INDONESIAN OIL PALM INDUSTRY

i) Oil Palm Areas
Indonesia and Malaysia both have similar type of soils and climate, Thus, Indonesia too can
plant oil palm, in addition to coconut trees, rubber and cacao. The country started its oil palm
cultivation commercially in 1911 on the East coast of Sumatra Island. In 1969, production by
this country was 180,000 tonnes of CPO and 40,000 tonnes of palm kernel. Prior to 1974,
plantations were mostly run by smallholders because of easy marketing.
In 1974, Indonesian government responded to the attractive high prices of palm oil in the
international market which then followed by the initiative to form state owned plantations
(Nucleus Estates Schemes). As a result, oil palm areas began to expand in 1975 from Sumatra to
Kalimantan and to Irian Jaya (Papua) with areas increasing from 295,000 ha. in 1980 to 1.6
million ha. in 1995 and from 4.2 million ha. in 2000 to 6.07 million ha. in 2006 (IPOB, 2007)
(Figure 11). In 2006, total growing area is distributed among three groups, which include
government holdings, private companies and small holders. According to Indonesia Bureau of
Statistics (BPS) in 2006, 45% of total palm area is owned by private companies, followed closely
at 43 % by small holders, and the government comprising the remaining 12%. Small holders are
frequently part of partnership scheme with private companies (USDA, 2007).
Over the past few years, the pace of Indonesian palm oil production had dominated other
producing countries and rose steadily. This continued increase in production is a result of area
expansion. It is the availability of land on Borneo and other previously non-developed areas that
had allowed Indonesia to become the top producer. From 180,000 tonnes in 1969, Indonesia
expanded its production to 7 million tonnes in 2000 and in 2009, it was about 21 million tonnes.
The islands of Sumatra, Borneo, Sulawesi and West Papua have opened up their regions in
recent years and have added significant areas that only now are coming on-stream in terms of
production. In addition to new areas of land developed, another reason for the growing
production numbers is that the surge in planting activity during the past ten years is now
beginning to be realized. There is a several years lag time when palms are initially planted on
the plantation until the first production of fruit bunches. Data on actual area planted to oil palm
is not easily obtained. Where government data does exist, many in the industry believe that the
government data is not as complete as it might be, often having production estimates lower than
those of the industry. One proxy source of area data is oil palm seed sales. Data presented at the
International Palm Oil Congress 2007 on seed sales reveals a rapid increase in demand, so much
that seed producers have had difficultly keeping up with demand.
Indonesian palm oil has the potential to expand in the future due to large land bank. Currently the
potential land availability for oil palm in Indonesia is about 26 million ha. scattering from Acheh
to Papua (Irian) (Hasibuan, 2006). In line with such potentiality, Indonesian government has set
a target to expand by 3 million ha. to produce additional 10 million tonnes of palm oil for
domestic and export market. However, this effort needs a huge amount of investment of about
USD 8.4 billion to USD10.5 billion for the 3 million ha expansion. Recently, China was
interested to invest in oil palm in Kalimantan border.

ii) Oil Palm Productivity
Indonesian oil palm productivity in 2006 varied among producers. Smallholders’ productivity
were low at 2.34 tonnes of palm oil per ha. per year. This is because they can get 13 tonnes of
FFB with an oil extraction rate (OER) of 18%. Small companies harvested 16 tonnes of FFB
with an OER of 19%, giving a productivity of 3.04 tonnes of palm oil per ha per year. Big
companies, due to good management practice, can get 23 tonnes of FFB per ha per year with an
OER of 24%. With this, their productivity was high at 5.52 tonnes of palm oil.
iii) CPO Production
Production of CPO in the country had increased as area expanded (Figure 11). However, the rate
of increase is faster for production than that of area. Production was about three quarter of a
million tonnes in 1980 and grew to about 4.2 million tonnes in 1995. In another portion,
production was about 7 million tonnes in 2000 and rose to about 20.9 million tonnes in 2009
(MPOB,2010).
Production of CPO is always larger than domestic consumption needs. The gap between the two,
however, was smaller in 1999 but widened by year towards 2009. This is because the production
expands more rapidly compared to that of domestic consumption. In 2008, the production had
reached about 19.2 million tonnes while domestic consumption was slightly higher than 4.5
million tonnes and it is expected that the proportion of domestic consumption will stay constant
at around 23% in the future. Based on this development, Indonesia has a great potential as a big
exporting country of CPO in the world. In 2009, Indonesia had overtaken Malaysia as the biggest
palm oil exporter. In addition to excess supply of CPO, exports also depend on the world market
opportunity and capability of the Indonesian industry to make good use of this opportunity.
iv) Palm Oil Demand
From the total domestic demand, a portion was allocated for domestic cooking oil to cater the
need for 220 million people in the country. The per capita consumption of cooking oil per year is
about 12 kg, comprising of 10.5 kg per capita of RBD palm olein and 1.5 kg per capita of
coconut oil. Based on this, 2.31 million tonnes of palm cooking oil is needed or an equivalent of
3.2 million tonnes of CPO per year.
Similarly with Malaysian palm oil, other forms of demand for palm oil in Indonesia are soap
making and oleo-chemicals. A total of about 200,000 to 500,000 tonnes of CPO will be needed
each year. As such, total domestic demand for palm oil amounted to 3.4 to 3.7 million tonnes per
year.
In term of total export of palm oil, Figure 12 shows that export volumes of palm oil increased
significantly since 1998; however that of CPO is less significant. Palm oil exports rose from 2.2
million tonnes in 1998 to 15.9 million tonnes in 2009, an increase by seven times. Indonesia has

more than 100 export destinations.

Outlook for Indonesian CPO production
Indonesia performed significantly well since 2000 in term of CPO production. Figure 13 shows
its trend protruding upwards in a straight line, compared to Malaysian production which formed
a less steep slope. Indonesia has a good infrastructure and land availability, so there is a great
chance for the country to continue its production growth momentum in short-term. However, as
mentioned earlier, Indonesian data is a problem. Thus, in projection it is important to mention the
sources of the data. Hence, based on the land availability and past performance of the oil palm
areas, forecasts are made using various scenarios and comparisons were made with other sources
Indonesia is forecasted to have its planted areas growing to about 7.91 million ha. in 2010 from
about 7.55 mil ha in the previous year . Out of this, 6.01 million ha. (5.73 million ha.
from Oil World) are matured areas in 2010. As such, CPO production in the country is projected
to reach about 22.91 million tonnes in 2010 .

 

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