Foreign Investors in Indonesia’s Palm Oil Industry

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Illustration of Palm oil plantation. Photo by: Sawit Fest 2021 / Malik Fajar

PALMOILMAGAZINE, JAKARTA – The palm oil industry in Indonesia has seen significant involvement from foreign investors, shaping a dynamic and expansive sector. While exact figures vary, estimates suggest plantations cover between 2 million to 3 million hectares across the country, largely influenced by foreign capital.

Malaysia stands out as a major investor, with investments dating back to the 1990s. In 2006 alone, Malaysian investments in Indonesian palm oil plantations totaled Rp 3.2 trillion, covering 800,000 hectares or 14.5% of the national total.

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Companies like Sime Darby, formed from the merger of Golden Hope Plantations and Kumpulan Guthrie, along with IOI, Agro Hope, and KLK Kepong, have been pivotal in this expansion.

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Beyond Malaysia, other countries such as Singapore, the United Kingdom, Belgium, the United States, Kuwait, Thailand, and Myanmar also participate in Indonesia’s palm oil industry.

Malaysian investments, however, remain dominant, facilitated by financial institutions like Khazanah and Tabung Haji, alongside corporate entities and investment firms like Pinehill Ventures Limited.

Sime Darby, a key player, annually produces 2.4 million tons of crude palm oil (CPO) from its productive plantations spanning 522,489 hectares. Their early initiatives have set benchmarks for palm oil expansion in Indonesia, reflecting the broader international interest and investment in this vital agricultural sector.

Sime Darby through PT Minamas Plantations (was officialy operating since 2001) now operates in 8 provinces in Sumatera, Kalimantan, and Sulawesi that cultivates total areas about 299.263 hectares but just 68% (204.845 ha) planted by palm oil within kinds of ages. That is why Indonesia has the significant position for Sime Darby.

What was the reason for Malaysia ‘attacking’ Indonesia? One of it was because Malaysia has less backup areas (to develop palm oil plantations). If the areas exist, the price would get increasing three to four times.

The quality of soil in Malaysia is not as good as in Indonesia because it is in hard liquid clay, like stone when it is in dry season. It is different from Indonesia with its fertile areas.

The land characteristic is very good to develop palm oil, such as, it has much clay, water surfaces are deep enough, not stone, deep enough solum, and soil pH level is at 4 – 6. These kinds of soil are very good to develop palm oil plantations in Indonesia.

Latosol, ultisol, ullvial, sapric peat soil, coastal plain, and river estuary soil are good to develop palm oil plantations.

According to the study of Rabobank published in May 2012, palm oil plantation land in Malaysia would be no more available for the next four years while in Indonesia, there would be more to expand for the next 10 – 20 years.

United States Department of Agriculture (USDA) predicted Malaysia would have only backup areas about 800 thousand hectares to be planted by palm oil plantation. Serawak where it was claimed to be the most potential area to develop palm oil plantations, is mostly in sandy peat in lower ground or degraded pedaofficial page forests that ‘belong’ to the original people.

Malaysian palm oil plantation industrial expansion in Indonesia has something to do with “Look-East Policy” that Prime Minister of Mahathir Mohammad claimed in 1982. By the late of 1990s many Malaysian companies showed off in plantation sectors in its neighborhood companies, such as, Indonesia and Philippine.

In Indonesia, Kumpulan Guthrie acquired palm oil plantations that belong to Salim Group in Musi Rawas, South Sumatera while Tabung Haji got into Philippine by developing palm oil plantations in Mindanao. (*)

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