10.
INDOFOOD AGRI RESOURCES LTD
ANNUAL REPORT 2015
DEAR SHAREHOLDERS,
It has been another challenging year. The persistent slump
in commodity prices and slower growth in some key markets
like China have led to a prolonged period of volatility and
uncertainty. Global developments remain uncertain and
unpredictable.
These circumstances have aggravated the complex mix
peculiar to any agribusiness such as the vagaries of
the weather, export restrictions, the higher correlation
between the prices of oil and various commodities, and the
performance of competing crops such as soybean oil. The
long-term consequences of this churn are still unclear.
Indonesia, one of the emerging economies dependent on the
export of commodities, is bearing the brunt of this downturn.
Its GDP grew by 4.79% in 2015, short of the budgeted 5.7%.
The government recorded its largest budget deficit in 25
years on the back of shrunken export and tax revenues. The
Rupiah has further weakened. In facing this extraordinary
disruption, Indonesia is deploying a combination of monetary
policy, fiscal stimulus and structural reforms to promote
investments and economic growth.
Domestic policies
Domestic policy changes during the year affected both the
bigger producers and smallholders. In July, the government
imposed export levies of US$50 on every tonne of CPO
and US$20 to US$30 on every tonne of processed palm oil
products. The measure was aimed at enhancing tax revenues.
These levies were in addition to the current progressive
We have built up a strong
foundation for integration
and right-sizing to weather
the headwinds. We take
a long-term view of our
investments, confident that
they will continue to bear fruit
as the cycle turns.
CHAIRMAN’S
STATEMENT
export tax structure, which would apply when palm oil prices
exceeded the government’s reference CPO price of US$750
per tonne.
Revenue from the new tariffs will be used to subsidise
biodiesel production, finance replanting and support
research and development for the industry. CPO exporters
and smallholders are trying to cope with these new pressures
on their already thin margins. IndoAgri is helping its plasma
farmers tide over this challenging period by providing
agronomy advice and affordable agricultural inputs such as
seed stocks and fertilisers.
The way forward
Economic uncertainties and price volatility have always been
a profile of the commodity markets. However, the demand for
edible vegetable oils, of which palm oil accounts for about a
third of the world production, has not diminished. Indonesia’s
population of more than 250 million is Asia’s third largest
consumer market after China and India.
Our business is resilient. As a diversified and vertically
integrated agribusiness, our operations continue to be
supported by positive market drivers that include good
demographics, increasing urbanisation and a fast-growing
middle class with rising discretionary incomes. We have
built up a strong foundation for integration and right-sizing
to weather the headwinds. We take a long-term view of our
investments, confident that they will continue to bear fruit as
the cycle turns.
In the near term, our focus will be to deepen our relationship
with smallholders, government stakeholders and industry
partners. We will place a stronger emphasis on extracting
