KUALA LUMPUR: Companies making a late entry into the Indonesian plantation sector are hit with a big blow following its government’s move to sign a three-year moratorium on new palm oil plantation development and call for a review of existing plantation permits, analysts said.
The move would also help slowdown the fresh fruit bunch production growth, they added.
Indonesia announced the move on Friday, aiming at improving the sustainability of palm oil plantations and part of the environmental protections.
The government also hoped the temporary ban would improve productivity of small owners and help clarify the land ownership.
“We think the new implementation would be a big blow for those who are the late entrants in Indonesian plantation industry,” Public Investment Bank Bhd said.
The firm said the new policy could bring negative impacts to those plantation players who were relatively new or those with significant plantable landbank in Indonesia as their plantation expansion plans would be halted.
Neverthless, PublicInvest did not expect any significant impact for the plantation companies under its coverage, as majority of them had almost fully planted their landbank there.
It cited that TSH Resources Bhd, which has closed to 90 per cent of its plantation landbank in Indonesia, had already slowed down its new planting activities (less than 500 hectares per annum) since a few years ago.
The firm added that Ta Ann Holdings Bhd, its top pick in the sector, was the only plantation company that was not affected by the policy as it had no exposure in Indonesia.
PublicInvest said the temporary ban would help provide support for palm oil prices and ease the oversupply concerns in the future.
“Indonesia, which accounts for 51.7 per cent of global palm oil production, is expected to see a rise of 5.5 per cent year-on-year to 38.5 million tonnes this year,” it added.
The firm pointed out that the moratorium was not new in Indonesia as back in 2010, Indonesia and Norway had inked a US$1 billion deal in exchange for a moratorium on new permits to clear primary forest.
However, studies showed that the largest palm oil producing country had failed to reduce its emission from deforestation and forest degradation while more than 9.9 million hectares were converted into plantation area over 2010-2015.
“As the new policy is a self-commitment by Indonesia and action taken into a review of existing plantation permits, we think it could be a tighter implementation across all provinces,” it explained.
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