PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 13:26 UK, 6th Jul 2010, by Agrimoney.com
Palm oil companies 'face consolidation wave'

Palm oil groups may be set for a new wave of consolidation, as a squeeze on plantation land forces them to buy operators to maintain expansion, a sector boss and former Credit Suisse banker has said.

Dennis Melka, joint chief executive of Asian Plantations, said that oil palm operators were running out of easy options for extending plantation empires, thanks to the growing impact of environmental protection drives in the major Asian producing nations.

There was "hardly any land left" for plantation development in Malaysia, the second-ranked producer, which has set aside some 60% of its area for forest or reserve, Mr Melka said.

While new plantations were still being set up in Indonesia, the top producer, they were being forced onto "more and more marginal land" and, if planted on virgin land, risked a backlash from the environmental lobby which has scored some notable corporate scalps in promoting sustainable palm oil.

Golden Agri-Resources, which owns 430,000 hectares of Indonesian plantations, on Tuesday defended its environmental credentials against accusations from Greenpeace activists, saying it was "absolutely against burning" forests to make way for agricultural land.

Money to spend

"Cash rich players need to grow, they need the extra land bank," Mr Melka told Agrimoney.com, pointing to production costs potentially as low as $150 a tonne for palm oil which sells above $700 a tonne, freight included.

"But it is not so easy to find suitable land in Asia any more. So they will buy another player instead.

"We will see increasing consolidation."

The sector last saw a significant wave of deals in 2007, when Malaysia-based Sime Darby merged with plantation giants Golden Hope Plantations and Kumpulan Guthrie, while Wilmar International, founded in Indonesia, completed a $2.7bn deal to swallow Kuok Group's palm and oilseed operations.

'Safest way'

The comments echo those of George Lee, the manager of CF Eclectica's agriculture fund, who four months ago said that "buying existing producing assets is the safest way for a company to boost its stagnant production" in palm oil.

"The best land in the major palm oil producing countries has been taken.

"Companies looking to expand have been forced into more marginal land on far flung islands like Sulawesi and Papua, which present problems such as less reliable rainfall, woeful infrastructure and insufficient labour."

Similar problems challenged the expansion of operators into African countries which can in theory support palm oil, having the equatorial climate it needs, Mr Melka said.

South American countries, such as Ecuador, looked more interesting alternatives to Asia, he added.

Asian Plantations, which specialises in developing farmland in Malaysia into palm oil plantations, also owns a Peruvian subsidiary. 

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