BIG IMPACT LIKELY ON LATE ENTRANTS
New policy may halt companies’ oil palm expansion plans, says PublicInvest
INDONESIA’S move to introduce a three-year moratorium on new palm oil plantations and call for a review of existing plantation permits is a big blow to companies making a late entry into the country, say analysts.
The move would also slow the fresh fruit bunch production growth, they added.
Indonesia announced the move on Friday, aiming at improving the sustainability of palm oil plantations and as part of the environmental protections.
The government also hoped the temporary ban would improve productivity of small owners and help clarify the land ownership.
“The new implementation would be a big blow to the late entrants in Indonesian plantation industry,” said Public Investment Bank Bhd (PublicInvest).
It said the new policy could negatively impact players who were relatively new or those with significant plantable landbank in Indonesia as their expansion plans would be halted.
PublicInvest, however, did not expect any significant impact on the plantation firms under its coverage, as most of them had almost fully planted their land in the country.
For example, it said, TSH Resources Bhd, which had closed to 90 per cent of its plantation land there, had slowed down its new planting activities (less than 500ha per year) since a few years ago.
PublicInvest said its top pick Ta Ann Holdings Bhd was the only company that was not affected by the policy as it had no exposure in Indonesia.
The investment bank said the temporary ban would help support palm oil prices and ease future oversupply concerns.
“Indonesia, which accounts for 51.7 per cent of global palm oil production, is expected to see a 5.5 per cent year-on-year output increase to 38.5 million tonnes this year,” it added.
PublicInvest said the moratorium was not new in Indonesia as back in 2010, the country and Norway had inked a US$1 billion (RM4.13 billion) deal in exchange for a moratorium on new permits to clear primary forest.
However, studies showed that the largest palm oil-producing country had failed to reduce its emission from deforestation and forest degradation while more than 9.9 million hectares of land were converted into plantation area between 2010 and 2015.
“As the new policy is a self-commitment by Indonesia and action taken into a review of existing plantation permits, we think it could be a tighter implementation across all provinces,” it said.