Farmers Hurting as Palm Oil Prices Continue to Fall

Farmers Hurting as Palm Oil Prices Continue to Fall

A PROLONGED fall in the price of palm oil is hitting Indonesia’s legions of smallholder farmers, forcing cutbacks that will reduce output in coming years and raising the prospect of a bout of sell-outs to major producers.

Smallholder farmers account for about 40 per cent of output from Indonesia’s vast plantations that cover an area the size of South Korea. A drop in smallholder output could shave total production by around five per cent from next year, say analysts.

Up to one million smallholders in the world’s top palm oil producer have enjoyed a near uninterrupted decade of boom years, fuelling a rural consumer binge on new motorbikes and mobile phones.

But with prices near five-year lows some cash-strapped farmers are being forced to cut back on fertilisers, pesticides and replanting.

They are calling on the government to give a sector vilified by green groups for forest destruction the type of price floor support enjoyed by rice and sugar.

“Farmers can’t increase production because they don’t have money,” said Mansuetus Darto, secretariat at the Indonesian Oil Palm Smallholders Union, which has 40,000 members in Sumatra and Kalimantan. “Bottom-line is — they have become poor.”

Indonesia’s palm output has jumped 140 per cent over the past decade, with plantations doubling to around 10 million hectares under a government-backed ‘palm revolution’. Output in 2014 is expected to rise seven per cent to 30.5 million tonnes.

Used in everything from food to soap, palm oil is Indonesia’s second-largest non-oil export, but prices have tumbled on record supplies of competing soya crops, weak crude oil prices and disappointing uptake of biodiesel in Indonesia.

But independent farmers say changes to the industry have made them more vulnerable to price falls than major players like PT Sinar Mas Agro Resources and Technology, Astra Agro Lestari and Wilmar International Ltd.

Palm giants have integrated their businesses to include plantations and refineries, leaving smaller producers battling to sell their crops when the market is oversupplied.

“Many Indonesian planters are struggling to make ends meet as prices have already been disappointing in the past few years,” said a planter who declined to be named, pointing also to higher borrowing and logistics costs for smallholders.

In some areas on the island of Sumatra, farmers are being forced to cut the use of fertilisers and pesticides, said Carlo Nainggolan of Sawit Watch, a group which aims to protect people from exploitation by large palm firms.

“Cutting fertilisers is usually the first thing people do,” said Alvin Tai, regional head of plantations at RHB Research Institute.

“It’s easy and it doesn’t immediately affect yield.” Reuters


Source : New Straits Times

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