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Jakarta Post

Regulation may dash palm oil industry'€™s hopes for higher output

  • The Jakarta Post

    The Jakarta Post

Jakarta   /   Tue, January 28, 2014   /  09:39 am
Regulation may dash palm oil industry'€™s hopes for higher output

The future of the palm oil industry will likely be uncertain this year due to a new regulation that came into effect last October, despite forecasts of favorable weather this year expected to increase output.

This year'€™s weather forecast estimates the industry'€™s output could be 8 percent higher than last year'€™s, reaching 28 million tons of crude palm oil (CPO).

But an agriculture ministerial regulation that came into effect on Oct. 2, 2013, has sparked controversy due to its stipulation that a company or a group is only allowed to own a maximum of 100,000 hectares of land for new oil palm plantations.

State-owned enterprises, cooperatives and publicly listed companies, whose majority shares are owned by the public, are exempt from the limitation, according to the regulation.

'€œThe government aims to have 40 million tons of palm oil produced by 2020, but the regulation will hinder us from making that happen,'€ Indonesian Palm Oil Producers Association (Gapki) secretary-general Joko Supriyono told The Jakarta Post recently.

He said that the industry produced only 26 million tons of CPO last year from 9 million hectares of oil palm plantations.

According to a Rabobank report published in 2012, palm oil-producing countries '€” such as Indonesia and Malaysia '€” need to expand their plantations by 640,000 hectares per year to meet the surge in global demand for CPO, which is expected to reach up to 68 million tons by 2020.

However, the Agriculture Ministry'€™s director general for plantations, Gamal Nasir, said the regulation was only aimed at guaranteeing equitable land ownership between large companies and smallholders.

'€œMany social conflicts have occurred between local farmers and large companies because the latter often take over land belonging to local farmers and neglect their needs,'€ he said, adding that the regulation also required palm oil firms to allocate at least 20 percent of their plantations to plasma farmers.

According to Forestry Ministry data, Indonesia still has 5.7 million hectares of forest areas designated for oil palm, rubber and sugar cane plantations. The country also has another 17 million hectares of forest areas designated as convertible production forest for commercial use.

Viva Yoga Mauladi, a member of the House of Representatives'€™ Commission IV overseeing agriculture and plantations, said the regulation was a good move to prevent large foreign companies from dominating the country'€™s palm oil industry.

Joko, however, said that Gapki would insist on a revision of the regulation, saying that in effect it would only prevent large companies from investing more.

'€œBig companies are in fact the largest contributors to the industry. They provide plasma plantations for smallholders and they buy palm oil that local farmers produce,'€ he said.

Smallholders owned 41 percent of the total 8.8 million hectares of oil palm plantations in 2011, up from only 29 percent of a total 4.1 million hectares in 2000, according to Gapki data.

The head of operations in Indonesia for the Singapore-listed Wilmar Group, Hendri Saksti, told the Post that his company always complied with local regulations, but this latest regulatory cap on plantations left his company'€™s expansion plan in doubt.

Hendri said Wilmar currently owned 183,518 hectares of oil palm plantation in Indonesia, 22 percent of which was managed by plasma farmers.

It also has around 58,799 hectares of plantation in Malaysia and 10,225 hectares in Africa.

The company, which is the holder of the well-known cooking-oil brands, Fortune and Sania, produced around 1.5 million tons of CPO from its own 39 palm oil mills last year, and it had planned to acquire more land here to produce 10 million tons of CPO in 2018.

'€œWe obtained a permit to build a new plantation on 80,000 hectares of land in Papua before the regulation came into effect, but now we don'€™t know what to do with that land,'€ said Wilmar commissioner MP Tumanggor.

'€œWe expect the Agriculture Ministry to offer us a more feasible option. For example, the government could require a company to provide a certain portion of its plantation land for plasma farmers every time it expands rather than limiting [the expansion] to only 100,000 hectares,'€ Hendri added.

Greenpeace Indonesia forest campaigner Wirendro Sumargo said the regulation was necessary to control the industry, which was both an economic engine and a prominent driver of deforestation.

'€œThe industry contributed to the loss of 1.24 million hectares of forest from 2009 to 2011,'€ he said.

He added, however, that there should be a win-win solution, one with which the government could serve the interests of both large companies and smallholders. '€œNot all big companies are necessarily pernicious.'€ (koi)

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