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ASIAN AGRI AND THE FUTURE OF PALM OIL
By Group 1
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Asian Agri and Dato Yeo How (President)
Introduction to the Case
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"The most widely used Vegetable oil, found inproducts from fries to soap"
"Golden crop" of SE Asia
Highest yield per hectare @3.5 metric tons perhectare per year
Yield pattern - sharp increase for 8 years, level until15th year, declined until the 25th year
Usage - 80% in food, the rest in personal careproducts, animal feed and bio diesel
Palm Oil
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Major consumers:
1. Countries - China, India, EU, Malaysia, Indonesia, Pakistan
2. Companies - Unilever(buys 4% of all palm oil produced), P&G, Nestle
Healthy oil status in recent years
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World's 4th most populous nation -13.33% below poverty line
More than half lived in urban areas
Agriculture- top source of employment @42% and 15% contribution to GDP
Palm oil industry in Indonesia
1. Climate ideal for palm oil
2. Year round operations
3. Source of employment for 3.7 million Indonesians
Indonesia: An Overview
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Asian Agri Group: A Brief Timeline
Indonesian govt. partners with the World Bank to develop rural ar eas for palm oil plantation
First company plantation on 10,000 hectares in Sumatra
Builds a mill for extracting CPO and palm kernelsP articipates in Plasma program introduced by govt of Indonesia
Ops expand to 30,000 hectares of plantation & a small refineryUpgradation of refining facilities and upgraded R&D
Price of palm oil soars, leading to high profitability
US demand increases due to a decreasing trans fat consumption
Tanoto forms the RGE group with other subisidiaries
Midstream and Downstream capacities consolidated under a new subsidiary APICAL Group
1960s
1979
19841986
19891990s
2000s
2005
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Refining and Exporting of CPO 60% CPO to APICAL refineries by trucks
Breaking down into solid and liquid components through fractionation.
Up to CPO could be stored up to 5 months and refined palm oil can be stored only for 1 month
Great value added operations which helps in hedging risk
Palm kernel crushing plant producing expeller and CPKO, biodiesel plantof capacity 400 k m tons.
Company took the effort to improve upon road transport and employed locals as truck drivers
Deep-water port facility for storage and processing and transfer to destination markets
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CHALLENGES : Not an easy road. 1. Sustainability
- NGO criticized them for allegedly clearing forests that were rich in biodiversity andhome to endangered species
- Destruction of land, high levels of carbon dioxide
- Roundtable for Sustainable Palm Oil (RSPO) memember ship included growers ,processors, CGP companies, banks , investors and NGO
- Reputation at stake
Challenge as an asset
- Asian Agri was an RSPO member. Two mills and one plantation certified.
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2. Plantation Expansion
-- Newer Land harder to acquire
-- 2015 vision , 300,000 hectares
-- 2 year freeze on new land, Win concessions
-- Hurt NGO sentiments international as well within country
-- Rampant poverty in Africa and South America , land disputes , complex process
Challenge as an asset
-- Experience with government and familiarity
- -- Enhanced reputation
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