JAKARTA, Indonesia (Reuters) — An Indonesian rule limiting plantation areas to just 250,000 acres for new palm oil firms threatens an ambitious production goal of 40 million tonnes by 2020, says an industry group.
The country’s soaring palm oil production is expected to hit 31 million tonnes this year, up from 12 million 10 years ago. It has put downward pressure on global oilseed prices, including canola.
Analysts say the new rule aims to protect small plantation firms from bigger companies and will close a loophole allowing major players to set up firms in different provinces.
The new law exempts state-owned firms, co-operatives and listed firms in which small individual investors make up a majority stake, and will not affect companies that already have plantation permits.
“This new regulation is purely to curb oil palm plantation development in Indonesia,” said Timbas Prasad Ginting of the Indonesian Palm Oil Association.
“Perhaps this government step is merely to satisfy foreign pressures.”
Indonesia is a key player in the battle against climate change and faces international pressure to halt rampant deforestation and destruction of carbon-rich peatlands.
Forests in the archipelago are being cut for an expanding swath of palm oil, mining and pulp and paper industries, which environmental groups blame for hastening climate change and destroying wildlife.
“The palm oil plantation restriction will slow annual production growth so that we will not achieve our target of 40 million tonnes in 2020,” Ginting said.
Indonesia, home to the world’s third-largest expanse of tropical forests, should not rely solely on expansion to boost yields, said deputy agriculture minister Rusman Heriawan. Better farming techniques could also increase production, he added.
Heriawan said the law will require new palm plantation firms to offer a fifth of their land for development by local farmers where possible and gradually divest 30 percent of new palm oil mills to co-operatives within 15 years of operation,
He gave no details of whether the new rule would affect plantations with land licences about to expire or be renewed and how the law would affect existing firms seeking to expand.