Concept of Oil Palm Replanting Program

18 October 2017

The World Plantation Conferences 2017, Grand Sahid Hotel, JAKARTA

Lin Che Wei

Policy Advisor for the Minister of the Coordinating Minister for Economic Affairs and Minister of Agrarian & Spatial Planning

• 41% of Indonesia palm oil comes from smallholders

• But crop yields of independent smallholders and state owned enterprises are less than plasma farmers

(outgrowers under contract) and private industry

Indonesia have to develop schemes to increase agricultural production and productivity and ensure

more sustainable management

SOEs 7%

Private 52%

Smallholders 41%

Indonesia Palm Oil Plantation Area:

~11 million Ha Independent Farmers

2.5 Million Ha

Plasma Farmers

2.0 Million Ha (Working with the plantation

companies)

Yield CPO

2-3 Ton/Ha/Year

Yield CPO

5-6 Ton/Ha/Year

Yield CPO

3-4 Ton/Ha/Year

Yield CPO

5-6 Ton/Ha/Year

Indonesia Palm Oil - Land to Production

KETIMPANGAN PADA SEKTOR PERKEBUNAN

3

Peranan

Rendah

Peranan

Seimbang

Peranan

Tinggi

Sumber: Direktorat Jenderal Perkebunan, Kementan, 2016

Peranan swasta dalam kelapa sawit jauh lebih dominan dibandingkan dengan komoditas lain, penyerapan TK pun setiap tahun

terus meningkat. Di sisi lain komoditas seperti tebu, teh, karet, kelapa, kakao, kopi dan cengkeh memerlukan peranan swasta yang

lebih banyak demi mendorong rantai nilai produksi yang lebih baik, terutama dalam hal penyediaan bibit, peningkatan rantai nilai,

peningkatan kualitas, menjadi offtaker / avalis.

Komoditas

Kelapa

Sawit

Tebu

Teh

Karet

Kelapa

Kakao

Kopi

Cengkeh

Kebutuhan masuknya pihak swasta

0% 100% 53%

24% 0% 100%

0% 100% 24%

0% 100% 9%

0% 100% 1%

0% 100% 1,6%

0% 100% 2,1%

0% 100% 1,3%

Penyerapan Tenaga Kerja Peranan Swasta dalam

Perkebunan 2011 2012 2013 2014 2015 CAGR

3.651.636 3.701,321 5.184.747 5.218.322 5.503.418 10,8% Cukup dominan

1.042.173 996.648 1.068.022 1.066.434 1.068.569 0,6% Membutuhkan dorongan

peranan pihak swasta

untuk penelitian dan

pengembangan 198.037 201.260 99.591 101.198 101.744 -15,3%

2.310.169 2.303.360 2.398.117 2.434.375 2.442.598 1,4%

Perlu insentif untuk

mendorong pihak swasta

dalam penelitian, offtaker

& pengolahan

6.956.998 7.091.801 6.984.347 6.645.040 6.576.045 -1,4%

1.701.958 1.638.535 1.739.289 1.766.281 1.762.277 0,9%

1.929.459 2.047.273 1.935.956 1.827.371 1.852.245 -1,0%

4.760 4.760 4.762 4.762 4.766 0,03%

Neraca Perdagangan Gula Indonesia (1930 – 2015)

4

Source: - US Dept of Agriculture

(Data of 1960 – 2014)

- Data of 1930 - 1959

(Martinus Nijhoff and estimation)

1930 Harga gula dunia yang tinggi

dimana menstimulasi laju

ekspansi dari produsen gula.

1940 India sebagai importir utama

mengurangi volume impor gula

mengikuti ekspansi nasional

1950 Menurunnya laju produksi

setelah invasi dan revolusi fisik

Jepang dengan membakar

pabrik gula

1967 Rendahnya produksi, petani

enggan menyediakan

lahannya dengan harga sewa

untuk tebu

1982 Resesi ekonomi dan kontrol

impor berdampak kepada krisis

minyak dimana menurunkan

permintaan global

1996

Kebijakan tarif impor 0%, diikuti

eliminasi monopoli BULOG

dalam impor gula di tahun

1998

2005

Produksi tebu yang tinggi

sebagai hasil program

replanting tahun 2004

2007 Stok tinggi untuk domestik

untuk penawaran

domestik, disebabkan

rendahnya jumlah gula

impor

Milestone Penting Industri Gula Indonesia

1. Sebelum Perang – Zaman keemasan Industri Gula

2. Masa Kemerdekaan – Mulai Turun

3. 1967 - Titik Nadir – Nasionalisasi Pabrik-pabrik Tebu milik Oei Tiong Ham yang

memutus rantai on-farm dan off farm

4. 1978-1981 Pembangunan Pabrik Gula di Lampung

5. 1996 Pembubaran Monopoli Bulog – Dan rencana Rasionalisasi PG di Jawa. Bulog di

bubarkan namun PG tidak jadi dirasionalisasi – akibatnya tatanan industri gula rusak

P-1 P0 P1 P2 P3 Sub Total Total

Pre - Replanting 10

Admin cost (SHM, STDB, SPPL, CPCL) 10 10

Replanting 82

Land Clearing + Immature Development 28 28

Upkeep 1 15 15

Upkeep 2 18 18

Upkeep 3 21 21

Total 92

Financing source: 92

- BPDPKS 10 15 25

- Corporation 13 15 (28) 0

- financial institution 46 21 67

Palm Oil Replanting Financing Scheme

In million rupiah

Palm Oil replanting financing source and financing scheme

BPDPKS grant amounted Rp25 million/ha will be used to finance pre-replanting stage

and admin cost to minimize replanting cost

6

Kelapa Sawit Merupakan Komodiitas dengan Produktivitas per Ha tertinggi mencapai ~4 Ton/Ha jauh lebih tinggi

dari rapeseed ~0,7 Ton/Ha, Sunflower ~0,6 Ton/Ha, dan Soybean ~0,4 Ton/Ha

Lahan Minyak Nabati Lainnya

77 juta lainnya Produksi lainnya

46 juta ton

Jika melihat produktivitas per Ha untuk

memenuhi kebutuhan minyak nabati

dunia, maka komoditas sawit

membutuhkan lahan paling sedikit untuk

memproduksi minyak nabati

5

administrative cost standardization

during pre-replanting and

replanting stage

Financing return can only occur if ther

is no side selling

Private sector involvement Focus to the main purpose

Cost standardization The Need of Credit System Prevent Side Selling

Key Success Factors of Palm Oil Replanting

In order to achieve ideal palm oil replanting program – We must meet the success factors below

Key Success Factors of

Palm Oil Replanting

The main purpose of replanting

program is economic equality for

small farmers.

Private sector can involve to be

guarantor, off-taker, mentor to

implement good agricultural practice

and assist in verifying nominees

Using Face recognition technology

to identify entitled small farmers to

minimize credit risk

Identify palm oil area which

need to be replanted at national

level

Identify palm oil area which need to

be replanted at provincial level

including potential smallholders

Central government

conducts coordination

meeting to determine the

areas and smallholders

based on criterias

Central government determines budget

needed to do replanting

Criterias :

1. Age of plants

2. Productivity

3. Smallholders

welfare

Potential land need

to be replanted

Municipal government identify potential areas

using spatial approach

Municipal government identify list of

smallholders cooperatives that meet palm oil

replanting criteria

Palm Oil Smallholders Cooperative

Identify smallholders at

district level and field

verification

District government identify

potential areas using spatial

approach and match the

areas with district plantation

service (dinas perkebunan)

District government perform field verification on

the potential areas and smallholders

Coordination meeting to determine

areas and budget

Identify potential area and smallholders

cooperative Field verification

Top-down identification is the most efficient way to be implemented in order to determine appropriate

potential of land and small farmers who are really entitled to replanting support,

Ideal Replanting Program Framework

Criteria :

1. Age of plants

2. Productivity

3. Smallholders

welfare

The main focus of palm oil replanting is to improve the smallholders welfare and productivity as well as

provide land and plantation legality assistance

Current Condition Ideal Condition

District Level Indonesia

Criterias: 1. Smallholders who have old

plantations and low productivity

2. Smallholders who are not able

to do replanting on their own Verification

Potential smallholders at

national level

Potential smallholders at

district level

1. Long process

2. Small Number of

qualified smallholders

1. Fast process

2. Provide incentives to smallholders by providing land legality

3. Number of qualified farmers suitable with the replanting

objectives

Output: Output:

Administration :

Check & Verification of Land legality,

plantation and smallholders cooperatives

Stage 1 (District) :

1. Field checking & verification of legality

compliance and suitability

Stage 2 (Province) :

1. Data verification from district and field

checking (if needed)

Stage 3 (Central) :

1. Field checking & verification on district

data

2. Provide technical recommendation for

selected smallholders and cooperatives

1. Seed readiness

2. Local government support

3. Smallholders who have old plantations

Administration :

Check & Verification of Land legality,

plantation and smallholders

cooperatives

Supports :

Land administration and certification

assisstance

Stage 1 (district) :

1. Field checking and verification

2. Send copies of all selected

documentation & archives to

provincial and central

government

Palm Oil Replanting Scheme

Criterias:

Verification

Directorate General of Plantation’s Scheme Proposed Replanting Scheme

Identify potential

areas to be

replanted

Near Palm Oil Mill

Near seed market

plantation with

aged> 25 years and

/or productivity 25

years and /or productivity

Palm Oil Replanting Location Target

Pilot Project

(Short term)

Replanting program target area

(long term)

Sumatera island will be the main focus area to do palm oil replanting and North Sumatera will be

the next target after South Sumatera (Musi Banyuasin) last week.

West

Kalimantan

Bengkulu

Jambi

Riau

North

Sumatera

District Area: MUSI BANYUASIN

DONE

East

Kalimantan

South

Sumatera

4,450 Ha of smallholders

plantation

4 of smallholders

cooperatives

1,988 of smallholder

households

TBM = 0 – 3 Tahun

TM = 3 – 25 Tahun

TTM = > 25 Tahun

Administrative border

Plantation Status

• Indonesia Palm Oil Plantation areas are distributed on several large islands such as Sumatera, Kalimantan, Sulawesi and Papua

• Based on ministry of agriculture data in 2017, the largest area is in Sumatera with total area of 7,2 million Ha (181 thousand Ha of

aged>25 years)

• Followed by Kalimantan with 4,3 million Ha (69 thousand Ha of aged> 25 years) and Sulawesi with 0,4 Million Ha (8 thousand Ha of

aged> 25 years old).

TBM : Immature plants

TM : productive plants

TTM : unproductive plants

illustration

Map of Indonesia Palm Oil Plantation Area Distribution

Source : Indonesia Plantations Statistic 2015 – 2017, Ministry of Agriculture; Data projection 2017

Sumatera island has the highest unproductive area of palm oil plantation

TBM

TM

TTM

1,163,531 Ha

6,055,705 Ha

181,117 Ha

15,7%

81,8%

2,4%

% SUMATERA

TBM

TM

TTM

1,411,089 Ha

2,859,511 Ha

69,460 Ha

32,5%

65,9%

1,6%

% KALIMANTAN

TBM

TM

TTM

142.427 Ha

253.548 Ha

8085 Ha

35,2%

62,8%

2,0%

% SULAWESI

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4 Main Conditions in Replanting Program Implementation

There are 4 main conditions that should be met in order to achieve replanting program

objectives:

Certified palm oil

seeds

Clustered palm oil

areas and managed by

smallholders

cooperatives

Offtake agreement between

smallholders and verified

corporation as well as good

agricultural practice

assistance

Selected palm oil

replanting areas must

be clean & clear

Challenges in Implementing Palm Oil Replanting Program for Smallholders

14

1 Smallholders do not have land

certificate (SHM) or farmers

planting permit (IUP)

Acceleration of certification process

with cost standardization and need to

be supported by local government

2 Partnership business model

should be strengthened

Implementation of good corporate

governance practices in farmer

cooperative and intensive

supervision from big corporation

3 The need of financing support Obtain bank financing with low interest especially in the grace period

4

Obtain support from government through

BPDPKS with an easy, fast, yet

accountable as well as integrate it with KUR

policy for palm oil plantations

High replanting cost

CHALLENGES ACTIONS