Indonesia to Develop Value-Added Palm Oil Industry, Rajasa Says

By Claire Leow and Yoga Rusmana

Dec. 2 (Bloomberg) -- Indonesia, the world’s largest producer of palm oil, plans to develop regional centers for processing the commodity into biodiesel and other products to boost profit margins and create jobs, a minister said today.

The Southeast Asian nation is seeking investment to produce oleochemicals -- used to make household products like soaps, detergents and toothpastes -- cooking oils and biodiesel from palm oil, Hatta Rajasa, Indonesia’s Coordinating Minister for the Economy, said at a conference in Bali.

“At least three areas are ready; Riau, North Sumatra and East Kalimantan,” he said.

Indonesia is poised to report record production of 20.5 million tons next year, from 19.44 million metric tons this year, Achmad Manggabarani, director general for plantations at the agriculture ministry, said Sept. 7.

Output this year may climb to 20.5 million tons, and to at least 21.5 million tons next year, Fadhil Hasan, executive director at the Indonesian Palm Oil Association, forecast on Nov. 19. Indonesia earned $12.4 billion in palm oil revenue last year, making it the country’s largest non-crude oil and gas export earner, Rajasa said.

“We have a potential 18 million hectares (44.5 million acres) of land that can be developed for palm, including 7.9 million hectares of existing areas already planted,” Suswono, Indonesia’s Agriculture Minister, said at the same event.

“The government will give fiscal or non-fiscal incentives” for the proposed expansion, Rajasa said, adding that the government plans to improve local infrastructure such as ports, roads and electricity access in those areas.

Riau Development

A state company will develop 200 hectares in Riau for oleochemicals and biodiesel investment, Manggabarani said in response to Rajasa’s announcement.

Palm oil futures on the Malaysia Derivatives Exchange, the benchmark price, have gained about 47 percent this year. The price surged to a record 4,486 ringgit ($1,329) a ton in March 2008, before slumping 70 percent to the lowest in more than three years in October last year.

February-delivery palm oil was little changed at 2,499 ringgit a ton at 12:17 p.m. in Kuala Lumpur.

To contact the reporter on this story: Claire Leow at cleow@bloomberg.net; Yoga Rusmana in Bali at yrusmana@bloomberg.net