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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