Analysis: Land banks buffer Indonesian palm oil from forest ban

By PSU EcoMerge Capstone - 6:54 PM



Indonesian palm oil firms have been recently banned to tap sensitive peat and forest regions for the next two years. This move was in-place to secure a billion-dollar deal with Norway in order to preserve 64 million hectares of carbon-rich forests and peat lands. This is the country’s contribution to mitigate global warming. Furthermore, to seek the approval of the ban, Jakarta made concessions to the global palm oil industry and other sectors so that permits that have been granted prior the ban will be exempted. Most planters believe that such will suffice in order for them operate without running out of reserves. Thus, the ban makes no difference at all as most of them have enough land banks.

As a result of this endeavor, palm oil firms are now encouraged to look into land reserves. Hence, they can turn their attention to boosting yields and buffering from land banks. Planters have indeed looked into this direction but the challenge is to keep up with the big vegetable oil markets of India and China. At present, Indonesia yields an annual average of 18 tons of fresh fruit bunches per hectare, which is in fact lower than neighboring Malaysia at 20 tons. Therefore, with the ban still in place for at least two years, planters have to plant right and produce abundant yields. However, they still fear the two-year moratorium as they are unsure if this will be extended. It is all the more needed therefore that they focus their attention on increasing yields from existing land sources. Add to this the recent figures that indicate a slow growth in outputs, which can be attributed to the low expansion rate of palm estates in the archipelago. Nonetheless, beyond the ban, planters have also been challenged by heavy rains last year that disrupted their work. Similarly, the labor needed to plant and maintain lands also poses a challenge, which is greater than the ban itself. The adequate specialized manpower needed to boost yields is quite difficult to achieve. Thus, raising yields is definitely easier said than done. 

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