OUTLOOK INDONESIAN PALM OIL INDUSTRY

EXECUTIVE SUMMARY

Palm oil industry in Indonesia is growing very rapidly in recent years. Indonesia became the largest country in the production and export of palm oil products. Contribution of Indonesia in CPO export shares currently account for 47% of total world palm oil exports. Contribution of the oil palm industry in Indonesia's economic growth is also increasing. Currently palm oil accounted for 7% of Gross Domestic Product (GDP) of Indonesia. In addition, palm oil industry plays a major role in food security systems, expansion of employment and income generation, especially in rural communities.

Palm oil plantations in Indonesia today are 7,824,623 Ha (2010). Approximately 49.8% of the total land area of oil palm plantations is managed by private owned enterprise, 42.4% is managed by the smallholder and the remaining 7.9% is managed by state owned enterprise. Average growth of land per year is 4.2%. In 2011, the Government of Indonesia in cooperation with the Norwegian Government to carbon emissions reduction program. Follow-up agreement has been executed by the Indonesian government. Republic of Indonesia through Presidential Instruction No. 10 of 2011 regarding New Permit Delays and Completion Management of Natural Forests and Peatlands Basic. This policy will impact on accelerating the opening of new palm oil plantation land in Indonesia. It is estimated that within the next two years will slow the clearing of land for 2-4 million hectares of palm oil, thereby reducing the production of 200-400 thousand MT CPO/CPKO.

Indonesia's CPO production in 2010 was 19,631,136 MT, while CPKO production was 4,907,784 MT. Approximately 17,057,700 MT of CPO and 1,527,750 MT of CPKO exports with market share exports are India (36%), EU (19%) and China (16%).  Problems encountered in the development of CPO processing industry are the low effectiveness of CPO processing. Currently Oil Extraction Rate (OER) CPO in Indonesia only reached 21-23% Malaysia is still far below that having reached 26-28%. This occurs due to the low quality of FFB is managed by the smallholder. In the next five years, CPO and CPKO production in Indonesia will continue to increase. Although there is delay the licensing policy and the opening of new land but not significant impact on the production of CPO and CPKO. It is estimated that by 2016, Indonesia's CPO production will reach 33,067,271 MT and CPKO will reach 8,266,818 MT.

Unlike the development of upstream palm oil industry, downstream palm oil industry in Indonesia has not developed rapidly. Not many palm oil derivative products produced in the downstream palm oil industry in Indonesia. Currently, the downstream palm oil industry in Indonesia focus on developing products such as cooking oil, margarine, shortening, oleo chimacals (fatty acids, fatty alcohols and glycerol) and biodiesel. Compare with Malaysia that has been developed a lot of palm oil derivative products.

Production of cooking oil in Indonesia today is 8,738,000 MT (75% palm oil-based cooking oil, 15% coconut oil-based cooking oil and 10% other). Problems encountered in the cooking oil industry are the low production capacity. Current installed capacity of cooking oil refinery in Indonesia has reached 15,430,000 MT/year. Capacity is only about 56.6% of the utilized production. There are some problems that cause low production capacity. (1) Lack of interest in palm oil companies developing to cooking oil industry due to high international CPO prices. (2) Lack of supporting infrastructure and government incentives towards the development of cooking oil industry. (3) The lack of supply of CPO to cooking oil industry due to the high Indonesian CPO exports abroad.

But the Indonesian government in the future will seek to increase the production capacity of cooking oil. Some policies have done as CPO export tax policy progressively, cooking oil industry cluster development, fiscal incentives, banking support and other. An estimated five years, cooking oil production will reach 10.100.000 MT by the composition of the production of palm-based cooking oil reached 6,751,988 MT.

Production of margarine and shortening in Indonesia today is 2,244,631 MT. Approximately 1,571,242 MT distributed domestic market and the rest exported. Margarine and shortening production in Indonesia is controlled by the three major players of Unilever (40%), IndoAgri (25%) and SMART (20%). In the next five years, the production of margarine and shortening will reach 3,008,020 MT.

Oleo chemical productions in Indonesia today are fatty acids (786.225 MT), fatty alcohol (274.836 MT) and glycerol (97.522 MT). Currently, the industry dominated by five players oleo chemical markets such as; Bakrie Sumatra Plantation (18.11%), Musi Mas (17.62%), Imora (15.37%), Cisadane Kingdom (11.75%) and Ecogreen (10.03%). Government of Indonesia is currently in Road Map of Palm Oil Industry, set oleo chemical industry as major industry in the development of downstream palm oil industry in Indonesia. Government of Indonesia has set special industrial area (industrial clusters) Oleo chemical in Dumai and Kuala Enok (Riau). With the development of the next five years are estimated oleo chemical production will increase. Fatty acid production is estimated to reach 876.987 MT, 368.680 MT of fatty alcohol and glycerol at 175.785 MT.

Next five years, oil palm industry in Indonesia will experience change and transformation is quite large. Downstream industries will flourish while the upstream industry will be more competitive so that the competitiveness of Indonesian palm oil products in the world market will increase. It is estimated that Indonesia palm oil exports are no longer dominant in the direction of raw products such as CPO and CPKO. But the market share of cooking oil products, margarine, shortening, oleo chemical and derivative products will increase. The amount of world market demand of palm oil products represents an opportunity that must be used by Indonesia to increase palm oil exports.

*Cooperation between the Malaysian Palm Oil Council (MPOC), Bela Enterprise (Malaysia) and PT. Green Research Indonesia (GRI).

**Written by Irfan Sungkar & Wiko Saputra