Indonesia: Palm Oil Production Prospects Continue to Grow
A significant change in the oil palm industry has taken place during the past season, as Indonesia surpassed Malaysia in production of palm oil and is now the world leader. This designation will continue and Indonesia’s production rate will outpace Malaysia for the foreseeable future. Personnel from the USDA Foreign Agricultural Service (FAS) conducted crop-assessment travel in the main palm oil production regions of Sumatra and West Kalimantan during August and September. The team met with palm oil estate managers, agricultural officials, researchers, and independent commodity analysts. The plantation visits were targeted in the country’s most important producing provinces. Regular surveys of fruit bunches three months prior to harvest were indicative of an output surge in fresh fruit bunches. Assuming normal rainfall and based on bunch counts there will be a surge in production during the last quarter of 2007 and into early 2008. In contrast, drier than normal conditions at the beginning of the year marginally reduced output for about three months. Oil production for all major producing areas is favorable despite some dryness in early 2007. Indonesia is forecast to produce 18.3 million metric tons of palm oil in 2007/08.
Palm oil comes from the fruit of the oil palm tree, a tropical species that originated in West Africa, but now grows as a hybrid in many parts of the world, including SE Asia and Central America. The relatively low priced oil is used for a variety of purposes. The world demand for palm oil has soared in the last two decades, first for its use in food, consumer products and more recently as the raw material forf biofuel. The growing affluence of India and China, the worlds top two importing nations, will increase demand of edible vegetable oils. In the US, a recent wave of dietary focus on the trans-fat issues has led to increased consumption. In addition to being less expensive, palm oil is semi-solid at room temperature, making it ideal for baking and food production. Many food manufacturers are trying to find alternatives to trans-fat, partially hydrogenated oils, which contribute to heart disease and other medical problems. Although, palm oil is not without its own contribution to heart disease, the focus on the transfat issue has resulted in palm oil being considered more healthful than some other fats. The other major factor of palm production is its role in sustainable energy campaigns around the globe. European countries have promoted the use of palm oil by injecting hundreds of millions of dollars into national subsidies towards bio-diesel. Europe is now a leading importer of palm oil. Through the subsidizing of biofuels, European governments have accelerated the demand for palm oil in Europe, and as a consequence have accelerated the conversion of large areas of rainforest in South East Asia. Palm oil plantations are often expanded by clearing existing forest land and draining peat swamps. Many economists predict it will be the leading internationally traded edible oil by the year 2012.
Today, Malaysia and Indonesia account for about 87 percent of world production.
Palm fruit contains two types of oil: palm oil, which comes from the mesocarp or fleshy part of the fruit, and palm kernel oil, which comes from the seed in the fruit. Both have significant commercial value.
High Yielding Oil Palm
Oil palm is the most productive vegetable oil crop, yielding more oil per hectare than any other major oilseed commodity. For example, the oil yield on a per unit area basis from properly maintained oil palms is significant greater than oil yields from commercially grown rapeseed and soy. In terms of energy balance it takes less sunlight to produce a unit of oil. However, on the basis of oil yield per man-day it is not as competitive because of the labor intensive plantation management and harvesting of the fruit. This is less an issue in areas of Indonesia where labor is more readily available. Given the current situation, these characteristics appear to favor oil palm as a renewable energy source for the near future, until cellulosic technologies advance to an operation level.
The country of Indonesia is a huge archipelagic nation whose extent is roughly 3,200 miles east to west and 1,100 miles north to south. It encompasses over 10,000 islands. The five main islands of the archipelago are Sumatra, Java, Borneo, Sulawesi, and Western New Guinea. The islands of Borneo and Western New Guinea are shared with other nations. Borneo (also known as Kalimantan) is shared with Malaysia and Brunei. Western New Guinea (also known as Irian Jaya) shares the island of New Guinea with Papua New Guinea. Indonesia's total land area is slightly greater than 1.2 million square miles (the equivalent of Alaska, Texas, California and Montana combined). In Indonesia, the province is the highest tier of subnational government. Currently, Indonesia consists of 33 provinces, seven of which have been created since 2000. The island of Sumatra consists of the provinces of Daerah Istimewa Aceh, Riau, Jambi, Bengkulu, Lampung, and North, South, and West Sumatra. Indonesia's region of Borneo is called Kalimantan, while Malaysia's region of Borneo is called East Malaysia. On Borneo there are four Indonesian provinces, they are East, South, West and Central Kalimantan.
FAS Field Visits
Major oil producing provinces visited by FAS include: North Sumatra, Riau, and South Sumatra (Sumatera Selatan) on the island of Sumatra. On the island of Borneo, field visits were conducted on the province of West Kalimantan (Kalimantan Tengah). Palm oil producing areas have slowly expanded since the early 20th century when the palm was first introduced. The island of Sumatra has long been the largest producer. The oldest large-scale plantations were first established in 1911 on Aceh and North Sumatra province. Since those early days, palm plantation development spread south and to the other areas of Indonesia. The highest producing provinces on Sumatra, are North Sumatra, Riau, and South Sumatra. Even though the bulk of Indonesia’s production remains on Sumatra, 70 to 80 percent according to some sources, rapid expansion is occurring on the island of Borneo; the second largest producing area in Indonesia. In recent years, there has been a growing expansion of palm oil plantations on the island of Borneo—particularly in Central and West Kalimantan. Important, but secondary areas of expansion are Sulawesi and Western New Guinea (or West Papua). Even with the expansion areas, Sumatra will continue to be the leading production center for the foreseeable future.
The following image is a satellite scene and FAS field travel routes (in yellow) that covered major palm oil producing provinces on the islands of Sumatra and Borneo.
Over the next few years, the pace of Indonesian palm oil production is expected to dominate other producing countries and rise steadily, assuming continued high prices and favorable weather. This continued increase in production is a result of area expansion. It is the availability of land on Borneo and other previously non-developed areas that has allowed Indonesia to become the top producer. The current (December) USDA production forecast of 2007/08 Indonesia Palm Oil is 18.3 million tons. This a 10 percent increase from last year's estimated production of 16.6 million tons. Production of palm oil has continued to climb steadily since 1998. New regions on the islands of Sumatra, Borneo, Sulawesi and West Papua have been opened up in recent years and have added significant area that only now is coming on-stream in terms of production. In addition to new areas of land developed, another reason for the growing production numbers is that the surge in planting activity during the past ten years is now beginning to be realized. There is several years lag time when palms are initially planted on the plantation until the first production of fruit bunches. Data on actual area planted to oil palm is not easily obtained. Where government data does exist, many in theindustry believe that the government data is not as complete as it might be, often having production estimates lower than those of the industry. One proxy source of area data is oil palm seed sales. Data presented at the
International Palm Oil Congress 2007
on seed sales reveals a rapid increase in demand, so much that seed producers have had difficultly keeping up with demand.
Seeds and Planting Materials
Nearly 100 percent of oil palms growing today in Indonesia are the DxP or Tenera hybrid. The Tenera, is a hybrid cross of the Dura and Pisifera oil palm varieties. The Dura line is the mother line, while pollen is used from the Pisifera. Until recently planting material wase only available in the form of germinated hybrid seeds. In the last few years some plantation research and development laboratories have successfully cloned parent lines to produce hybrid seed of high yielding Tenera from young leaf tissue cultures. Large scale production of this clone is of intense interest to the industry. Early studies of clonal yields show yield increases of about 10 to 30 percent above the standard DxP hybrid. These clones are not typically sold. They are almost always used internally by various developing plantations for area expansion and replanting purposes. The main suppliers of germinated oil palm seeds in Indonesia fall in three groups: the large and well established plantations of London Sumatra, Socfindo, the government agency of Marihat, and a group of new producers. The recent increase in demand has brought new seed producers into the market place such as the plantation group of Binasawit Makmur.
A plantation’s long term success depends in part on well timed replanting operations. This requires a steady supply of high quality seed, seedlings, and young palms from breeders and nursery operations who specialize in this part of the industry. The availability of quality hybrid seeds is essential for establishing plantations and replanting. Only the highest quality seeds are selected for use. Seeds are hand inspected for quality characteristics prior to being released for sale or use. A germinated seed is cultured in the pre-nursery for 3 months, then moved to a nursery to develop for an additional 9 to 10 months. After this initial phase from germination to plant establishment of one year, the plants are culled for the best characteristics and then planted in the field. After 30 to 36 months in the field the young palms begin to produce the first harvestable fruit bunches. The first bunches are small and weigh only 2 to 3 kg and the individual fruitlets comprising the bunch are small in size. Peak harvest (or palm productivity) occurs from years 8 to 15. The economically viable life span of an oil palm is typically 22 to 25 years depending upon oil price, economically harvestable height, and yield. Oil palms can exceed 70 to 100 feet in height, however they are typically removed from production when they reach 25 feet, which coincides with an average age of 25 years. The 25 feet height is an industry limit which is based loosely on the height of the average harvester plus the length of the long sickle harvesting pole.
Distribution of Palm Oil Area and by Holdings
Although essentially an estate crop, oil palm has been successfully adapted to suit the needs of smallholders and has proved a powerful tool for poverty alleviation in Indonesia, positively affecting millions. Significant improvement in living standards, including income, education and health levels are attributed to the economic development benefits of oil palm cultivation. Total growing area is distributed among three groups, which include government holdings, private companies and small holders. According to Indonesia Bureau of Statistics (BPS) in 2006, 45 percent of total palm area is owned by private companies, followed closely at 43 percent by small holders, and the government comprising the remaining 12 percent. Small holders are frequently part of partnership scheme with private companies. Total area for Indonesia palm oil in 2006 is estimated at 6.07 million hectares according to a information from the Indonesia Palm Oil Board (IPOB).
Photograph showing six year old plantation palms just begining productive years.
Prospects For The Future
The government of Indonesia’s development of palm oil production through land concessions to large companies, government plantations, and small holder programs has been clearly successful in securing edible oil and generating foreign exchange. The subsequent rise in palm oil production has also resulted in the loss of tropical rain forests and generated major concerns about the effect of palm oil production on habitat loss for many endangered species and the reduction of biodiversity. Most recently, the Indonesian government, working with some palm oil producing companies is negotiating sustainability standards with Europe and the United States under the auspices of Roundtable on Sustainable Palm Oil (RSPO). RSPO is an international organization of producers, distributors, conservationists and other stakeholders. During plantation visits on Sumatra and Borneo, Cargill and Musim Mas; the agricultural assessment team was shown many of the sustainable practices and positive reinvestments made back into the work force and the surrounding community. The team was shown projects such as schools, nurseries, clinics, and produce markets. The demand for palm oil will likely remain strong and research and development work is being done in both top producing countries of Indonesia and Malaysia. Yields will steadily increase as the newly planted areas enter into their twenty year plus productive lifecycle. In addition, replanting will continue to adopt better suited varieties developed from hybrid research and cloning. The availability of land in Indonesia, coupled with recent years of high seed sales, record energy prices, and high vegetable oil prices are factors that will result in Indonesia continuing to lead the world in palm oil production for years to come.
Current USDA area and production estimates for grains and other agricultural commodities are available on PECAD's Agricultural Production page or at PSD Online.