venture, namely PT Cahaya Gunung Goods, with So Good Food, a subsidiary of Singapore-listed poultry giant Japfa Ltd., in 2016. Last month, the new firm started producing fully cooked chicken products and supplying them to fast food restaurants, including McDonalds.
Most of the Cargill revenue from Indonesia is generated by its palm oil business, followed by its poultry unit, animal feed unit and starch and sweeteners unit. In addition to these business lines, the agriculture giant is also involved in cocoa processing, grain and oilseed importation, and poultry processing.
MacLennan further said that Cargill did not set any sector as its investment priority, but would seek expansion into business lines related to what it already runs in Indonesia, such as a corn mill that willl be supportive of its starch and sweetener business.
“The intention in the short term is to sell [our products] domestically, keeping food where it is made. A lot of what we’re doing is making value-added products in Indonesia like the chicken products,” he said.
MacLennan added that Cargill was also keen to increase the size of its oil palm plantations to over 100,000 hectares within five years, from 79,000 ha at present.
“Business can’t stand still. Nothing can stand still and you have to grow. So to say that we’ll still be 80,000 hectares in five years, I don’t think so. We’ll have to be bigger,” he said.
According to Indonesian law, a firm is required to be publicly listed if it wants to manage more than 100,000 ha.
Consequently, Cargill will need to acquire a local publicly listed firm or to float its shares in the stock market.
The firm needed to assess both options and take into account various factors, particularly economic feasibility, and had no preference as of now, MacLennan said.
