Page 14 - ar2013

Indonesia is one of the fastest growing economies in the G20,
with a consistent economic growth rate above 6% annually since
2009. While export earnings have come under the pressure of low
global commodity prices, a weakened rupiah and a record current
account deficit, the country’s large domestic demand has kept the
economy buoyant.
The strong economic results have prompted IMF to project the
Indonesian economy to expand to US$1.5 trillion by 2015, and
analysts like Goldman Sachs and McKinsey to forecast Indonesia
as a major engine of global growth on track to becoming the
world’s seventh-largest economy by 2030.
The Indonesian government is also determined to make the
country the world’s 10th largest economy by 2025. You can see
the resolve in the series of stimulus programmes undertaken to
boost investment, improve productivity, raise living standards and
expedite infrastructure projects.
The foresight and efforts paid off. Indonesia improved its
international standing and regional influence steadily in recent
years. The increasing political stability, coupled with Indonesia’s
appeal as the largest economy in South East Asia, wooed
international investors at a time when most economies had
succumbed to the effects of the global economic downturn.
However, as Indonesia expands, it has to address longstanding
challenges at the provincial, national, regional and international
levels adeptly in order to achieve consensus in issues ranging from
sustainable development to human capital and regional stability.
Many of these issues will be a central theme when Indonesia
enters into an important election year in 2014.
The World Bank has assessed that the global economy is at the
start of its upturn with a projected GDP growth of 3.5% globally
and 6.7% in South Asia by 2016. According to McKinsey, the
Indonesian agriculture industry possesses the capacity for growth.
But to realise its full potential, Indonesia has to improve productivity
of the farmers, increase plantation yields, reduce post-harvest
waste, and invest in higher value crops. This could potentially
catapult Indonesia into becoming a net exporter of agricultural
products and grow this industry sector to US$450 billion by 2030.
We are now at an important crossroad. It is crucial for IndoAgri to
position ourselves strategically – by constantly adjusting our plans
to shifting paradigms and strengthening our diversified portfolio –
so that we will be ready to take on the new growth opportunities as
the global economy recovers.
SHIFTING PARADIGMS
2013 was a demanding year for the palm oil industry as a whole.
One of most significant changes affecting the agriculture industry
was the new agriculture law Permentan No 98-2013 that limited
the plantation size of 11 commodities, including oil palm, rubber,
cocoa and tea. Ownership in oil palm plantations, for instance, is
now restricted to a maximum surface area of 100,000 hectares
per plantation Group.
Whilst the Group has already exceeded this limit, the law is not
retroactive. Nevertheless, the Group is already diversified into
sugar, rubber, and to a lesser degree, cocoa and tea, and we will
continue in this direction to expand our diversified agribusiness.
With Indonesia’s moratorium on new forest concessions still
in force until May 2015, the new policy has effectively put the
brakes on Indonesia’s palm oil roadmap. It is a common and real
industry concern that the production of 40 million tonnes of palm
oil by 2020 and 60 million tonnes by 2040 could not be met by
increasing productivity of existing oil palm plantations alone. As
Indonesia accounts for 50% of current world palm oil production,
these events will have an impact on future growth.
The manpower costs are rapidly on the rise as a result of
Indonesian’s minimum wage policy. Being a labour intensive
industry, this policy has a significant and long-term impact on our
operating costs.
In response to these changes, we have to continue to improve
workforce productivity through training and skills development,
look for ways to increase plantation yield, achieve higher efficiency
and lower operating costs.
STRATEGIC INVESTMENTS
Over the years, we have progressively expanded our investments
into other agriculture products as part of the strategy to diversify
our business portfolio, mitigate cyclical risks and optimise the use
of our plantations, resources and expertise.
In 2013, we acquired a 79.7% shareholding in MPM, and through
it, obtained 73,330 hectares of land in East Kalimantan, under
a new agroforestry license. We are now experimenting with
different types of crop that can be cultivated on that land through
intercropping – the practice of planting along the 15m corridors in
between forestry permitted by the law.
In line with the Group’s strategy of expanding its geographical
presence, in 2013, we invested in two sugar operations through
a 50% stake in CMAA in Brazil and a 34% stake in RHI in the
Philippines.
CHAIRMAN’S STATEMENT
DEAR SHAREHOLDERS,
10 INDOFOOD AGRI RESOURCES LTD • ANNUAL REPORT 2013