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Indonesia is the largest palm oil producing …independent smallholder farmers account for
country… 42% of production
Top 5 Palm Oil Producing Countries ('000 Mt) Smallholders Companies State-owned Enterprises
Indonesia 35,000
Malaysia 21,000 42%
Thailand 2,300 51%
Columbia 1280
Nigeria 970 7%
Deforestation linked to palm oil expansion … while replanting finance is a large investment
threatens Indonesia’s tropical forests… opportunity
✓ Low yields for smallholder farmers, producing 45% ✓ Urgent: In the next 25 years (2017- 2041) every year
less compared with plantation companies approx. 175,000 hectares of oil palm needs to be
✓ Lack of access to credit, especially investment replanted
capital for replanting, often leaving smallholders ✓ Significant Financing Needs: With an estimated
little choice but to expand into neighboring forests replanting cost/Ha of USD 4000, the investment
due to overaged plantations opportunity is USD 700 Million per annum
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Access to Finance – Challenges
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Replanting – A Farmer’s Perspective
Annual Yield Profile for 20-year Old Trees and Full Replanting
Besides the impeding factors related to
40.00
financing…
30.00
✓ Current outstanding debts;
Yield (tons)
20.00
✓ Issues related to collateral and land certificates
(pledged already/ partly, or on name of previous 10.00
owner) 0.00
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32
..farmers may be reluctant to replant due to: Year
Yearly FFB Tons (without Replant) Yearly FFB Tons (with Replant)
✓ Short-term horizon bias as they forego 5 years of Source: Financial Access based on data from Azman I. and Mohd N. M. (2002)
income
Cumulative Yield Profile for 20-year Old Trees and Full Replanting
✓ Lack of alternative income streams;
1,000.00
✓ Risk-averse mentality of farmers;
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Replanting – A Farmer’s Perspective (II)
50
High-quality Seeds
and GAP
lead to up to 40% yield increase…
40 Up to 40%
increase ✓ Higher volume and possibly higher quality, increasing
30
smallholder profitability
20
✓ Alternative income-generating activities to face cash
10
shortages during the initial 3–4 years after replanting
-
1 4 7 10 13 16 19 22 25 28 31
Millions MT
$800 80 have the capacity to repay replanting
$600 60 loans while improving their livelihood.
$400 40
✓ Average loan tenor is 13 years
$200 20
✓ Grace period of 5 years to mitigate replanting-
$- 0
2014 2015 2016 2017 2018F 2019F 2020F 2021F production gap with possibility to include cost of
living stipend to compensate foregone income
Global Demand (MT) Total Indonesian Consumption (MT) $/MT
Source: World Bank, Oct 2017 and DBS CPO Forecast, 2017
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Innovative Smallholder Finance Approach
Environmental & Farmer Identification Data Analytics & Portfolio Credit Risk
Supply Chain Analysis & Data Collection Credit Scoring Development Monitoring
Technical Assistance
✓ MFI Capacity Building and Smallholder Graduation Approach
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Partnership Models
Partnership Arrangements • Adapt the classic plasma model to be more • Requires willingness to bear credit risk,
attractive to non-plasma smallholders and particularly in the pre-production stages.
previous plasma small-holders
• Technical training and assistance to the KUD
and farmer groups
• Post-replanting labor provided by farmers,
and in some cases supervised by the
company
Key Limitation Continued dependence on the corporate Need for a corporate guarantee under most
guarantee examples to date drastically limits its
applicability.
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Alternative Financing Structure
Page 8
Recommendations
1. The investment case for farmer replanting needs to be more attractive. Low average
4. Conduct pilot testing on “Model 2” finance and more detailed design with piloting on
5. Explore efficient smaller-scale (lower cost and requiring less than 300 ha) replanting
solutions.
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More Information
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Contact
Financial Access Head Office Financial Access Jakarta
Emmaplein 2 Jl. Kemang timur Raya No.66
1075 AW Amsterdam Jakarta Selatan 12730
The Netherlands Indonesia
www.financialxs.com
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