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Indonesia palm oil industry

The report says that, palm oil is the most important agricultural export crop of Indonesia, with exports increased at 10.7 million tons or 274% over the past decade or roughly 27.4% per annum (1.1 million tons). As of August 2010, exports rose 45% month-on-month to 1.72 million metric tons and expected to rise further approaching the last months of 2010 owing to higher demand driven by year-end festivals.

Ever since 2006, Indonesia has been replacing Malaysia as the largest producer of palm oil. The government stimulated the growth of palm oil industry by introducing some of the core reforms like decentralizing the land-use licensing rights to provincial governments, granting subsidies to smallholders, establishing the pro-rated export tax system for crude palm oil. As the global demand for palm oil grows at 2.2 million tons per year, it is estimated that Indonesia could even satisfy 57% of the annual growth in demand. The high demand even drives crude palm oil prices up to USD750 per ton as of mid-2010.

Our analyst thinks that, Indonesia has the potential to grow into a world biodiesel leader and a model for plantation sustainability, as supported by two of its most valuable assets, namely its oil palm plantations (which is expected to increase to ten million hectares by 2015), and its people. The government encouraged the use of bio-diesel to reduce the use of diesel oil for transportation and industrial use. State oil and gas company, Pertamina started selling bio-diesel mixed with automotive diesel oil in 2006.

What are the problems faced in the industry?
- Difficulty in procuring lands results in the failure of implementing oil palm plantations projects.
- Insufficient supply of high yield seedlings give rise to falsely certified seedlings.
-Processing factories operate without having plantations means a mismatch of capacity.
- Rising environmental concerns trigger anti-palm oil expansion campaigns staged by environmental NGOs.

by S. C.
13 december 2010, World News > Asia

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