The Indonesian Palm Oil Board (DMSI) says higher productivity is the key to boost Indonesia's crude palm oil (CPO) production. Amid international pressure, particularly after the devastating forest fires on Sumatra and Kalimantan in the second half of 2015, Indonesian President Joko Widodo announced to issue a five-year moratorium on new palm oil concessions to limit the expansion of oil palm plantations in Indonesia. Although Indonesian authorities want to see rising CPO output (in order to safeguard foreign exchange earnings and create employment opportunities), further growth should come on the back of rising productivity, not by adding new plantations.
Derom Bangun, Chairman of the DMSI (an umbrella organization of the major Indonesian palm oil associations), said higher productivity on Indonesian oil palm plantations should be achieved by replanting (replacing the older generation of trees that show declining production rates). While, currently, the average production at Indonesia's oil palm plantations is 3.65 ton per hectare (per year), this figure should be raised to at least 5 tons per hectare, per year. The estimated maximum (perfect) productivity is 9 tons per hectare. However, it is considered too difficult to achieve this figure.
Without higher productivity per hectare, the five-year moratorium on new palm oil concessions will curtail growth of Indonesia's palm oil industry, both in terms of production and, obviously, in terms of plantation size. Bangun said the nation's palm oil sector had expanded in the range of 13-15 percent per year in the 1990s (both production and plantation size). However, over the past couple of years growth fell to the range of 5-8 percent per year. The palm oil sector is one of the key foreign exchange earners for Indonesia and provides employment to millions of Indonesians, especially on the islands of Sumatra and Kalimantan.
Indonesia's oil palm plantation size is currently estimated at 11 million hectares. Therefore, Bangun said if productivity can be raised to 6 tons per hectare (per year), then the nation's CPO production would nearly double to 66 million tons per year.
Read more: Overview of Indonesia's Palm Oil Sector
The Indonesian Palm Oil Association (Gapki) recently announced that Indonesia's CPO production reached 34.5 million tons in full-year 2016, down 3 percent from 35.5 million tons in the preceding year due to the impact of the El Nino weather phenomenon (that brought dry weather to Southeast Asia in 2015).
Indonesian Palm Oil Production and Export Statistics:
(in USD billion)
¹ indicates forecast
Sources: Indonesian Palm Oil Producers Association (Gapki) & Indonesian Ministry of Agriculture