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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


23 October 2012

USDA GAIN: Indonesia Oilseeds and Products Update 2012USDA GAIN: Indonesia Oilseeds and Products Update 2012

Post predicts that Indonesian crude palm oil (CPO) production may reach 25.4 million metric tons (MMT) in marketing year (MY) 2011/2012 and it will further increase to 27 MMT in MY 2012/2013. These estimates represent an increase over Post’s April 2012 estimates. The differential Palm Oil Export Tax policy, implemented as of August 2011, has encouraged increased levels of refined palm oil (RPO) product exports from 43 percent in MY 2010/2011 to nearly 60 percent of total export in MY 2011/2012.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Production

Post expects that Indonesian CPO production in MY 2011/2012 and MY 2012/2013 will exceed post’s estimation made in April 2012. Revised 2010 planted area data and strong exports in the current marketing year suggest that CPO production could reach 25.4 MMT in MY 2011/2012 and 27 MMT in MY 2012/2013.

The Indonesian National Agency for Statistics revised its 2010 oil palm planted area data from 8.11 million hectares (preliminary figure) to 8.55 million hectares (final figure). The increased level of area planted suggests that harvested area could reach 7.078 million hectares in MY 2011/2012 and 7.504 million hectares in MY 2012/2013. With CPO yields averaging 3.6 metric tons per hectare, Post predicts that Indonesia can produce 25.4 MMT and 27 MMT of CPO in MY 2011/2012 and MY 2012/2013 respectively.

Consumption

Post predicts that Indonesia’s domestic consumption of palm oil will increase from 7.255 MMT in MY 2011/2012 to 7.9 MMT in MY 2012/2013. 62 percent of the CPO produced in Indonesia is held back for domestic consumption. Half of the CPO produced in Indonesia is refined locally, with the remaining 12 percent of locally consumed CPO going to the biofuel and animal feed sectors, as well as kept for ending stock.

The Breakdown of Indonesian Crude Palm Oil Supply


Indonesian Refined Palm Oil Use Breakdown

Source: Post Estimation

As mentioned above, roughly 50 percent of Indonesian CPO is refined by Indonesian refiners. Although Indonesian refiners exports roughly 61 percent of their refined palm oil (RPO), 39 percent is held back for domestic uses. 37 percent of this RPO is used by the local food processing industry, which uses the RPO in the production of cocoa butter substitutes, cooking oil, margarine, shortening, solid oils, salad oil, and vegetable ghee. The remaining two percent is consumed by the oleochemical industry. Although the Indonesian oleochemical is becoming a significant Indonesian industry, they are using relatively small amounts of RPO. This is because they primarily use refined palm kernel oil (RPKO) and coconut oil.

Trade

The marketing year-to-date data (Oct. – May) for Indonesian palm oil exports reflect an increase of 1.45 MMT in MY 2011/2012 over the previous marketing year, which equates to an increase of 13.5 percent. Post expects that if strong export growth trends continue, Indonesian palm oil exports could reach 18 MMT in MY 2011/2012.

In addition to stronger export performance, Differential Palm Oil Export Tax policy (refined palm oil products enjoy significant lower export tax than that of crude palm oil products) implemented since August 2011 has encouraged increased export share of refined palm oil products from 43 percent of the total export in MY 2010/2011 to nearly 60 percent in MY 2011/2012.

Indonesian Palm Oil Export by Type of Products

Source: GTIS

Ending Stocks

Post expects ending stocks will be stable at just over 1.2 MMT over the next two marketing years. Ending stocks may experience mild growth from 1.205 MMT in MY 2011/2012 to 1.232 MMT in MY 2012/2013.

Policy and Programs

Minister of Agriculture Decree No. 26/2007 requires private oil palm plantations to allocate at least 20 percent of their concession areas for local smallholder planters. However, a recent survey conducted by Directorate General of Estate Crops reflected that 60 percent of 300 private oil palm plantations have not complied with this requirement. The Ministry of Agriculture, based on the results of the survey, plans to amend Decree 26/2007 to strengthen enforcement per the following:

  1. Governors and Regents must obtain a letter of recommendation from Minister of Agriculture before they can issue plantation permits to private palm oil companies.
  2. If a private palm oil company does not develop smallholder areas in its land concession area within 2 – 3 years from the issuance date of plantation permit, the Ministry of Agriculture reserves the right to revoke the permit.
  3. A private palm oil company can swap an obligation to develop smallholder plantations for the Corporate Social Responsibility program, which offers companies the opportunity to support community development projects. This option will be a solution for the company which has limited land concession.

The Ministry of Agriculture believes that the proposed revisions will help minimize the heightened land tenure conflict between private palm oil company and local people. Possible disagreement with local autonomy law that provide governors and regents with strong power to deals with plantation licensing, however, may complicate the implementation of the revised decree.

October 2012

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