JAKARTA: Indonesia’s plans to halt forest clearing will slow the
aggressive expansion of plantation firms in the world’s top palm oil
producer, leading to higher costs as firms will need acquisitions or
improved yields to boost growth.
The two-year moratorium on
new permits to clear natural forest from 2011 will increase land
prices, pushing some to consider following industry leader Wilmar in
expanding overseas to Africa or to diversify into food crops.
Indonesia is regarded as a key player in the fight to slow climate
change because its tropical forests and carbon-rich peatlands trap huge
amounts of carbon dioxide but its rapid deforestation rate has sparked
concern among environmentalists.
Analysts said firms with a
lack of land reserves such as Jakarta’s biggest listed planter PT Astra
Agro Lestari risk slower profit growth and reduced market share, while
smaller players such as Gozco Plantation may be forced to merge or
become takeover targets.
|
|
“In the short term, the moratorium will be bad for plantation firms
as plans to grow landbank will be limited, and firms with small
landbanks will find it especially hard to expand,” said Kenny Suyatman,
fund manager at PT Mandiri Manejemen Investasi.
The fund manages US$1.9 billion (US$1 = RM3.16) in assets including stakes in London Sumatra and Sampoerna Agro.
Firms with the smallest unplanted landbanks include BW Plantations
and Bakrie Sumatra while Wilmar and Indofood Agri have the biggest
Indonesian landbank.
The ban by Southeast Asia’s biggest
economy follows a US$1 billion climate aid deal Indonesia signed with
Norway aimed at avoiding greenhouse emissions from deforestation.
Palm oil buyers Unilever and Nestle have halted supply contracts
with Indonesian palm oil giant PT SMART and agribusiness giant Cargill
is conducting a review following reports from Greenpeace alleging
SMART destroyed carbon-rich rainforests.
Regional planters
rapidly expanded in recent years as a rally in crude palm oil prices
(CPO) was driven by growing demand from Asia and Europe for an oil used
to make products from biscuits to biodiesel. But easy land expansion
may be over.
“NGO pressures may become too intense for big
cap planters to expand through new planting. The big cap planters may
prefer to buy existing estates or firms,” said Ivy Ng Lee Fang, a
plantation analyst at CIMB Investment Bank Bhd in Kuala Lumpur,
pointing to BW and Sampoerna Agro as possible targets.
Consolidation in the industry may be beginning. Sources told Reuters on
Wednesday that Wilmar plans to buy a 20 per cent stake in Indonesian
firm Kencana Agri, which also has a relatively high unplanted landbank.
Gozco, which has among the largest land reserves among small caps,
said that firms from Europe, Singapore, India, China plus US
agribusiness giant Cargill had expressed interest in taking a stake or
partnering it.
The moratorium is creating a perception of
land scarcity in Indonesia, said an industry source that does land
acquisition deals for Southeast Asian planters.
“Planters
are talking to us about either expanding west to Africa or going east
to Papua New Guinea,” said the source, who declined to be identified.
“The moratorium, if put in place, will see land prices rise by 30-50
per cent from current levels.”
This is not good for Astra
Agro, whose trees are ageing – at an average of 15 years old versus an
optimum fruit-bearing age of 7-18 years – meaning it needs to plant
soon. Suyatman sees it losing out from the moratorium and has cut his
holding.
Astra Agro expects its expansion to be restricted by the forest moratorium, with output flat this year.
Its stock has slipped 10 per cent this year, underperforming a 19
percent rally in the Jakarta index and with a price to earnings ratio
of 19.4 is still seen as overvalued by many.
Land surveys that
used to take a few days now take weeks, leading to higher fees, given
more stringent environmental criteria, the firm said. It is now looking
at expanding in neighbouring Papua New Guinea instead.
If
environmental concerns do restrict future supply of palm oil, investors
say higher CPO prices could be a comfort for strong players, given a
healthy demand outlook. Analysts in a Reuters poll saw steady CPO
prices next year.
Those firms able to tap that demand through better yields may be winners. – Reuters
Source : Business Times
