ASIAN AGRI AND THE FUTURE OF PALM OIL

By Group 1
Asian Agri and Dato Yeo How (President)
Introduction to the Case
"The most widely used Vegetable oil, found in
products from fries to soap"
"Golden crop" of SE Asia
Highest yield per hectare @3.5 metric tons per
hectare per year
Yield pattern - sharp increase for 8 years, level until
15th year, declined until the 25th year
Usage - 80% in food, the rest in personal care
products, animal feed and bio diesel
Palm Oil
Major consumers:
1. Countries - China, India, EU, Malaysia, Indonesia, Pakistan
2. Companies - Unilever(buys 4% of all palm oil produced), P&G, Nestle
Healthy oil status in recent years
World's 4th most populous nation -13.33% below poverty line
More than half lived in urban areas
Agriculture- top source of employment @42% and 15% contribution to GDP
Palm oil industry in Indonesia
1. Climate ideal for palm oil
2. Year round operations
3. Source of employment for 3.7 million Indonesians
Indonesia: An Overview
Asian Agri Group: A Brief Timeline
Indonesian govt. partners with the World Bank to develop rural ar
eas for palm oil plantation
First company plantation on 10,000 hectares in Sumatra
Builds a mill for extracting CPO and palm kernels
Participates in Plasma program introduced by govt of Indonesia
Ops expand to 30,000 hectares of plantation & a small refinery
Upgradation of refining facilities and upgraded R&D
Price of palm oil soars, leading to high profitability
US demand increases due to a decreasing trans fat consumption
Tanoto forms the RGE group with other subisidiaries
Midstream and Downstream capacities consolidated under a ne
w subsidiary APICAL Group
1960s
1979
1984
1986
1989
1990s
2000s
2005
Refining and Exporting of CPO
60% CPO to APICAL refineries by trucks

Breaking down into solid and liquid components through fractionation.

Up to CPO could be stored up to 5 months and refined palm oil can be st
ored only for 1 month

Great value added operations which helps in hedging risk

Palm kernel crushing plant producing expeller and CPKO, biodiesel plant
of capacity 400 k m tons.

Company took the effort to improve upon road transport and employed loc
als as truck drivers

Deep-water port facility for storage and processing and transfer to destina
tion markets



CHALLENGES : Not an easy road.
1. Sustainability
- NGO criticized them for allegedly clearing forests that were rich in biodiversity and
home to endangered species
- Destruction of land, high levels of carbon dioxide
- Roundtable for Sustainable Palm Oil (RSPO) memember ship included growers ,
processors, CGP companies, banks , investors and NGO
- Reputation at stake
Challenge as an asset
- Asian Agri was an RSPO member. Two mills and one plantation certified.



2. Plantation Expansion
-- Newer Land harder to acquire
-- 2015 vision , 300,000 hectares
-- 2 year freeze on new land, Win concessions
-- Hurt NGO sentiments international as well within country
-- Rampant poverty in Africa and South America , land disputes , complex process
Challenge as an asset
-- Experience with government and familiarity
- -- Enhanced reputation