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Palm oil plantation Plantation Indonesia Industry lanscape, regulatory and financial overview ã Overview of palm oil industry landscape in Indonesia ã A highlight on regulatory issues ã Taxation for the oil palm plantation industry ã Plasma and its accounting
  Palm oil plantation Industry lanscape, regulatory and nancial overview This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in the publication without obtaining specic professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, KAP Tanudiredja, Wibisana & Rekan, PT Prima Wahana Caraka or PT PricewaterhouseCoopers FAS, as appropriate (PricewaterhouseCoopers Indonesia), its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.© 2010 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers and PwC refer to the network of member rms of PricewaterhouseCoopers International Limited (PwCIL). Each member rm is a separate legal entity and does not act as agent of PwCIL or any other member rm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member rms nor can it control the exercise of their professional judgment or bind them in any way. No member rm is responsible or liable for the acts or omissions of any other member rm nor can it control the exercise of another member rm's professional judgment or bind another member rm or PwCIL in any way.PricewaterhouseCoopers Indonesia is comprised of KAP Tanudiredja, Wibisana & Rekan, PT PricewaterhouseCoopers FAS, PT Prima Wahana Caraka, each of which is a separate legal entity and all of which together constitute the Indonesian member rm of the PricewaterhouseCoopers global network, which is collectively referred to as PricewaterhouseCoopers Indonesia. ã Overview of palm oil industry landscape in Indonesia ã A highlight on regulatory issues ã Taxation for the oil palm plantation industry ã Plasma and its accounting implications ã A highlight of challenges on fair value accounting for oil palm plantation ã RSPO, catalyst for Improvement? Plantation Indonesia   Crude palm oil (CPO) industry grows increasingly important for Indonesia, the world’s largest CPO producer, given its enormous contribution for the country’s export and employment rate. In Indonesia, the industry is focused on the upstream sector, or CPO production. This sector is dominated by private enterprises, followed by small planters, which include plasma farmers.Oil palm plantations are currently concentrated in the Island of Sumatra, and historically are dated back to the Dutch colonial era. The development of the plantation and the related infrastructure in the island’s provinces, therefore, is relatively more advanced than those in other parts of Indonesia.   Buntoro Rianto   Overview of palm oil industry landscape in Indonesia   2 Plantation  Comprehensive Overview PricewaterhouseCoopers Indonesia The followings are several tables that show the historical development of CPO industry, as well as the snapshots of the current situation.The compounding annual growth rate (CAGR) of CPO production contributed by private enterprises during the last decade has been signicantly higher than their compounding growth of plantation areas, which indicate higher productivity. The higher productivity of plantations owned by private enterprises is attributed to various factors, including those that relate to maturity ages, plantation and mill processing management.During the last decade, oil palm industry in Indonesia has been developing rapidly. In 1999, the total area of palm oil plantation was approximately 3.9 million hectare and it has grown into a whopping 7.3 million hectare in 2009.In line with the development of the plantation areas, the volume of CPO production also increased signicantly during the period, whereby it was approximately 6.5 million tons in total in 1999 and it reached 19 million ton a decade later. There has also been a signicant change in terms of business players in the past decade. From the domination of big players, small planters emerged later on and get a hold of about 43.76% of the plantation areas, while 48% others are managed by private enterprises and the rest is by state-owned enterprises.The 2009 data showed that 65% of the plantation areas were located in Sumatera, 26% in Kalimantan, 3% in Sulawesi and the rest sprawls in other parts of Indonesia, including Java and Papua.   Developments of oil palm plantation areas in Indonesia during the last decade. Thousands hectares SmallholdersState-owned enterprisesPrivate enterprisesSource (raw data) : Directorate General of Estate Crops * Preliminary ** Estimation Year CAGR: 4.36%CAGR: 0.67%CAGR: 11.90% 05001,0001,5002,0002,5003,0003,5004,0001999 2000 2001 2002 2003 2004 2005 2006 2007 2008* 2009** Developments of CPO production in Indonesia during the last decade. Year   Thousands Tons SmallholdersState-owned enterprisesPrivate enterprisesSource (raw data) : Directorate General of Estate Crops * Preliminary ** Estimation   CAGR: 16.63%CAGR: 4.37%CAGR: 11.24% 02,0004,0006,0008,00010,00012,000'99 '00 '01 '02 '03 '04 '05 '06 '07 '08* '09**  Export Market The following chart shows the destination countries of Indonesian CPO’s export destination in the past decade.  PricewaterhouseCoopers Indonesia Plantation  Comprehensive Overview 3 The majority of CPO production in Indonesia at the moment serves foreign market. The domestic market mainly needs it for cooking oil, which causes the price of cooking oil to move in line with the CPO supply to domestic market. There have been precedents in the past where the price soared due to the limited supply. The Government of Indonesia has imposed export duty on palm oil products to protect domestic CPO supply and thus to keep cooking oil price from soaring. The export duty is imposed at the pre-determined progressive rates based on the type of product on the standard export price. The standard price is determined by Directorate General of Custom and Duty periodically using the CIF Rotterdam CPO price as the reference.The CPO production capacity per province is in line with the concentration of plantation shown in the following table.The following charts depict the detail plantation areas as well as the CPO productions by each province in 2009. Source (raw data) : Directorate General of Estate Crops Riau North SumatraSouth Sumatra Central KalimantanWest KalimantanJambi   Others (below 480.000ha each)Location of oil palm plantation (ha) in Indonesia in 2009 (estimation) 2,101,438 (28%)726,896 (10%)498,537 (7%)748,118 (10%)484,671 (7%)1,680,593 (23%)1,081,644 (15%) Source (raw data) : Directorate General of Estate CropsCPO Production (ton) by Province 2009 (estimation) Riau North SumatraSouth SumatraCentral Kalimantan Jambi   West KalimantanWest SumatraNangroe Aceh DarussalamOthers(below 700.000 tons each) 785,886, 4%3,433,795 (18%)933,456 (5%)5,255,344 (27%)1,315,402 (7%)2,038,619 (10%)1,225,886 (6%)1,419,895 (7%)3,032,008 (16%) China  EU India Others Thousand Ton 0.01,000.02,000.03,000.04,000.05,000.06,000.02006 2007 Source (raw data) : Oil World* Up to August 2009 2009*2008    The export duty rates for CPO and Crude Palm Kernel Oil (PKO) as of 1 January 2009 are as followed:Standard export price (in US$)CPOPKO<=7000%0%701-7501.5%0%751-8003%1.5%801-8504.5%3.%851-9006%4.5%901-9507.5%6%951-1,00010%8.5%1,001-1,05012.5%11%1,051-1,10015%13.5%1,101-1,15017.5%16%1,151-1,20020%18.5%1,201-1,25022.5%21%>=1,25125%23% Source: Minister of Finance Regulation No. 223/PMK.011/2008 Prospects of palm oil industry in Indonesia In the short run, it seems that land expansion will remain the main strategy to increase CPO production capacity. Within the medium term, the trend of industry integration will increase, along with the growth of downstream industry for ole-chemical and biofuel. As for the medium and long term period, the development will emphasize on the efciency and effectiveness of plantation management as well as renery management processes to increase productivity. The following chart features key metrics of palm oil industry development targets in Indonesia: SWOT Overview Strengthsã High availability of land ã The right to land that is valid for up to 90 yearsã Availability of low cost manpowerOpportunitiesã Increasing demand for CPOã Favorable regulations for foreign investors, such as the one that allows foreign investors to hold 95 percent shares ã Sustainable palm oil-based managementã Newly established CPO commodity market Weaknesses ã Lengthy procedure to obtain land permitsã Lack of infrastructures in certain prospective locations Threats ã Better performance of substitute productsã Limited supply of high quality seed ã Issues with surrounding communitiesã Environmental issues  4 Plantation  Comprehensive Overview PricewaterhouseCoopers Indonesia 8.02 917.0320.2522%24% 23.5716.7120.285.368.321.56.4 2010 2025 Source (raw data) : R&D-Ministry of Agriculture (2007)OER: Oil Extraction RateCO: Cooking OilOC: Oleo-Chemical  Area (million hectare)FFB/ha/year (million tons)CPO produced (million tons)CPO available for export (million tons)CPO for CO and OC (million tons)CPO for biofuel (million tons)OER
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