Indonesia looks to limit size of new palm plantations

Wed Apr 24, 2013 4:30am EDT

* Working on law to limit new plantations to 100,000 hectares

* State-owned firms, co-operatives to be exempted

* Looking to impose law this year

By Michael Taylor and Yayat Supriatna

JAKARTA, April 24 (Reuters) - Indonesia is working on a regulation to restrict to 100,000 hectares the plantation area of new private palm oil firms, a government official said, as the world's top producer of the edible oil seeks to open up the industry to smaller players.

The law, an amendment to a 2007 regulation, will exempt state-owned firms and co-operatives and will not affect companies that already have permits, said Gamal Nasir, director general of plantations at the agriculture ministry.

"Hopefully it can be imposed this year," Nasir told Reuters on Wednesday, adding that the regulation would not be retroactive.

"Companies that already have acquired more than 100,000 hectares can still manage them, according to their permit."

Nasir did not say how the law would affect existing palm firms that are looking to expand.

Major palm oil firms now operating in Indonesia include Singapore-listed Golden Agri-Resources and Wilmar International, Malaysia's Sime Darby Bhd and Indonesia's Astra Agro Lestari -- most of which have more than 100,000 hectares under palm plantation.

Plantations with land licenses due to expire or be renewed soon could be hit hardest, but few firms release this data, so the full impact is hard to assess, said a Singapore-based plantations analyst.

The amendment to the 2007 regulation, which sought to protect small plantation firms from bigger predators, may be aimed at closing a loophole that let major players set up companies in different provinces, said the analyst, who did not want to be named because of the sensitivity of the issue.

The timing comes ahead of a campaign for presidential elections due next year, suggesting the law could be a government attempt to curb land disputes, common in a country where provincial and federal rules overlap.

However, the executive director of the Indonesian Palm Oil Association, Fadhil Hasan, questioned whether the new law was the best way to prevent the disputes or spread economic development evenly.

"In the new draft it is stated that it will be valid for the new plantations only," said Hasan. "But it is unclear to us why the government is doing this."

Indonesia's palm oil output is expected to be about 28 million tonnes this year, with between 17 million and 18 million tonnes exported to top buyers that include India, China and Europe.

Palm oil is used mainly as an ingredient in food such as biscuits and ice cream, or as biofuel, and estates growing palm in Indonesia sprawl across about 8.5 million hectares.

Home to the world's third-largest expanse of tropical forests, Indonesia is also under intense international pressure to limit deforestation and destruction of its carbon-rich peatlands, at risk from urbanisation and the rapidly expanding palm and mining sectors. (Reporting by Yayat Supriatna and Michael Taylor; Editing by Himani Sarkar)