Exploring South Sumatra 2023 investment: Accelerating the export gate of oil palm

This article has been translated by PwC Indonesia as part of our Plantation News Highlights service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Bisnis Indonesia - Jelajah investasi Sumsel 2023: Akselerasi gerbang ekspor sawit

15 August 2023

Business players are looking forward to an export port infrastructure for palm oil processing products in South Sumatra to boost the region’s foreign trade. The construction of the special port is planned to begin this year. 

The South Sumatra Indonesian Palm Oil Association (IPOA) predicts that the region’s palm oil productivity in the next five years will remain between 46 million tonnes per hectare (ha) and 47 million tonnes per ha annually. 

This stagnation is due to the declining trend of fresh fruit bunch (FFB) production in the last two years at around 15 tonnes per ha. 

“In contrast, before 2020, South Sumatra could produce almost 20 tonnes of FFB per hectare annually,” said the Head of South Sumatra IPOA Alex Sugiarto to Bisnis recently. 

He assessed that the decline in production was influenced by the large number of major groups and independent smallholder plantations carrying out oil palm rejuvenation or replanting. 

However, accelerating the realisation of smallholder oil palm rejuvenation (PSR) is an alternative to increase the efficiency and productivity of oil palms. 

Nevertheless, he added, the replanting programme still faced various challenges in its implementation. This includes the weakness of farmer organisations, so that farmers are not yet organised in groups. 

He hopes that the regional government, through the South Sumatra Plantation Agency, will conduct outreach more intensively. This way, he added, oil palm farmers will be more aware to form groups and ultimately form cooperatives. 

On the other hand, Alex revealed that the condition of South Sumatra’s palm oil industry tends to be weaker than two other producing regions in Sumatra, namely Riau and North Sumatra. 

He continued that the dry season cycle that occurs in the two regions does not last as long as in South Sumatra. Moreover, in terms of the land classification, these two regions have class S1 land, while South Sumatra has class S3 land. 

Apart from natural factors that cannot be changed, the challenges for the palm oil industry in South Sumatra also come from the availability of adequate infrastructure. 

According to him, Riau and North Sumatra are facilitated with export ocean ports which provide direct access for large ships to exit. Meanwhile, exports in South Sumatra must use small ships with transfers at several points, resulting in double costs. 

Therefore, he admitted he is looking forward to the port’s presence as a gateway for palm oil distribution route in South Sumatra.

Alex reckons the availability of this port is also highly anticipated by all industries in South Sumatra. 

“Because [a port] greatly reduces transportation costs. Currently, we incur double costs, not only in terms of money but also time,” he said. 

Likewise, Head of South Sumatra IPOA Communication, Publication, and Positive Campaign Division Anung Riyanta said that the port’s presence would indeed affect many things. 

He believes that regions producing various natural resources commodities, such as South Sumatra, would experience big losses if they do not have any ports. 

“Because all production yield exits through the port. For example, the cheap price of FFB at the farmer level is also an impact of the export process which requires more costs because there is no port,” he explained. 

According to him, the port’s presence becomes more urgent as South Sumatra aims to downstream all commodities as an effort to improve the regional economy. 

Meanwhile, Head of the Economic and Funding Division of the South Sumatra Regional Development Planning Agency (Bappeda) Hari Wibawa revealed that policies or regulations regarding the port development have been implemented. 

However, he added, in the execution process, the port construction has not yet begun. “But it must be realised in the future. Otherwise, South Sumatra will be left behind, because exports will be brought through neighbouring regions, such as Lampung, Jambi, or even Bengkulu,” he said. 

Head of the South Sumatra Transportation Agency Ari Narsa added that his agency has been working to accelerate the construction of the Palembang Baru Port project located in Tanjung Carat, Banyuasin Regency. 

According to him, the latest progress of the Palembang Baru Port was still dealing with administrative issues, such as the port master plan from the Transportation Ministry, and the release of forest areas and the environmental impact analysis (EIA) which has not been issued. 

“Groundbreaking is planned before the end of the year, precisely in September 2023,” he explained. 

South Sumatra Governor Herman Deru emphasised that the port development is still in progress. However, the continuation of the project requires a very well-prepared and solid administration. 

“The EIA has an important influence because it concerns the lives of many people, so it requires discussions and accurate calculations involving all parties,” he said.