Friday, 27 February 2009

Indonesia still on radar of Malaysian planters

Friday February 27, 2009


It remains the choice location for oil palm cultivation

PETALING JAYA: The current low crude palm oil (CPO) prices and global economic slowdown will not hinder most Malaysian plantation companies from acquiring additional green fields or existing oil palm plantations in Indonesia.

Despite the constant “disruptive” changes in the terms and regulations set by authorities in various provinces, Indonesia will remain on the radar of most local planters as the choice location for oil palm cultivation.

Malaysian Estate Owners Association president Boon Weng Siew told StarBiz the success of oil palm ventures in Indonesia depends on the ability of local plantation companies to secure good Indonesian partners.

“Having a strong long-term partnership is vital as proved by Kuala Lumpur Kepong Bhd (KLK) and Sime Darby Bhd, which are among the local pioneers with huge tracts of oil palm plantation in Indonesia,” he added.

Currently, it is believed that 50% of Indonesia’s oil palm plantations are controlled by over 50 Malaysian companies with their plantations concentrated in Sulawesi, Kalimantan and Sumatra.

Among others, United Plantations Bhd, Asiatic Development Bhd, IJM Plantations Bhd and IOI Corp Bhd have also invested massively in oil palm plantation operations in Indonesia (See table).

KLK chief executive officer Datuk Lee Oi Hian said in the group’s 2008 annual report that 32,833ha or 76% of the group’s immature oil palm are in Indonesia. “The key criteria to expand in Indonesia are choice location, terrain and soil coupled with new planting and proper execution,” he added.

IJM Plantations managing director Velayuthan Tan also said recently the group aimed to embark on organic growth strategy through expansion in new hectarage in Indonesia.

IJM Plantations will jointly develop 33,000ha in East Kalimantan for oil palm cultivation with Indonesian parties – marking its first foray overseas.

While the interest among planters, especially those with huge cashpile, remains intact on Indonesia, there have been incidents where local planters like Kulim (M) Bhd and Tradewinds Bhd decided to pull out from Indonesia’s oil palm scene.

In mid-2007, Kulim decided to sell its entire 63,260ha plantations in Kalimantan developed since 1996 for a cool RM430mil.

Kulim managing director Ahamad Mohamad was quoted then as saying the Indonesian operation was becoming increasingly challenging to operate. “Returns on investments have not been as encouraging as our estates in Papua New Guinea, Malaysia and the Solomons,” he said.

CIMB Research regional analyst Ivy Ng said: “The investment risk appetites in Indonesia differ from one company to another.”

She concurs that having good Indonesian partners is important to ensure long-term success for Malaysian planters.

“Limited agriculture land in Malaysia will continue to make Indonesia attractive to local planters who are constantly on the lookout to expand their plantation land bank,” she added.

Industry analysts said the total planted area of oil palm plantation concessions in Indonesia would reach seven million hectares with an average CPO production estimated at 19.5 million tonnes by 2010.

Indonesia has taken over Malaysia’s spot as the world’s largest palm oil producer since late 2006 – thanks to the active huge investments in oil palm cultivation by Malaysian companies over the past five years.

Together, Indonesia and Malaysia control almost 90% of the world’s palm oil production.