Table of Contents
This report profiles Indonesia's palm oil industry, discussing market trends through 2014 and outlook for 2015 and beyond. The report also highlights leading players in the sector including PT Astra Agro Lestari Tbk, PT Sinar Mas Agro Resources & Technology Tbk, PT London Sumatra Indonesia Tbk and PT Sampoerna Agro Tbk.
Today, Indonesia is the world's largest producer of palm oil and the industry is the nation's most valuable agricultural export sector and revenue generator. The attractive returns and strong demand have encouraged investment in the Indonesian palm oil industry, resulting in significant rural economic development and poverty alleviation.
The Indonesian palm oil sector saw significant growth in recent years, thanks to increasing matured palm areas and improvements in operational productivity of plantation and CPO processing. In 2014, total plantation area for palm oil production in Indonesia accounted for around 10mn hectares, generating 30mn tonnes of palm oil. Indonesia aims to increase palm oil production to 40mn tonnes by 2020. The domestic demand for biodiesel is also set to increase, especially in view of recent developments in government policy to raise palm oil content in biodiesel, coupled with an increase in biofuel subsidy which will be funded by a new levy in CPO export.
In respect of demand, one of the challenges faced by industry players is the palm oil price fluctuation. Economic slowdown in CPO's main markets, such as India and China, slowed CPO demand to a certain extent. In addition, weather anomaly and sustainability are other key challenges that palm oil players need to address. With efforts to promote sustainability, the government's policy stipulates a mandate for oil palm estates in Indonesia to obtain the Indonesia Sustainable Palm Oil (ISPO) certificate.
o The global market for palm oil grew at an average of 7% per annum over the last decade, with production at nearly 60mn tonnes in 2014. Indonesia is the world's largest crude palm oil (CPO) producer, outperforming Malaysia.
o Oil palm area expansion continued with an average growth of 6% per annum since 2004. Indonesia had 10.3mn hectares of planted area and 8.1mn hectares of harvested palm areas in 2014, indicating a huge pool of crop area.
o Palm oil is Indonesia's principal agricultural export crop and represented 50% of total world exports in 2013/14. However, the government intends to curb palm oil exports in 2015 with the new levy on CPO exports in a bid to support the domestic biofuel industry.
o Indonesian palm oil exports grew at a CAGR of 6.4% in volume terms during 2010-14. The market outperformed the global growth rate during this period. However, the country's palm oil export is expected to grow by only 3.6% y/y in 2014/15 due to implementation of exports curb by the government.
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