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Facing Headwinds In Indonesia, Singapore’s Wilmar Eyes Africa Palm Expansion
Perspective | 07 August 2013
By Reuters
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Singapore-listed Wilmar International is looking to expand its palm oil plantations in Africa and could start sugar operations in Myanmar, as its plans to find suitable land in Indonesia hit turbulence.

The company is eyeing opportunities to grow in Africa and hopes to give more details in the next six months or so on starting business in Myanmar, as the Southeast Asian nation sweeps aside decades of isolation, chief executive Kuok Khoon Hong told reporters on the sidelines of a briefing on 7 August. He did not give further details.

Millions of hectares of forest in top producers Indonesia and Malaysia have been cleared for palm oil plantations, and planters are increasingly turning to the west coast of Africa as the industry’s next frontier.

The collapse of a planned palm venture between Wilmar and Noble Group in the Indonesian region of Papua after they failed to win regulatory approval marked the latest setback for plantation firms trying to expand in that country. Kuok declined to give details on the venture with Noble.

Other firms such as Golden Agri-Resources are also finding it more difficult to get new licenses in the shadow of proposed changes to Indonesian law.

Indonesia has become a top investment destination in Southeast Asia, but regulatory uncertainty, especially in the banking and resources sectors, has been a source of concern for foreign investors.

At the start of 2013, Wilmar had around 255,648 hectares of planted area, with about 73 percent in Indonesia, 23 percent in East Malaysia and 4 percent in Africa.

Smog Blanket
Indonesia’s plantation sector has been under heavier scrutiny in the wake of recent forest burning in Sumatra that caused one of Southeast Asia’s worst air-pollution crises, blanketing neighbouring Singapore and Malaysia with record levels of smog.

“Given all the news in the press recently about haze in Indonesia and the burning of forest areas for plantation purposes, it’s easy to imagine that local authorities may be more reluctant now than they have been in the past to give permits for palm oil plantations,” said Bill Sullivan, a foreign legal counsel at Indonesian law firm Christian Teo Purwono & Partners.

Officials in the world’s top palm oil producer are looking to limit the size of new plantations to 100,000 hectares, but details are yet to be finalised.

If the law is implemented, big palm oil companies such as Sime Darby and Kuala Lumpur Kepong may have to intensify their search for land in other markets or settle for slower earnings growth.

“Companies would like to expand as fast as they can, but operational challenges are making it more difficult,” Richard Fung, Golden Agri’s director of investor relations, said at an earnings briefing last week.

Golden Agri is one of the world’s largest palm plantation companies with total planted area of 464,600 hectares in Indonesia.

Indonesia extended in May 2013 a moratorium on the issuance of new plantation and timber concessions in primary forests and peatland. Norway has agreed to provide the country with up to US$1 billion in financing to help reduce deforestation.

“The movement for transparency is taking root within the Indonesian government, where reformers are working to streamline and strengthen processes for how the government allocates land,” said Nigel Sizer, director of Global Forest Initiative at the World Resources Institute.

“It’s also happening in the markets, where buyers are increasingly demanding sustainable and ethically-sourced products.”

Wilmar Int'l  3.580 -0.01 -0.28%   
Business: Co's integrated agribusiness model encompasses the entire value chain of the agricultural commodity processing biz, from origination and processing to branding, merchandising and distribution of a wide range of agricultural pdts.

Insight: May-19, 1Q19 revenue fell 6.2% to US$10.4b driven ... Read More
Golden Agri-Resources  0.210 -0.005 -2.33%   
Business: Co is engaged in cultivating & harvesting oil palm trees, processing fresh fruit bunches (FFB) into crude palm oil (CPO) & palm kernel (PK), & refining CPO into industrial & consumer pdts.

Insight: May-19, 1Q19 revenue fell 11% due to softer crude ... Read More

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