Investment in palm oil plantations in Indonesia still appears promising. As the world’s largest producer of palm oil, Indonesia plays a significant role in meeting global demand for CPO (Crude Palm Oil) and other palm oil derivatives. Palm oil has a wide range of derivative products, from food items, toiletries, and pharmaceuticals to eco-friendly fuels like biodiesel. Ten years ago, palm oil production in Indonesia was still behind Malaysia, but due to limited land in Malaysia, its palm oil production could not grow significantly. Meanwhile, in Indonesia, land expansion for palm oil plantations still offers potential opportunities. As a result, many palm oil players from Malaysia are seeking land in Indonesia to boost their production and business growth.
However, the expansion of palm oil plantations poses a risk of deforestation, as we observed when helping a Malaysian investor search for new palm oil land in Kalimantan and Sulawesi. Many of the lands offered were still lush with timber trees. Therefore, acquiring existing palm oil plantations became a more viable option. In 2018, the government imposed a moratorium on palm oil plantation permits to prevent deforestation. However, this moratorium was only implemented for three years until 2021, and there have been no indications from the government as to whether it will be extended or not.
Palm oil plantations still hold good business prospects amidst ongoing environmental sustainability debates. This business undoubtedly requires substantial investment. For at least four years, company finances will be absorbed for initial planting and maintenance costs. Several key factors need to be considered when investing in palm oil plantations:
- Risk of Failure during Planting: This is why involving experts during the planting process is crucial. Cases of poor seed selection and incorrect fertilization processes can lead to failure and result in significant losses.
- Legal and Land Ownership Issues: In Indonesia, overlapping land ownership cases are common, making it vital to ensure clear and legal land titles.
- Regulatory Compliance: The government has many regulations related to the palm oil industry, such as VAT (Value-Added Tax), price determination based on reference prices, export levies, Domestic Market Obligation (DMO), and others. Compliance with these regulations is crucial.
- Environmental and Social Issues: These are ongoing challenges for palm oil plantations. Engaging with the local community through Corporate Social Responsibility (CSR) initiatives is essential to maintain positive relationships.
- External Factors: Factors such as external regulations, including the RSPO (Roundtable on Sustainable Palm Oil) standards, are crucial for entering premium markets, and they may affect exports.
In summary, while palm oil plantations in Indonesia offer significant investment opportunities, they come with risks and challenges that require careful planning and adherence to legal, environmental, and regulatory frameworks.