Indonesia's Palm Oil Sector not Happy with New Plantation Size Limit
Business players within Indonesia's palm oil sector have expressed concern about a recently introduced law that stipulates limits to plantations sizes, including oil palm plantations. The government of Indonesia issued law Permentan No 98/Permentan/OT.140/9/2013 that sets maximum boundaries to the surface area of eleven commodities. The palm oil industry of Indonesia now argues that targets mentioned in the country's palm oil roadmap cannot be met. For example, the production target of 40 million tons of palm oil by 2020 is in jeopardy.
Chairman of the Indonesian Palm Oil Producers Association (Gabungan Pengusaha Kelapa Sawit Indonesia, Gapki), Zoefly Bahroeni, said that targets in the palm oil roadmap - production of 40 million tons of palm oil by 2020 and 60 million tons by 2040 - cannot be met by simply increasing productivity of current oil palm plantations. In order to meet the targets, expansion of palm oil plantations is required. Moreover, Indonesia's moratorium on new forest concessions is still in force. The government of Indonesia signed a two-year primary forest moratorium that came into effect on 20 May 2011 and expired in May 2013. After expiration, Indonesia's president Susilo Bambang Yudhoyono extended the moratorium by two more years. This moratorium implies a temporary stop to the granting of new permits to clear rain forests and peat lands in the country and thus has a direct impact on the expansion of the country's palm oil sector.
The new law Permentan No 98/Permentan/OT.140/9/2013 stipulates maximum boundaries to 11 commodities: tea, sugarcane, oil palm, coconut, cotton, rubber, coffee, cacao, cashew nuts, pepper as well as cloves. Ownership in oil palm plantations will be limited to a maximum of 100,000 hectares. The reason behind the limit to plantation sizes is to (re)organize and regulate the local governments' licensing scheme. Due to weak local government management there have been many examples of issued licenses with no clear limit to the size of plantation. This subsequently hurts new investors as well as disturbs the local population that sees many of the surrounding area fall in the hands of certain companies.
Permentan No 98/Permentan/OT.140/9/2013:
| Commodity |
Maximum Surface |
| Oil Palm | 100.000 ha |
| Rubber |
20.000 ha |
| Coffee | 10.000 ha |
| Cacao | 10.000 ha |
| Cashew Nut | 10.000 ha |
| Pepper | 1.000 ha |
| Clove | 1.000 ha |
| Cotton | 20.000 ha |
| Tea | 20.000 ha |
| Sugarcane | 150.000 ha |
| Coconut | 40.000 ha |
Source: Investor Daily
The new law is not retrospective, implying that it only applies to new licenses or existing companies that hold a Hak Guna Usaha (HGU or Rights of Exploitation) license which expires after the implementation of the new law (when extending the license they will need to comply with the new rules).
The palm oil industry is one of the most important industries of Indonesia as it contributes a significant portion to the country's foreign exchange earnings and provides employment to four million Indonesians. Earnings in Indonesia's plantation sector are dominated by palm oil, which accounts for 24 percent of total non oil & gas exports and 19 percent of total Indonesian exports. As such, the palm oil industry forms an important pillar of the Indonesian economy.
Indonesia's Palm Oil Production and Export:
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013¹ | |
| Production (million metric tonnes) |
19.2 | 19.4 | 21.8 | 23.5 | 26.5 | 28.0 |
| Export (million metric tonnes) |
14.2 | 15.5 | 15.6 | 16.5 | 18.1 | 21.0 |
| Export (in USD$ billion) |
15.6 | 10.0 | 16.4 | 20.2 | 21.6 |
¹ indicates forecast
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture