Indonesia sees slower palm oil expansion from 2010

Indonesia expects palm oil output to grow sharply in the next two years but stricter forest protection may then slow expansion, a senior industry official has said.

Indonesia is set to take over from Malaysia as the world's top palm oil producer this year because of rapid expansion in the last five years.

"We expect to see output grow by 8 to 9 per cent until 2009. But we have yet to see if we can sustain the growth beyond that period," Derom Bangun, executive chairman of the Indonesian Palm Oil Producers Association, said in an interview.

Indonesia's crude palm oil output is projected to hit 17.4 million tonnes in 2007, up from 15.9 million tonnes in 2006.

"Expansion plans have been hampered by uncertainties in the legal status of the available land," said Bangun, adding that the government is now checking that existing plantations are not located inside protected forests.

"Acquiring land is getting more difficult. From 2010 onwards, output will depend on the state of (palm oil) investment in 2007 to 2008," said Bangun.

alm oil producers have asked Jakarta to clearly define forest areas that need conserving.

Environmental groups are concerned that rapidly expanding palm oil plantations, partly due to ambitious biofuel plans, are damaging rain forests and driving out rare species.

Indonesia, which currently has 6 million hectares of palm oil plantations, may also restrict expansion by holding companies despite record-high crude palm oil prices.

"The government doesn't want holding companies to own too much land. Land has become a rare commodity," said Bangun.

Bangun also expected Indonesia's palm oil exports to slow down in 2007, mainly because of the growth in biodiesel demand. Exports reached 12.1 million tonnes in 2006.

"We have expected output to reach 17.4 million tonnes this year, but part of it could be used for biodiesel. So, we may only export 13.1 to 13.2 million tonnes this year," he said.

"In 2008, output may rise to more than 18 million tonnes. Exports may hit around 14 million tonnes but it will also depend on the growth of the biodiesel industry," he said.

Demand for biofuel is booming, prompted by government policies to reduce dependence on crude oil and cut carbon dioxide emission.

Indonesia plans to plant more than 5 million hectares with palm oil, jatropha, sugar cane and cassava by 2010 as biofuel feedstock.

By then, biofuel will make up 2 per cent of the country's total energy mix or 5.29 million kilolitres. As of April this year, Indonesia's output capacity for palm oil-based diodiesel stands at 520,000 tonnes per year, according to the government.

- Reuters