Favorable prices have encouraged the switch to full palm oil production
PARTNERSHIPS WILL BE THE KEY TO UNLOCKING FOREIGN MARKETS AND DEVELOPING AN OLEO-CHEMICAL FACILITY

The first plantations set up under Dutch colonial rule in Indonesia were in Aceh province in northern Sumatra, which is today the home of PT Perkebunan Nusantara I, one of 14 state-owned plantations scattered across the Indonesian archipelago.
The principal crops grown at the plantation, known as PTPN I, are palm oil, which accounts for 70 percent of its total output, and natural rubber, which makes up the remainder. However, this production pattern is undergoing change.

SUWANDI President Director of Plantation I

A recent improvement in palm oil prices, while prices for other commodities such as rubber, sugar and cocoa remained weak, has persuaded the management to switch entirely to palm oil production.
“We plan to produce 100 percent in palm oil because the potential offered by rubber is lower,” says President Director Suwandi. Farm sector analysts say that palm oil is usually more profitable than rubber, so the decision makes sense.
The government took over the plantation from Japanese owners in 1960 – although it was not until 1974 that a program of commercial development swung into action. The move was accompanied by the introduction of a new type of palm oil technology called DxP (Tenera), which halved the delay to first production from six to three years. The change to the new technology in 1972 heralded “a new era in the palm oil sector in Indonesia”, says Mr. Suwandi. New strains of plant developed by geneticists in France and the UK also helped boost output by 60 percent.

AT PLANTATION I new strains of palm oil plant developed by geneticists in France and the UK have helped to boost output by 60 percent, while technology has slashed initial production delays.

The plantation covers more than 205,000 acres. Of this, about 66,000 belong to PTPN I, with the rest owned by smallholder farmers. The company is holding 32,000 acres in reserve and plans to start planting there next year. Waste from the palm oil mills is used as fertilizer, which would otherwise have to be transported at high cost to the plantation.
A lot of hard work has gone into reinvigorating the plantation since new management was appointed at PTPN I a couple of years ago. Then, says Mr. Suwandi, there were serious problems with the financial condition of the company, particularly in terms of its weak capital structure and a worrying debt ratio of about 75 percent.
A capital restructuring program was carried out, revenues and production rose, while both the debt ratio and losses came down last year — and the improvement seems set to continue. “We are expecting to make profits this year,” says Mr. Suwandi.

His intention is to build on this more solid financial foundation. “We have developed a cooperation program with some business partners,” he says. “They provide us with capital and we pay them with products.” Earlier this year, PTPN I began exporting, making an initial shipment of 1,100 tons of crude palm oil. The company plans to use the nearby port at Lhokseumawe for future exports.
Mr. Suwandi recognizes that the company’s chances of turning potential exports into profits will be enhanced if it joins forces with other enterprises.
“The prospects for an increase in exports are good, but we need to have markets and partners and have our products recognized internationally,” he says. “We are now looking at new markets like the United States, Asia and Europe.”

The other big item on the agenda is to build an oleo-chemical factory based on palm oil produced at the plantation. Again, this is likely to draw PTPN I into partnership with outside interests.
“We need technology and we need capital,” says Mr. Suwandi, adding that he recently held talks with some foreign investors about this project. Current estimates are that the project would cost about 100 billion rupiah ($11 million).
PTPN I also wants to bring unused land into production. The company has the available land, and it would not be difficult to reclaim it from its present state of dilapidation. However, the success of this plan, too, will hinge on overseas financing.

“We need some advice and a bridge to connect us with investors, markets and ultimately the consumers. Especially, we need to be known by international organizations and investors so that we can attract some of their funding to our plantation,” the PTPN I chief says.
Nearer to home, Mr. Suwandi hopes to increase productivity by improving the skills of the labor force. The company is also forging closer links with the local community, and he sees this as an important factor in assuring the future success of the plantation.

“We need to keep our human resources and boost their input into the operation, and we can motivate them,” he says. Wages have been increased and productivity has risen in recent months. Better incentives have also encouraged smallholders to harvest the entire area belonging to them rather than just some of it, as they did before.
In recognition of its role in the community, the company has also opened up its hospital at Langsa, near the head office of the plantation, for the benefit of the local inhabitants. “Now, the hospital serves the whole community and not just the workers on the plantation,” says Mr. Suwandi.