High palm oil prices mean farmers don’t replace ageing trees

INDONESIA’S slow replanting of old and unproductive oil palm trees will likely keep output growth subdued in the world’s biggest supplier, according to plantation company Golden Agri-Resources.

Production may only climb by 500,000 tons to 1 million tons year-on-year, Tony Kettinger, chief operating officer of the Singapore-based firm, said in an interview on Tuesday (Mar 7). That would suggest a rise of roughly 1 per cent from last year.

Replanting ageing oil palm trees is important for Indonesia as it helps to maintain or raise yields without increasing use of land. For smallholders, that can be challenging because of the high costs and a potential loss of income during the replanting process. The production also faces risks from the expected shift in weather patterns from La Nina to El Nino this year.

There’s some replanting going on, but most of the trees are getting older and not increasing productivity, Kettinger said. “We don’t see big production increases coming. Very slow increases in fact. That’s if the weather is good. History has shown us that with El Nino, we can really suffer.”

Replanting is a big undertaking as it requires a huge investment and affects revenue for a few years, according to Golden Agri. This is a tough decision for growers especially when prices are high. Global palm oil futures have doubled in the past four years and currently trade at about 4,200 ringgit (S$1,257) a ton. BLOOMBERG