The consolidation trend among crop traders took an unusual twist when rivals Noble Group and Wilmar International revealed a tie-up to produce palm oil in Indonesia.

Noble has contributed its Indonesia-based palm oil business, and Wilmar an unspecified contribution, into a joint venture "to develop and operate palm projects and sell crude palm oil and its byproducts".

The company, in which Wilmar will have a 53.7% stake, will initially focus on the 23,000 hectares of land that Noble's palm oil operation, Noble Plantations, owns in the Papua province of Indonesia.

Papua is in the east of the Indonesian archipelago, and shares the island of New Guinea with Papua New Guinea, where palm oil groups such as New Britain Palm Oil and Sipef run plantations.

However, the joint venture also represents a vehicle for further expansion, with aims to "explore and develop further palm oil opportunities in the Papua region, to add to the existing portfolio".

Falling shares

The tie-up contrasts with the often bitter rivalry often noted between trading houses, in the drive to beat competitors to crop supplies and orders.

However, both groups have fallen somewhat out of favour with investors, with Wilmar separately on Friday unveiling a 22% drop to $1.26bn in annual earnings, depressed by poor crush margins in China and weaker palm oil prices.

Shares in Wilmar, which revealed a 23% drop to $87.3m in pre-tax profits from palm oil in the October-to-December quarter, were the worst performer in Straits Times share index last year, falling 33%.

Shares in Noble - which a year ago appointed former Goldman Sachs banker Yusuf Alireza as chief executive, following a series of high-profile departures and its first quarterly loss in more than a decade – have fallen by 17% over the past year, compared with a 9.8% rise in the index.

The groups have also come under increasing scrutiny over their investment spending since rival Olam International was attacked by short selling fund Muddy Waters, which accused the cashews-to-cocoa group of running an overextended balance sheet.

'Recognised global leader'

Mr Alireza said that Noble would be able "to benefit from" Wilmar's expertise as a "recognised global leader in palm".

Kuok Khoon Hong, the Wilmar chairman and chief executive the group was looking forward to continuing Noble's work "to develop a world-class, sustainable plantation business in Papua".

Wilmar, the world's largest processor of palm oil and largest producer of palm biodiesel, currently owns plantations in the Kalimantan and Sumatra areas of Indonesia, besides in Malaysia, Uganda and West Africa.

The limited availability of further land in traditional palm-growing areas has placed a premium on new areas within the narrow equatorial band within which oil palm trees will grow, although the drop in palm oil prices to two year lows late last year has altered many spreadsheet assumptions.

Three years on…

Wilmar reported underlying earnings for the October-to-December period up 52% at $400.9m, boosted by recovering crush and milling margins as agricultural commodity prices fell, and by an improvement in sugar, thanks to a better Brazilian cane crop.

However, while the results beat market expectations, Wilmar shares closed down 1.4% at Sing$3.63.

Shares in Noble, which reports its full year results next week, closed up 2.2% at Sing$1.19.

Noble revealed its entry into Papua palm three years ago, when it revealed that it "intends to develop [an] about 32,500 hectare plot of land for palm oil production", an area bigger than that quoted in Friday's deal.

"The transaction is Noble's first project in the palm oil sector and establishes a platform for the group to expand and increase its investments in this area in the future," the group said at the time.