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Commodity Intelligence Report
June 26, 2013

INDONESIA:  Palm Oil Expansion Unaffected by Forest Moratorium


The USDA currently forecasts 2013/14 palm oil production in Indonesia at a record 31.0 million tons, up 2.5 million or 9 percent from last year. Total area devoted to oil palm plantings is estimated at a record 10.8 million hectares, with mature “harvested” area at 8.1 million hectares. Mature area is forecast to increase roughly 6 percent compared to last year, or 430,000 hectares. This follows a long historical trend as seen in the graph below.

The rapid expansion of oil palm plantations in Indonesia has apparently been unhindered during the past few years by the 2011 “forest moratorium,” which restricted the issuance of new permits for land development in protected primary forest and on peat lands for a period of two years. Commercial palm oil companies and smallholder farmers continued to increase the area cultivated to oil palm on existing concessions, with total area estimated to have grown an average 630,000 hectares per annum between 2011 and 2013. This compares to a growth rate of approximately 500,000 hectares per annum over the previous 10 years.

The escalation of the annual growth rate during the past 2 years provides an interesting counterpoint to industry assertions that the moratorium acts to inhibit their ability to grow by restricting its unfettered access to additional land. In fact, it is estimated that the Indonesian palm oil industry collectively possess approximately 6-7 million hectares of undeveloped acreage in its existing land bank and theoretically has the ability to maintain current rates of plantation expansion for at least the next decade. Meanwhile, the Indonesian government recently decided to extend the forest moratorium for an additional 2 years, maintaining a protective status to over 43 million hectares of primary and protected forest and peat lands until mid-2015. In the short-term this implies that the palm oil industry, if it intends to grow, will need to continue to focus its efforts on developing available lands in its land bank and in enhancing average yields through better plantation management and varietal improvement.

Regional Situation
The commercial production of palm oil in Indonesia started to increase dramatically in the 1980’s and 90’s when the Soeharto government began to support the development of massive tree crop plantation industries (oil palm, coffee, and cocoa), as a means of generating domestic economic growth, export revenues, and to facilitate the settlement of its remote outer islands. Of these islands, Sumatra was the original location for early development of oil palm during the Dutch colonial period and had the best overall environment for its cultivation. The island of Java is where the national government was and still is based, and where the vast majority of the Indonesian population resided. After more than 30 years of continuous investment in national palm oil development, Sumatra is still home to the majority of the palm oil industry, with 70 percent of total mature oil palm area and 75 percent of total palm oil production.

In recent years Indonesia has been increasingly successful encouraging expansion of the crop in more remote locations in Kalimantan (the Indonesian part of the island of Borneo), and on Sulawesi. Kalimantan in particular has experienced strong development, with total area under cultivation increasing 1.4 million hectares during a recent 5-year period (2007 to 2011), or an average of 280,000 hectares per annum. Though Kalimantan ranks a distant second in terms of total acreage and production, it currently has the fastest rate of growth in the country. Meanwhile expansion is still occurring on Sumatra, with an additional 980,000 hectares being planted between 2007 and 2011, or nearly 200,000 per year. Kalimantan and Sumatra account for roughly 96 percent of total national palm oil production. Overall, mature oil palm area in Indonesia has more than doubled (up 106 percent) in the past decade, and has the capacity to double again with the combination of current immature acreage (totaling 2.7 million hectares) which is yet to reach harvestable age and the remaining lands (6-7 million hectares) in the industry’s land bank.

The pace and continuity of the expansion of this plantation crop is apparently not yet threatened by government policies (forest moratorium) or evolving official frameworks related to spatial planning, land permitting, environmental monitoring, and enhanced enforcement. Commercial oil palm seed and seedling distributors continue to report both strong ongoing sales and underlying demand for their product from the plantation sector – ensuring the historical pace of new plantings is likely to be maintained, at least in the short-term.

Recent Fires and Land-Clearing on Sumatra
Virtually all of the new lands brought into palm oil production each year start out as some kind of forest land cover. Once the available timber has been harvested, the remaining scrub and trees are set ablaze to clear the land prior to planting oil palm seedlings. Major outbreaks of forest fires in Indonesia typically occur in the months of June-September coinciding with the dry season. This is when both subsistence farmers and plantation managers carry out the majority of their land-clearing activities. A serious outbreak in June 2013 has been chronicled in the international press, as thousands of simultaneous fires have cropped up on the island of Sumatra. Easterly wind patterns have carried the dense smoke across the Strait of Malacca, overwhelming populations in southern Malaysia and Singapore. Air pollution levels during the middle of June were at record highs, with many businesses shuttered owing to unhealthy air conditions. The Indonesian government was forced to try to ameliorate the situation by aerial water-bombing, but the sheer number of active fires is ensuring this is not a viable solution. Unfortunately, most of the fires are located in eastern Riau province, where carbon-rich peat lands predominate. Regional government authorities and NGO’s report that many of the fires are burning in underground peat layers, which are particularly difficult to extinguish. And with the 2013 dry season just getting underway, it appears the situation will continue for weeks if not months.

The fire map above was created with publicly available data from NASA’s Fire Information for Resource Management System (FIRMS), and illustrates the location of active fires during the week of June 18-25. This particular period had the greatest number of active fires during the month. An analysis of total number of fires from the beginning of June by the World Resources Institute (WRI) indicates that over 7,000 separate blazes were cataloged by NASA’s daily MODIS satellites in this region. Furthermore, WRI cross-correlated the NASA fire data to official plantation land ownership records, and notes that though subsistence farmers (smallholders) are responsible for many of the fires, a growing number of the blazes are occurring within the properties of international timber, pulp and paper, and palm oil companies. A total of 296 fires were recorded on palm oil concession lands during the 2-day period of June 21-23 alone. Coincidentally, Riau province on the island of Sumatra is where the greatest concentration of palm oil production exists in the country, accounting for 20 percent of total area and 25 percent of national production. As outlined above, there is ample evidence that the historically rapid pace of oil palm area expansion has not subsided despite the 2011 forest moratorium. And it is also apparent from the current fire data that active land-clearing activities for new palm oil plantings are being carried out in earnest by many of the major companies in the Indonesian palm oil industry in 2013.

The image above is from NASA’s MODIS Aqua satellite, which actively collects data on a daily basis worldwide. Areas denoted by the color green are covered in vegetation, being farmlands, forest, or plantations. The image illustrates the predominance of smoke emanating from the Indonesian province of Riau which is drifting eastward and blanketing much of southern Malaysia and Singapore.

The image above is from the Landsat 8 satellite, courtesy of the U.S. Geological Survey (USGS) Eros Data Center. As in the previous MODIS image, areas denoted by the color green are covered in vegetation. However, owing to the increased resolution of this image, field boundaries and drainage networks can be seen in the palm oil plantation noted in the lower right hand corner. This Landsat scene displays several live fires on June 18th, as well as burn scars on nearby lands that had previously been ablaze. The area covered in this image is located just west of the Kerumutan River in eastern Riau province.

Additional information concerning Indonesian palm oil can be found at:

Current USDA area and production estimates for grains and other agricultural commodities are available on IPAD's Agricultural Production page or at PSD Online.

For more information contact Michael Shean | | (202) 720-7366
USDA-FAS, Office of Global Analysis

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