This report profiles Indonesia’s palm oil industry, discussing market trends through 2013 and outlook for 2014 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.

Indonesia is the world’s largest producer of palm oil and the industry has been the economy’s most valuable agricultural export sector for the last decade. 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 industry saw significant growth in recent years, thanks to increasing matured palm areas as well as improvements to the operational productivity of plantation and CPO processing. As much as 3.4mn tonnes of palm oil will be used for biodiesel in the country in 2014, according to the Indonesian Palm Oil Association. The government has increased the blending rate to reduce import costs and narrow the current-account deficit. Palm oil analysts expect CPO prices to steadily move up in 2014 as a result of tight supply of edible oils due to increased consumption in Indonesia.

The country should be cautious, however. Despite the expected increase in future demand, restrictions on the conversion of forests to oil palm plantations in Indonesia would reduce the availability of fertile land and impede expansion of the industry. Government policies should aim to improve productivity, particularly among smallholders, and implement pro-industry growth policies.

Key Points:

• The global market for palm oil grew at an average of 7% per annum over the last decade, with production estimated at over 55mn tonnes in 2013. Indonesia emerged the world’s largest producer of palm oil, surpassing Malaysia.

• The area expansion continued with an average growth of 6% per annum since 2002. According to the USDA, the country had 9.9mn hectares of planted area and 7.7mn hectares of harvested palm areas in 2013, indicating a huge pool of crop area.

• Palm oil is Indonesia’s principal agricultural export crop and represented 48% of total world exports in 2012/13. However, the Indonesian government is considering to curb exports of crude palm oil from 2014 onwards to support the domestic biofuels industry.

• Indonesian palm oil exports grew at a CAGR of 6.3% in volume terms during 2009-2013. The market outperformed the global growth rate during this period. However, according to the USDA, the country’s palm oil export is expected to grow by only 4.5% year on year in 2013/14 due to possible exports curb intended by the government.