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“One-time permission to reproducegrantedby Harvard Business School Publishing. ” HARvARD | “rsru Ess I ttlrooL 9-511-015 DECEMBER 17, 2OIO DAVID E. BELL NATALIE KINDRED Asian Agri and the Future of Palm Oil

Dato Yeo How, president of Indonesian palm oil producer Asian Agri Group, read with dismay the news in the July 7,2010, edition of the Singapore Straits TimesrGreenpeace/an environmental nongovemmental organization (NGO), was calling for a boycott of Golden Agri, one of Asian Agri’s competitors,l Over the last decade, the palm oil industry had come under growing scrutiny for its environmental impact in Indonesia and Malaysia, which produced close to 90% of the world’s palm oil.

As a result, several major buyers had publicly pledged to stop sourcing from producers whom the NGOs claimed were destroying high-value conservation land. To Yeo, the controversy cast a cloud over what had otherwise been a largely positive era for the industry and its stakeholders. Over the last four decades, worldwide palm oil production had soared from 430,000metric tons (MT) in 1970 to more than 45 million MT in 2009. Much of this growth had come from Indonesia, where the land area harvested for palm oil increased from 100,000hectares (ha) to over 5 million ha over the same period.

In 2009, lrdonesia produced more than 20 million MT of palm oil, of which roughly 15 million MT were exported. As the industry matured, Asian Agri had expanded its plantations and developed palm oil trading, refining, and exporting capabilities. By 2010, Asian Agri was an established grower and Indonesia’s third-largest palm oil exporter. Known as the “golden crop” in Southeast Asia, palm oil had the highest yield, lowest production cost, and largest annual production level of any edible oil, making it an abundant and inexpensive food source to the many fast-growing populations across Asia.

In commercial food productiory palm oil had the unique advantage of being free of trans fats, making it an attractive substitute for other edible oils in markets (primarily in the West) seeking to limit trans fat consumption. Furthermore, the increasing use of vegetable oil in biodiesel production (particularly rapeseed oil in Europe) created an opening to further increase palm oil’s market share in the food sector. rcreasing palm oil production to capitalize on these market opportunities, however, brought the risk of stoking NGO hostility and worsening the backlash from consumer packaged goods (CPG) companies and sustainability-minded consumers. With the palm oil industry’s future decidedly opaque, Yeo was considering a spectrum of options for Asian Agri. First, Asian Agri could leverage its foothold as an experienced Indonesian grower by expanding its plantation area from 160,000 ha in 2010 to 300,000 ha by 2015.

Doing so would enhance its upstream competitive advantage, particularly as land in top growing areas was growing scarcer,but would also bring many practical and political challenges-a reality that had recently led some growers to expand into Africa and South America, where land was more abundant and, in some areas, NGOs’ pressure less intense. Another option was to develop more trading and refining operations or market a portfolio of branded products, thereby allowing the company to capture more ProfessorDavid E. Bell and ResearchAssociateNatalie Kindre4 Global ReseardrGroup, prepared this case.

HBS casesare developed solely as the basis for classdiscussion. Casesde not intended to serveas endorsements, sourcesof primary data, or illustrations of effective or ineffective management, Copyright @2010President and Fellows of Haruard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, This publication may not be digitired mite Harvard BusinessSchoolPublishing, Boston, MA 02163, go to w. hbsp. hmad. edu/educators. or photocopie4 or otherwise reproduced, posted, or transmitted, without the permission of Harvard BusinessSchool. 11-015 Asian Agri and the Future of Palm Oil value from its existing palm oil production. A more drastic possibility was to transfer Asian Agri’s plantation assetsto its sister business, APRIL, a highly successfulpulp and paper operator. Palm Oil Derived from the fruit of oil palm trees, palm oil boasted the highest yield per hectare of any oilseed crop. On average, oil palms produced roughly 3. 5 MT of oil per hectare per year (some plantations reported significantly higher yields); in contrast, rapeseed, sunflower, and soybean yielded roughly 0. 69,0. 5, and 0. 40 MT of oil per hectare, respectively. 2Oil palms produced roughly a third of globat vegetable-oil output using just 5% of the world’s farmland used for vegetable oil. 3 Oil palms grew best within 10 degrees of the equator and produced harvestable fruit about three years after planting. Yields increased sharply for the first eight years, stayed level until the 15’nyear, and gradually declined until the 25’nyear, when they were typically replanted. Oil palm fruit bunches contained hundreds of small (about one square inch), red-orange fruits.

Palm oil was derived from the fruits’ fibrous orange flesh (or “mesocarp”), while palm kemel oil was derived from the seed (or “kernel”). (SeeExhibit 1 for photos. ) Roughly 80″/’ of palm oil was used in food (e. g. , cooking oil, processed foodstuff), with the remainder used mainly in personal care products (e. g. , soap, cosmetics), animal feed, and biodiesel (see Exhibit 2 for uses). In Asia, palm oil was used as cooking oil and was a ubiquitous household item. The leading consumers of palm oil were China, India, the European Union (EU), Malaysia, Indonesia, and Pakistar1 respectively.

Though rarely sold as cooking oil in the West, palm oil was used in many CPG products made by companies such as General Mills, Kraft, Nestl6, Proctor & Gamble, and Unilever. Unilever bought 4’/” of. allpalm oil and was its biggest buyer. a Palm oil’s health profile was unique among edible oils, most of which were low in cholesterolincreasing saturated fat and high in healthier unsaturated fat. Becausepalm oil was high in saturated fat (roughly 50% saturated), it had historically been viewed as an unhealthy-even low-income-oil.

Noted Yeo: “Because the legacy of palm oil is that it is not premium, botiled palm oil will often be labeled ‘vegetable oil,’ while other oils such as peanut and soy will be labeled specifically as peanut or soy. ” Industry groups claimed palm oil’s poor image resulted from a misperception that it was similar in composition to coconut oiI (92% saturated fat). To counter this view, these groups cited research that the primary fatty acid in palm oil, palmitic acid, had minimal impact on cholesterol (see Table A).

In contrast, coconut oil was high in myristic acid, a cholesterol-raising saturated fatty acid. (SeeExhibit 3 for the fatty acid content of various oils and fats. ) Table A Type of Fat Fatty Acid Composition of Palm Oil and Effects on Blood Cholesterol Fatty Acid Composition (%) Effect on Blood Cholesterol Lauric saturated Monounsaturated Polvunsaturated Yy. tit:’: Fatmmc Stearic Oleic 0. 2 1. 1 44. 3 4. 6 10. 5 0. 3 neutral cholesterol-raising neutral neutral cholesterol-reducino cholesterol-reducing cholesterol-reducinq

Source: Adapted from companv documents. Asian Agri and the Future of Palm OiI Another benefit touted by the palm oil industry was palm oil’s uniquely balanced fat composition (evenly split between unsaturated and saturated), which meant it could be combined with other oils to form a blend that met fat-intake guidelines issued by the American Heart Association (AHA) (the AHA recommended limiting fat to 25% to 35% of total daily calories, with saturated fat comprising less than 7%1. sy, addition, palm oil was rich in nutrients such as vitamin E and carotene.

Perhaps most significantly, palm oil could be used in commercial food production (e. g. , crackers, baked goods) without undergoing hydrogenation, a process that created trans fats (artificially manufactured fats that were believed to increase the risk of heart disease). In the 2000s, European and American consumers had grown increasingly wary of trans fats, leading some CPG companies to substitute palm oil for other oils in food products, which could then be marketed as “trans fat free. ” lndonesia

The Republic of Indonesia covered roughly 2 million square miles of land across more than 17,500 islands (6,000 inhabited), ranging from Sumatra in the west to Papua in the east (see Exhibit 4 for a map). Indonesia was the fourth most-populous nation, with 243 million residents, and home to the world’s largest Muslim population. Some 32 million Indonesians lived below the poverty line and more than half lived in urban areas. Agriculture, the top source of employment, employed 42o/o the of workforce and generated 1,5%of Indonesia’s gross domestic product (GDP) of $521 billion in 2009.

Major crops included cassava/cocoa,coffee, copra, palm oil, peanuts, rice, and rubber. Situated between 5 degreesnorth and 10 degrees south of the equator, Indonesia had a hot, humid climate, with lower temperatures in the hills that crossed many of the islands. Monsoons blew into Indonesia from November to March and from May to September. Despite 1,500to 4,000 millimeters of annual rainfall, Indonesia had four to five hours of daily sunshine during wetter periods and up to nine hours in dryer months. The climate was ideal for growing oil palms, which were harvested yearround.

Consequently, palm oil processing facilities also operated year-round, providing a consistent product supply to buyers and source of employment to local workers. More than 3. 7 million Indonesians worked in the palm oil industry. Asian Agri Group History hdonesia-born and of Chinese descent,Asian Agri founder Sukanto Tanoto, though forced to quit school as a teenager, became one of Indonesia’s richest men. In many ways, his successparalleled that of Indonesia’s palm oil industry. In the late 1960s,the lrdonesian government parhrered with the

World Bank to develop the country’s rural regions by offering low-priced land for palm oil cultivation to private investors. Tanoto, then an inexperienced but visionary entrepreneur, took advantage of the opportunity. In1979, he founded Asian Agri’s first plantation on 10,000ha of land in Sumatra, which he nostalgically remembered as “the wild, wild east. ” “There was no electricity, no plumbing,” Tanoto recalled. “Most people don’t want to start a business out in the remote regions. The trader mentality is easier: buy for $1, sell for $2, that’s it.

I was willing to get my hands dirty. I took a risk as an adventurer and succeeded. ” Tanoto acquired several small plantations during the late 1970s and built a mill for extracting crude palm oil (CPO) and palm kernels in 1984. In 1986, Asian Agri began participating in a government program for integrating smallholder farmers (holdings of 2 ha or less) into commercial agriculture. The program’s objective was to develop rural Sumatra by offering financial incentives to poor residents of Java, Indonesia’s most populous island, to move there.

Javanese participants received soft government loans to buy 2 ha along the perimeter of a commercial agriculture “nucleus;” this cell-like configuration earned the program the name “Plasma. ” Another program (KKPA) was later launched for native Sumatran smallholders. The government heavily restricted Asian Agri and the Future of Palm Oil land ownership, only licensing foreign comp;rnies to use-never own-land for a period of time, and often made smallholder integration a precondition to granting new land concessions. (SeeAppendix A for more information on the Plasma program. By 1989, Asian Agri had 30,000ha of plantations, a mill, and a small refinery for processing CPO into specialized oils. Over the next decade, Asian Agri expanded its growing area and invested in research and development (R) initiatives focused on husbandry practices, fertilizer inputs for different types of soil, higher-yield seeds,and pest and diseasecontrols. The company also upgraded its refining capacity and built a plant for production of margarine and shortening. Asian Agri continued expanding rapidly in response to booming demand for palm oil.

In 2001, demand surged when palm oil’s price fell from $60 per MT below soy to roughly $130 per MT below per MT in February 2008 (compared to roughly $300 per soy. 6 The price of palm oil peaked at$’J. ,240 MT a decade earlier) but generally hovered below that of other oils. 7 (See Exhibit 5 for production growth and Exhibit 5 for a price chart. ) As prices rose, Asian Agri’s profitability soared. Other market drivers included consurner attitudes and regulations (in the U. S. ) discouraging trans fat consumption, which led CPG companies to substitute palm oil for other oils in many food products. With the big guys, like Kraft, a major selling point has been no trans fats,” explained Yeo. Mandates for biofuel use in the EU, U. S. , Brazil, and other countries also stimulated demand. The greatest driver, however, was soaring population growth across Asia, where palm oil was a dietary staple. RGE A/hile growing Asian Agri into a major palm oil player, Tanoto established three other businesses: Asia Pacific ResourcesInternational Limited (APRIL), a fiber, pulp, and paper producer in Indonesia and China that managed nearly 1. 3 million ha of plantations and had capacity to produce 4. million MT of pulp and 980,000MT of paper per year; Sateri International, a Shanghaibased producer of dissolving wood pulp and cellulose fiber (derived from dissolving wood pulp) in Brazil and China, respectively; and Pacific Oil & Gas, an oil, gas, and energy venture in Indonesia and China. The four businesses,including Asian Agri, fell under Tanoto’s RGE Group (which stood for Royal Golden Eagle), headquartered in Singapore. Asian Agri remained an integral piece of RGE’s portfolio, as the palm oil business had grown more profitable in recent years and was a strong cashflow generator.

From 2005 to 201. 0,Asian Agri accelerated its shift from a strictly upstream player-producing and selling its own CPO-toward greater mid-stream capacity (trading, sourcing, and refining oil from other producers), as well as some downstream capacity (producing end-user products). ln2006, Asian Agri’s midstream and downstream assets were rolled into a new subsidiarp the APICAL Group. Shortly thereafter, APICAL built a palm kemel crushing plant, with capacity to process 600 MT per day of palm kemel, and a biodiesel plant, which could process 1,200MT of biodiesel per day. When you move downstream, you force the company to mature,” explained Yeo. “Upstream is about plantation assets and labor management; downstream is about customers and process management. This is a difficult transition because upstream is our comfort zone. ” Nonetheless, Yeo saw potential throughout the value chain: “With the right facilities, we can utilize all parts of the oil palm fruits. You capture more value from your own supply if you refine in-house and make products for customers. Our integrated operations appeal to customers’ concerns about traceability becausewe control the whole supply chain. Asian Agri and the Future of Palm Oil 511-015 Asian Agri in 2010 Plantations Mills and Asian Agri managed 150,000ha of plantation (100,000ha company-owned and 60,000ha owned by smallholders) and-L9-mills, producing a total of 1 million MT of crude palm ol lCrOy per year. The plantations stretched across three Sumatran provinces and comprised 3i estates,which were run by a managing director reporting to Yeo. (See Exhibit 7 for locations and Exhibit g for photos. ) Estates ranged in siz5, yith tle largest covering 5,000 ha.

Because many estates were in remote locations, Asian Agri had to build roads to conneci the plantations to main road. sand to its mills. -O- its owned plantations, Asian Agri employed about one worker for every 7 ha. Akey role of the n workers, who worked six days per week, wis to regularly clear weeds from the ground bLneath each tree to enable more effective fertilization by removing obstructions between tle fertilizer and the ground. fertilizer to the 130 trees populating each hectare took one worker a full day. Oil 4nnlfing palms had to be fertilized every two months, requiring about 1 MT of fertilizer per hectare per year.

Maintaining a clear area under the trees also served a purpose in harvesting. Becausethe fruit _ bunches were located near the top of the tree, often danglin g 20 feet to 30 feet-above the ground, identifying which were ripe for harvesting posed a chaGnge. Workers inspected individuil fruits that had fallen to the a ripe fruit indicated that tf,e bunch high above it was ready for -ground harvest. Workers used long poles with sharp blades affixed to the end to sever the fruit bunches from the tree, taking care to avoid being hit by filling bunches, which could weigh 30 kilograms or more.

The harvested fruit bunches were_thenpiled into wheelbarrows and deliverid to trucis for transport to the mill within 24 hours. Lee Chong, Asian Agri’s head of strategy and planning, explained: ,,In general, fruit bunches must be sent to the mill within the same daylbelays itt proc”essitig into CpO causes the concentration of fatty acid, which is something undesirabie, to’increase,’CpO is a commodity and the specificatiorr for fatty acid concentration is less than 5%. In general, if fruit is processedon the same day, the fatty acid will be around2o/o. , majolity of trees on Asian Agri’s plantations were nearing the most productive phase of their Iifespan, and a few estates. werebeing replanted in 2010. Harvestiig took place y”ur-ro’rr,d, with each tree insp. ectedfor ripe fruit every 7 to 1. 0days. A worker could hairest up to 2’ha a d,ay during peak months (September to December) and 5 ha a day during lower-yield *onth, (January to August). The workers were also charged with picking up loose fruitJfrom under the trees. Loose iruits could make up 3% of the total annual yield of 25 MT of fruit per hectare. ther occasional tasks included maintenance of roads-in and out of the plantations, pruning tree leaves, and planting flowering bushes; these attracted insects that fed on the pests that damaged oil palms, in effect irving as a natural pesticide. Asian Agri minimized the use of chemicalJ in its plantations, in part beiause pesticides and other agrochemicals tended to stick to fats (including palm oil), -oru ,o than other crops’ To control the rat population, which could reach 300 rats per hectare and cause significant damage young oil palms, Asian,Agri kept barn owls in its plantations. Natural predators such as ! snakes also curbed the rat, population. To minimize damage caused by leaf-eating bagworms, Turnera plants, habitats-. of the bagworm-eating Sycanus 5eetle, were grown thr-oughout the plantations. Notwithstanding these measures, up io 5% of annual productioir was lost to pests and disease. Palm oil production had a cash cost of about $250 to $320 per MT. Plantation maintenance and harvesting were labor intensive; indeed, fertrlizer and labor weie Asian Agri’s largest expenses, each accounting fot 357″ of production costs (the remaining 30% included tranlportatiL, aa-ilistration, and other costs).

Lr large part, high labor costs resulted f. om the two factors inhibiting mechanization 511-015 Asian Agri and the Future of Palm Oil of plantation operations: the rough terrain, which slowed the process of fertilizing and harvesting each tree; and the need to visually identify ripe fruit, which required special training and took more time than would harvesting all of a tree’s fruit at once. “Labor supervision is critical because of the difficuli terrain ” explained a plantation manager. “Some workers get lazy and don’t fertilize the hard-to-reach trees, or they won’t pick up the loose fruits from the ground. The manager added that labor shortages were likely in the coming years: “As Indonesia industrializes, the second generation of smallholders-the original farmers’ children-are going to college, and they want to work in towns and cities. They don’t want to do the hard work on the plantations that their parents did. ” Despite its high labor costs, Asian Agri was able to maintain relatively low production costs overall because of the abundant nafural resources in Lrdonesia, as Yeo explained: “The key ingredients in palm oil production are sun, rain, and fertrlizer, and the first two cost us nothing. Although ferlilizer, often imported from Brazil, China, and India, was a top expense, Asian Agri reduced fertilizer costs by using byproducts from palm oil processing as fertilizer. Yeo added, “The key to having lower production cost is to achieve higher yields. Our yields are more than 30% higher than many producers. ” Asian Agri organized fertilizer purchases for the smallholders, provided them with seedlings and technical assistance,and purchased their harvest at government-determined prices (based on weekly market prices).

The smallholders delivered their fruits to Asian Agri’s mills using trucks shared by groups of 20 or so farmers. Smallholder plots had lower yields (20 MT of fruit per hectare) than company-owned plots. “This is probably because they cut costs by buying less fertilizer,” hypothesized one manager. Despite lower yields, smallholders’ incomes were excellent relative to the local economy, eaming an average of $500 per month compared to lndonesia’s minimum wage of $80 per month. The most successful smallholders bought additional land and hired local workers.

Some built glossy new homes costing $60,000or more/ which stood out amongst the other modest village houses. [r some villages, smallholders used their earnings to build mosques and community centers. “Bringing the local community along is critical to a successful plantation in Indonesia,” explained Lee. “Otherwise you will encounter problems. People will run over the plantations and steal fruit. That’s why ensuring successof the local community is key to our own success. ” Each of Asian Agri’s mills employed about 100 workers and operated 15 to 20 hours per day, depending on the season’sproductivity level.

At the mill, all parts of the fruit were separated and put to use. First, the fresh fruit bunches underwent a chemical-free steaming process to loosen and release the individual fruits; empty bunches were composted for use as fertilizer. The fruits were then boiled and pressed to remove the kernel and extract CPO from the orange flesh, while the dehydrated flesh fiber was saved and later burned as an energy source. Raw palm oil effluent was channeled to on-site ponds for treatment and later used as fertilizer. (SeeFigure A for the palm oil value chain. ) Asian Agri and the Future of Palm Oil 11-015 Figure A Palm Oil Value Chain Oil PalmTree ”’ffir; CrudePalmOil Refined Oil W -mT ‘w Palm Kernels I PalmKernel oil ‘ffi1 EmptyFresh FruitBunch Source: Companydocuments. ffi ‘mL Mesocarp Fiber Palmf(ernel I PalmKernel Expeller Refining Exporting and Asian Agri transported roughly 60% of its crude palm oil (CPO) supply to APICAL’s refineries by truck and 40% by barge. At the refineries, CPO was broken down into solid (“stearin”) and liquid (“olein”) components through a process called fractionation and then further processed into specialized oils for various applications.

APICAL operated three refineries in Indonesia (combined annual capacity to process 1. 45 million MT of CPO) and one in China (capacity of 0. 2 million MT). The company planned to increase its total refining capacity from roughly 1,. 7MT per year to 2. 7 NIt per year by 201,3. In addition to its own supply, APICAL sourced 2 million MT of CPO from other producers each year. CPO could be stored for up to five months and retain its quality, while refined palm oil could only be stored for a month before experiencing some quality deterioration.

In total, APICAL exported 3 million MT of palm oil per year-1. 7 million MT processed into specialty products, the rest sold as CPO. APICAL also had a small merchandizing operation which packaged and sold shortening, margarine, and powdered fats for retail in Indonesia, India, China, and other markets. (See Exhibit 9 for palm oil products. ) Yeo explained the value of having integrated operations: “Our trading activities provide not only a good revenue stream, but also a platform to establish direct linkages with customers at key destination markets.

AIso, margins and value tend to fluctuate in the various segments depending on supply and demand. By maximizing our footprint at every step, we hedge against the risk of being squeezed at one end of the chain. ” On the coast of Dumai, a city in Sumatra, APICAL operated a refinery, a palm kernel-crushing plant (producing expeller, sold as animal feed, and extracting crude palm kernel oil, or CPKO), and a biodiesel plant with capacity to produce 400,000 MT of biodiesel per year.

Construction of the biodiesel plant concluded in 2008, but it had gone largely unused because the low price of crude oil eroded the cost-competitiveness of biodiesel production. Despite its dormancy, the company viewed 511-015 Asian Agri and the Future of Palm Oil the biodiesel plant as a worthwhile investment whose payback/ albeit delayed, would eventually be realized. Although APICAL’s Dumai complex lay on the perimeter of a metropolitan area, the company had to construct its own road to enable land transport of CPO to the facilities, as the existing dirt roads could not acconunodate heavy trucks.

While the finished road was deeded to the Indonesian government and made public, as required by law, the task of fixing potholes and erosion from traffic and heavy rains still fell to APICAL; if APICAL did not step in, the road would go unrepaired. At first the road caused friction with the local community, which was frustrated by the spike in noise and traffic. Once APICAL began employing local workers to repair the road and serve as truck drivers, the community was more welcoming.

APICAL also constructed a deep-water port at the Dumai complex, through which CPO was transported to the facility for storage and processing, and refined oil and CPO were exported to destination markets. and Customers Markets Asian Agri’s largest buyers were in Bangladesh, China, India, and Europe, which cumulatively accounted for 85% of its sales. Customers included Liberty Oil (which bottled palm oil for retail), Unilever, Nestl€, and others. A large portion of Asian Agri customers in Bangladesh, India, and Europe were refiners who processed CPO themselves, while buyers in China tended to import refined oil.

Indonesia was also a key market. About 85% of all edible oil consumed in Indonesia was palm oil, totaling roughly 7 million MT of palm oil consumed each year. Half of Asian Agri’s product was sold on the open market, while the rest was sold via long-term supplier contracts with customers, through which Asian Agri guaranteed a certain quantity for a given time period, but the price varied depending on the market pricing at time of shipment. Since 2009, the price of CPO had hovered near $750 per MT. From every kilogram of oil palm fruit, about 20% by weight) was CPO;5% was palm kernel ($300per MT); and 5% was kernel shell ($40 per MT).

In choosing where to source palm oil, buyers’ most important criteria were suppliers’ track record in terms of supply, service, and quality. High-quality CPO was typically priced at a$7 to $8 premium per MT over lower-quality CPO. While the proximity of shipping terminals to destination markets impacted shipping time and cost, dependability of the logistics system was often a greater factor, as poor road quality and shallow ports could delay shipments for days. Due to the variability in supplychain efficiency, buyers often diversified their sourcing among numerous suppliers.

Asian Agri aimed to differentiate itself through product quality and customer service. “We can maintain the quality of our supply because we manage the plantations and we transport harvested fruit quickly to the mill,” said Yeo. “We can guarantee our customers a reliable supply from our own CPO production, which can also be supplemented through sourcing. Having our own deep-water port is a major assetbecause the badly congested public ports often result in hefty demurrage charges and shipment delays. ” Personal relationships were important. A supplier must build trust with customers and be able to help them solve problems,” explained Asian Agri’s head of commercial operations. As NGOs ramped up pressure on buyers to verify their suppliers’ environmental credentials, familiarity with suppliers was becoming even more important. (SeeAppendix B for descriptions of several publicly listed palm oil companies. ) Asian Agri and the Future of Palm Oil Challenges Facing the Palm Oil Industry Sustainability NGOs criticized the palm oil industry on several counts: first, for allegedly clearing forests that were rich in biodiversity and home to endangered species (e. . , orangutans, tigers); second, because deforestation through logging, burning, and destruction of peat land released high levels of carbon dioxide into the atmosphere-a main reason Indonesia was the third-largest emitter of greenhouse gasses, after the U. S. and China; and third, because conflicts between indigenous populations and growers over the use of land were increasingly common as land grew scarcer. As a result, some CPG companies had stopped sourcing palm oil from producers accused of environmental mismanagement.

Moreover, some observers were calling on banks and investment funds to stop investing in companies with questionable environmental practices, as well as pressuring the EU to reconsider its biofuel quotas. The industry responded in 2004 by forming the Roundtable for Sustainable Palm Oil (RSPO). RSPO members included growers/ processors/ CPG companies, banks and investors, and NGOs. The RSPO developed a system for certifying “sustainable” palm oil based on compliance with a set of economic, environmental, legal, and social standards during its production. As of July 2010, the RSPO had certified a total of roughly 2. million MT of sustainable palm oil, and more than 20 large companies had committed to sourcing sustainable palm oil by a future date. 8Some NGOs, however, criticized the slow progress of certification and claimed the industry was incapable of self-regulation. Asian Agri executives agreed in principle that improving the industry’s environmental profile was an ethical imperative and would also be good for business. Growers whom NGOs claimed were mismanaging the environment risked losing contracts with large buyers. If not reversed, the industry’s poor reputation in Western counfries could hinder long-term demand for palm oil there.

On some dimensions, however, the company saw the NGOs’ criticisms as misguided. Said Yeo, “Europe, for one, hasn’t walked the walk,” referring to the fact that Westemers had been slow to pay a premium for the sustainable oil they demanded: of the 1. 3 million MT of sustainable palm oil produced by late 2009, only 200,000MT had been purchased. eYeo continued: Truthfully, leaving the forest completely untouched isn’t feasible from a socioeconomic we standpoint, but giving out land concessions indiscriminately doesn’t work either. Ay’hat need is smart land management.

In rural areas, poor people are clearing the land themselves anyway for the traditional “shifting cultivation” [clearing, cultivating, and then abandoning land] that is low on productivity, unsustainable, and tends to set off forest fires during the dry season. When plantations come to these areas, the communify gains accessto a legitimate, dependable source of income and logging decreases. Plus, the land isn’t being cleared forever; it is constantly replanted. Food should be grown where it grows best-naturally and fast. This is sensible food policy and sensible land management.

Substituting palm oil with any other oil would require using more land and resources. In Indonesia, you acfually need less land to grow more. But of course, the government needs to regulate and ration the land use in a judicious manner to ensure sensible and sustainable development for the community. Asian Agri was an RSPO member and had participated in various RSPO working groups. As of luly 201,0,two of Asian Agri’s mills and one plantation had been certified. The company estimated that, given the cost and time commitment of the certification process, it would take eight years to certify all of its estatesand mills. 11-015 Asian Agri and the Future of PaIm Oil PlantationExpansion Although midstream and downstream capabilities were important parts of Asian Agri’s portfolio, the company saw its experience in plantation management as its competitive edge. As land became harder to acquire in Indonesia, Asian Agri’s existing plantation area was an increasingly valuable asset. However, reaching the goal of 300,000ha of plantation by 2015 presented enormous challenges. In May 201. 0,the Lrdonesian government announced a two-year freeze on new land concessions involving the clearing of natural forest and peat.

To expand, Asian Agri would have to win concessionsfor already-cleared land or acquire land from other growers. Competition for this limited land supply would be stiff. (SeeAppendix C for more on Indonesia’s business environment. ) Expanding in Indonesia could also make Asian Agri a target of NGOs; thus far, the company had largely avoided negative publicity. “We haven’t cleared new forest in many years,” explained Lee. “We’ve bought land adjacent to our existing plantations and have been choosey about where and how we expand.

Some of our competitors who are growing fast into new areas are taking a lot of heat. ” Lee added that the risks of expanding in Indonesia came not only from intemational NGOs, but from within the country as well: “There is an aspect of country risk. The plantations are located in Indonesia and they are not moveable assets. People still have strong memories of riots in ]akarta in the late 1990s,a where the businessesof many wealthy businessmen were disrupted. There is always fear that there may be similar instability in the future. Some palm oil companies were hedging their risk by diversifying geographically, particularly to countries in Africa and South America. (See Exhibit 10 for countries with potential to expand palm oil cultivation area and yield. ) Commodities company Olam International, for instance, was planning to develop 50,000 ha to 100,000ha of palm oil plantation in Africa, while Golden Agri and Wilmar International (the world’s largest palm oil company) had also expressed plans to expand there. lo Although conditions varied by country, some of the same issues plaguing growers in Indonesia were also prevalent in these other areas.

For instance, poverty was rampant across much of Africa and South America; infrastrucfure was poor; controversial land-rights disputes between growers and indigenous populations were not uncorrunon; and land acquisition often involved the complex government concession process (although some goverrunents, such as in Gabon and Ghana, had expressed a motivation to develop their palm oil industries). 1l Opposition from NGOs was also present in some countries. Not all producers were looking outside Southeast Asia, however; for example, agribusiness firm Bunge Ltd. ad recently announced plans to expand in Indonesia and Malaysia. l2 Asian Agri executives believed the difficulty of operating in Indonesia could, in fact, be an asset. Their experience working with the government and familiarity with the complex licensing processes could give them an edge in winning new concessions. Moreover, the company generally had a positive reputation in its operating communities due to its employment of local residents and corporate-social-responsibility activities (e. 9. , funding community events, providing health care to smallholders and their families).

Tanoto was a respected figure, his image enhanced by his foundation, which focused on education, poverty alleviation, health care, and disaster relief. During unstable periods such as the Asian economic crisis in the 1990s,when poor Indonesians found the country’s vast income gap particularly unpalatable, Asian Agri had been spared the angry rioting that befell many other companies. For his part, Tanoto was optimistic: a During the riots ol 1998, driven largely by prolonged economic turmoil triggered by the Asian financial crisis, mobs vented anger primarily against the ethnic Chinese minority in Jakarta.

In total, more than 1,100 people were killed in the riots, which also expedited the downfall of Indonesia’s long-serving President Suharto. Source: “City Unable to Guarantee Security during Campaign,” Thelaknrta Post,May 7,1999. Asian Agri and the Future of Palm Oil 511-015 The future of palm oil is unlimited. More production is needed to satisfy population growth, and eventually palm oil will become an important part of the renewable energy equation. The problem with Asian Agri is that we’re too comfortable.

Management isn’t hungry becausethey’re doing too welll They don’t want to go to the “wild wild east” like I did in the 1970s and 1980s. They won’t go to remote areas where there are no schools or infrastructure. The Future of Asian Agri However Asian Agri progressed, Tanoto wanted to see a considerable increase over its current retum on market value of 6% (see Exhibit 11 for retums from some of Asian Agri’s competitors). Asian Agri could grow in several ways. First, the company could expand its trading and sourcing operations, allowing it to derive more value from its market expertise and refining facilities.

Another option was to develop more branded products, with the aim of becoming a fully integrated player akin to Nestl6. A more drastic option was to rcalize the company’s value through an initial public offering (IPO) or divestment to other investors. On the other hand, the company could expand its plantation presence in Indonesia or diversify geographically. “At this point, upstream is our main source of competitive advantage,” Yeo noted. “So the big question is: How do we grow value from the upstream position? Developing new plantations was a costly and time-consuming endeavor: the process of acquiring property, obtaining permits, clearing the land, planting seedlings, and waiting until fruit was harvestable took three or more years. This cycle had to be repeated for each new concession,which rarely exceeded 10,000 ha and were often much smaller. The price of a fully developed, mature plantation in Indonesia (including land clearing and preparation, estate infrastructure, planting cost, and maintenance cost to maturity) totaled about $10,000per hectare, while undeveloped land sold for $400 to $800 per hectare.

The total investment cost (including land acquisition) of developed plantation land approximated $4,000 to $5,000 per hectare. Lr addition to expanding its plantation area, Asian Agri could replant its existing plantations with higher-yielding varieties at a cost of $3,000 per hectare. The company estimated new plantings could yield 8 MT of CPO per hectare, compared to about 5 MT of CPO per hectare currently.

Over the next several years, Tanoto, Yeo, and Asian Agri’s management team would closely monitor the palm oil market for signs pointing to the industry’s future viability. If the challenges proved unpalatable or risky enough to adversely impact the business, one possibility was to replant the palm oil plantations with trees for APRIL, the wood-fiber pulp and paper business group under RGE. Every year, APRIL planted approximately 120 million trees across 70,000 ha within its concession areas/ sequestering 16 million MT of carbon per year.

APRIL sought to continuously improve its carbon sequestration levels by setting aside high conservation-value forest area and taking measures to manage water levels to reduce peat drainage, APRIL was the only Indonesian member of the World Business Council for Sustainable Development, an invitation-only group of businesses (other members included IBM and the Coca Cola Company), and was also a signatory to the United Nations Global Compact. l3 APRIL’s integrated business model allowed it to control production from the plantation through to the manufacturing of its flagship paper product, PaperOne, which was exported to more than 60 countries.

The pulp and paper industry could be highly profitable: some Indonesian pulp and paper companies with plantations generated a 1. 0-year return on equity as high as24’h. Although projections showed global palm oil production nearly doubling by 2020 to meet rising demand, Yeo knew the industry’s future, and Asian Agri’s, held many challenges. Under the relentless spotlight of environmentalist NGOs, the industry undoubtedly needed to undergo major 11 511-015 Asian Agri and the Future of Palm Oil reform in order to sustain and grow markets in the West.

Yeo wbndered how Asian Agri and the broader industry could counter the negative publicity and regain control over its image. Was it best to maintain a low profile and delay any major expansion until the volatile operating environment calmed? Should the industry as a whole be more proactive in promoting palm oil? 12 Asian Agri and the Future of Palm Oil 511-015 Exhibit 1 Photos: Harvested Fruit Bunches, Single Fruit Br. rnch,and Loose Fruit Cross-section Source: Adapted from company documents Exhibit 2 Palm Oil Applications produclAppllcatloF t EndCuetomers Source: Companydocuments 3 511-015 Asian Agri and the Future of Palm Oil Exhibit 3 Breakdown of SelectedOils’ and Fats’ Fatty Acid Content (% of fat content) gsturatedF*{y Aclds t$}ge|$. eted Fel FoIy td$ns $nssturstGd urca Source: Company documents. Exhibit 4 Map of Lrdonesia l,l Source: Adapted from CIA World Factbook, “lndonesia,” updated August publications/the-world-factbook/geos/id. htmf accessedAugust 2010. 19, 20L0, https:/ /www. cia. govllibrary/ 14 Asian Agri and the Future of Palm Oil Exhibit 5 (MT) Irrdonesian, Malaysian, and Worldwide PaIm Oil Production, 1,970-2009 50,000,000 45,000,000

E ; 35,000,000 3o,ooo,ooo € 25,000,000 E : zo,ooo,ooo E 15,ooo,ooo E lo,ooo,ooo 5,ooo,ooo (o (n ln 00 Fr o o) N FNNN00@cOOTOtOIOOOO g) ot ot or o) o) o) o) Fl Fl r-{ Fl r; F{ Fl Fl F 40,000,000 – – -WorldTotal i I ndonesa M al a y s a i =f o) Fl F ot F{ o o N m o N |o o N ol o ( Source: Casewriter’s calculations using data compiled from FAO STAT, accessedJuly 2010. Exhibit 6 2,500 OilseedPrices, December 1999-]une 2010($USper MT) b 3 t,soo a – 2,000 = —-‘Soya ****” Rapeseed Sunflower Palm ll t dil * g to * o s – ,4i I 1,000 $/ 1:*’ :lf*-,;F$ o soo o”alo”l”. {*o!. “! {,. {{“”$ooi””o! *

Source: Compiled from Thomson Reuters Datastream, accessedAugust 201. 0. 15 Asian Agri and the Future of Palm OiI Exhibit 7 Map of Sumatra with Asian Agri Locations Source: Adapted from company documents. 16 Asian Agri and the Future of Palm Oil Exhibit 8 Photos of Palm Oil Plantations Source: Company documents. Exhibit 9 Asian Agri (APICAL) Products Palmoil,crude Palmoil,refined Palmolein Palmstearin oil, Palmkernel crude Shortening Margarine Source: Companv documents. Butteroil substitute Powder candles fat, Palmkernel expeller (PFAD) Palmfattyaciddistillate Palmmethylesters(PME) Glycerine 7 6 o b -d a o N 51 A J( r’) $$5:$HisF*n*n p*N:opF*no. +$R F. $oooor+ (f) (o c? N c; a ro ; F. ;E ;F d: I P (d .9 tt . E (E G tt c | ri: – ‘lc ‘r o 6 6 ! ? – 91 } 6i – (sb -(, ‘. = ” 8 9 = *oF. o r. i g q ltt F E – i Z -E V -1 . : u 6 (1 q ; o 9 D? ni x rI1 6 ! E 6 , f i f d iI 5 I 6 3 ; E A E S = ‘ , F 6 6 , i ; d EEEE€== =B,F =fi o$*Es *i Eg€ frE gs iF’* 5 SH H s k hii ii= *= BE = F* E -E- 6-E ts’6 Ei ‘ . e . q’l v = li .9q. ix d ; za Asian Agri and the Future of Pabn Oil 511-015 Exhibit 11 Competitors’Return on Market Capitalization ($ millions) London Sumatra Companies Golden Agri

IOI KL Kepong Astra Agro Fiscalyear-end Market Capitalization Net Profit Returnon Market Cao Dec-O9 $4,407 $607 13. 8″/o Jun-09 $7,997 $280 3. 5″/” Sep-09 $4,238 $172 4. 1o/o Dec-09 $3,799 $274 7. 2o/” Dec-09 $1,202 $69 5. 7o/” Source: Companydocuments 19 511-015 Asian Agri and the Future of Palm OiI Appendix A Indonesia’s Plasma Smallholder Program Part of the Indonesian government’s “land to the landless” rural development strategy, the Plasma program augmented a broader initiative to resettle landless farmers from the overcrowded ]ava island to Indonesia’s less populous outer islands.

Three public bodies managed the program: the department of agriculture (the lead entity), the department of transmigration (in charge of selection and placement of the smallholders), and the State Bank (the channeling agent of the loan). These entities engaged private-sector plantation companies (nucleus estates) to integrate the Javanese migrants participating in the program (Plasma smallholders) into commercial agriculture. The companies selected to participate in the program received government licenses to develop a parcel of land (e. g. 10,000ha) into an oil palm plantation. The companies were also responsible for building a facility to process the fruit harvested from the plantation. Of the total land concession,2}”h was allocated to the company and the remaining 80% was distributed among the Plasma smallholders. Each smallholder family was allotted 2. 5 ha, with 2 ha to be planted with oil palms and 0. 5 ha to be used as homestead and for food crop/animal husbandry. The nucleus estate provided agronomic advisory services to the Plasma farmers. The fruit bunches harvested by the smallholders were sold to the ucleus estate at a price updated every two weeks based on a formula prepared by the directorate of the estate (a government body established to oversee such issues). Asian Agri was among the first batch of L2 companies to participate in the Plasma program. The company was initially allocated areas in Indonesia’s Riau and ]ambi provinces totaling about 90,000 ha, of which roughly 50,000 ha were deemed suitable for development. Asian Agri was the first private company to successfully meet the program’s timeframe for transferring the plantations to the Plasma farmers.

Over the years, the company won numerous awards for its work with smallholders. Source: Asian Agri. 20 Asian Agri and the Future of Palm Oil Appendix B SelectedPalm Oil ProducersBasedin Indonesia and Malavsia PT Astra Agro Lestari Tbk. PT Astra Agro Lestari Tbk was an Indonesian company that originated as part of PT Astra International Tbk, a major Indonesian corporatiory as a grower of cassava and rubber plants and shifted to palm oil production when it began harvesting palm oil in Sumatra in 1984.

It went public rn 1997 though as of 2009, PT Astra International Tbk owned 79. 7% , of its stock. PT Astra Agro Lestari Tbk maintained a limited number of rubber plantations in Kalimantan and Java, though it was primarily involved in palm oil production. Through December 2009, W Astro Agro Lestari Tbk operated 264,036ha of plantations across Sumatra, Borneo and Sulawesi. For the 2009 calendar year, PT Astro Agro Lestari Tbk produced roughly 1. 1 million MT of CPO and reported total sales of approximately Rp 7. 42trillion (approximately $820 million). 14 IOI Corporation Bhd.

IOI Corporation Bhd (IOI) was a Malaysian business with diverse interests beyond palm oil, such as investment in real estate and hotel and resort properties, as well as processing and refining of palm and other oils. ls IOI began cultivaiing palm oil in 1983 and by 2009 ha. operated 82 palm oil plantations across 1,50,931, Approximately 99! o of the total cultivated land was in Malaysia, 68% of which was on the island of Borneo; the remaining 1o/owas in Indonesia, though that crop was not yet mature enough for harvest. Across all operations, IOI generated revenues of RM 16. 4 billion (roughly $4. billion) for their 2009 fiscal year. Palm oil production accounted for 65ohof IOI’s operating profit of approximately RM 2 billion (roughly $565 million). 16 IOI had a successful integrated model for its palm oil business, with sizeable downstream investments in oleochemicals and specialty fats using palm oil as feedstock. Initially founded in 1910 as a small rubber plantation, Malaysia-based Sime Darby Sime Darby had a wide range of business interests and a presence in 20 countries by 201,0. Sime Darby’s operations were divided into six major segments: Plantation, Property, Industry, Motors, Energy & Utilities, and Healthcare. T Sime Darby reported total sales of approximately RM 31. billion in 2009 (about $8. 9 billion) and net income of approximately RM 2. 3 billion (roughly $650 million). 18 Sime Darby’s “Plantation” segment was primarily engaged in patm oil production but also included rubber and other agricultural products. “Plantation” operations generated approximately RM 10. 7 billion in revenue (34″h of total revenue) and RM 1. 7 billion in net profit (53% oI total net profit) in 2009. leSime Darby cultivated 530,987ha of oil palm plantation and produced about 2. 4 million MT of CPO annually.

The plantations were located throughout Malaysia, as well as Kalimantan, Sumatra and Sulawesi in Indonesia. Sime Darby was also cultivating 220,000ha in the West African nation of Liberia for future palm oil and rubber production. 2o Wilmar International Ltd. Founded tn 7997, Wilmar International Ltd. (Wilmar) was a Singapore-basedagribusiness company with a presence in over 20 countries worldwide. Wilmar was primarily engaged in harvesting palm trees and other agricultural products for their oils, which it processed for use as food and fuel or for industrial purposes and sold and distributed to consumers.

Other operations included the sale of feftilizer, packaged flour, rice, and oils throughout Asia, specifically in Bangladesh, China, l:rdia, Indonesia and Vietnam. 2l Wilmar managed 100 product brands worldwide. Its Arawana brand cooking oil was the top cooking oil in China. Wilmar reported revenues of about $23. 9billion and a net profit of approximately $1. 9billion in2009. 22 Wilmar directly managed 235,799ha of palm oil plantations in Malaysia (27% of cultivated land) and Indonesia (73%). Wilmar’s palm oil and agricultural plantation operations brought in a pre-tax 21 511-015 Asian Agri and the Future of Palm OiI rofit of $397 million, and with the 86 processing plants it diiectly operated and 20 it jointly operated,23Wilmar claimed to be “the largest global processor and merchandiser of palm and lauric oils,” as well as “one of the largest plantation companies in Indonesia /Malaysia. “2+ Golden Agri-Resources Ltd. Golden Agri-Resources Ltd. (Golden Agri) was founded :u:. 1996 on the island nation of Mauritius, located off the eastern coast of Madagascar. By 20L0, Golden Agri was headquartered in Singapore and owned palm plantations, refineries, processing centers, and other facilities through Indonesia and China.

From its palm and other oils, Golden Agri produced cooking oil, cooking fats, margarine and shortenings among other food products. s In 2009, Golden Agri generated nearly $2. 3 billion in revenue and a net profit of about $607 million. 26 All of Golden Agri’s plantations and several related facilities (e. g. , processing and distribution plants) were located in Indonesia. Golden Agri owned additional processing, storage and distribution facilities in China. 27Ln2009, Golden Agri had 427,253ha under cultivation, of which 333,957ha were mature for harvest. From the 2009 crop, Golden Agri extracted roughly 1. million MT of CPO. Kuala Lumpur Kepong Berhad Kuala Lumpur Kepong Berhad (KLK) was a Malaysian corporation that operated in four major segments: Manufacturing, Plantation, Property, and Retailing. 2s KLK was engaged in a range of services, from real estate development to soap and latex manufacturing, among others. 2eKLK also operated retail stores under the Crabtree & Evelyn brand in 40 countries, including the U. S. , selling a wide range of consumer goods. 3oI^2009, KLK reported revenue of about RM 6. 7 billion ($1. 9billion) and a net income of RM 612 million ($175million). 1 KLK managed both palm and rubber plantations across Indonesia and Malaysia, ihough its operations were heavily weighted towards palm oil, which was utilized in its manufacturing and retail segments. KLK had 110,L89 ha of land under cultivation in Malaysia and 133,114 ha in Indonesia. 32 In terms of total revenue, palm products outpaced rubber, bringing in approximately RM 3. 2 billion ($975million) and RM 164 million ($47 million), respectively, in2009. 33 22 Asian Agri and the Future of Palm Oil 511-015 Appendix C Operating in Indonesia On some dimensions, Indonesia was an attractive destination for domestic and foreign investors.

The 2009-2010World Economic Forum global competitiveness index ranked Indonesia 54’out of 133 countries. A large consumer population with rising disposable income helped the country weather the global economic recession that began in late 2007 relatively well. In2}l9,Indonesia had a current account surplus of 2% of GDP, which was projected to remain stable in 20L0. Since 2000, regulatory reforms had improved the country’s business environment on measures such as transparency of rules, favoritism of domestic versus foreign investors, and investor protection. a(SeeTable A-1 for a comparison of the “Ease of Doing Business” in Indonesia and selectedpalm oil-producing countries. ) Yet, significant restrictions on foreign investment persisted. In June 2010, the Indonesian government upheld a ban on foreigners purchasing property. Companies seeking to expand in the country had to navigate complex and cumbersome permitting processesat the national, provincial, and district levels (there were some 500 administrative districts in total). It was reported that “85% of local regulations were inconsistent with national laws and incomplete or disiorting to economic activity. 3s The Indonesian government owned sigrrificant stakes in certain industries (e. g. , finance and telecommunications), and corruption remained a major issue. In an index by Transparency lrternational that ranked 180 countries by perceived level of corruption, Indonesia ranked 1. 1. 1-^, while neighboring Malaysia fared significantly better, at 56”. 36 Compared to many countries with relatively unskilled labor forces, Indonesia’s labor laws were rigid (e. g. , with respect to flexibility of contracts and restrictions relating to work hours). Widespread poverty and weak public health and education systems weakened Indonesia’s labor market.

Moreover, although Indonesia’s access to oceanic shipping routes was advantageous, traveling within and out of the country could be difficult due to poor infrastructure quality. Land transport was often hindered by poor road quality, particularly during heavy rains, when roads sometimes flooded and became jammed with trucks whose tires were stuck in the deep mud. During extended dry periods, water shipments could stall for days when ports became too shallow for large ships, making accessto deep-water ports a key competitive advantage for exporters. 23 d (c6 ::v 0, 9’6 gF s h $EBpFeS,EpES ur EEF$ sB$ie+PUFF$FbFEFFSNE$ q. ) Q + lrr cl lo F o Q 1gt @ :: a H b .EF s:! boa lrl J tr, E s i,E bo P s H c Y9 r ol ;: to t. o, s i5 6 olib di it + 6i:::{,3d’S b = P S I P I F N o E] x td m 6 d ,= 6 S K 5 I E I I t – : u I : P I 3 3 P * rO’a lO a. ^ tO tt O O, L @,^ lr tr cl (‘J Cl O (n fr o o 0 6 : EE s’f, N ii + + 6 i c! * . ^ o d) (‘)’- fE m Ttr i< + P F : p P g : F g g – (- N F $ c’ S € $ 😐 3 P. : F – 6 P6 f Fu,f bI bppp:FpFpF .. E6R$EBSsFsaf EFESsb gF la, o bD bo I AJ q 3 3 t bo q, H OD e9) xql o+( E3 th (. s63i3Enx ro (‘) o) c F o) s o, co + o,^ sf(‘)o(oxAI@oc @@@ Ir lr li U q G o k .=; OO 005 m =3u=PP$9F=:EKPuggbdtr: 9) ar f- Q C? r F,- i” (fi lr,. n a lo a – N,: s. O g o 6 I SJ U k GO G bo 1? U o c) L I 6 I ko C’ UDE iX Xi i c! F (o o) (Y) sf r. r, $,a rr) (r) o x< (O cl (o (o – i; At N (,l @ N rr) @ I N $ (o * (g ro t 3 0 o bo E 3J ;. E = od!! rJlJ H.. r Xi li iX X( )* cl F.. Al,O, O C! ol F F T (‘) @ O cr) c. ) sl O) @ r rn to @ O I @ F- N O) C! N @ bD 36 g E’. o 5 t’: c) I qJ F lll E sfi a ss5FsFg€gE 8#gFg5 pq. F g Poi q gi* =*”- gEt,E o d al ai tD Asian Agri and the Future of Paln Oil 511-015

Endnotes 1 Victoria Vaughan, “Greenpeace Urges Firms to Boycott Sinar Mas,” Straits Times,Juty 7,201,0,via Factiva, accessedAugust 2010. 2 “Indonesia’s Palm Oil tndustry,” lndonesianCommercialNewsletter,November l,2OO9, via ABIIINFORM, accessed October 2010; and “lndonesia: Palm Oil Production Prospects Continue to Grow,” USDA FAS lntelligence Report, December 37, 2007, httpt/ /www. pecad. fas. usda. govlhighlights/ Commodity 2007/ 12/Indonesia-palmoil/, accessedNovember 2010. 3 “The Campaign against Palm Oil,” The Economist,June24,2070. a “The Campaign against Palm Oil,” The Economist,lune24,2010. “Know Your Fats,” American Heart Association website, httpt/ /www. heart. orglHEARToRc/ jsp, Conditions/Cholesterol/PreventionTreatmentoffIighCholesterol/Know-Your-Fats-UCM_305528_Article accessedSeptember 2010. 5 Gary Drimmer, “Palm Oil Demand from China, India and EU Pushes Prices Up,” April 19, 2002 Gerson Lehrman Group website, www. glgroup. com, accessedAugust 2010. 7 Compiled from Thomson Reuters Datastream and “Worldwide Oil Consumption,” U. S. Department of Agriculture website, http:/,/www. fas. usda. govlpsdonline,/, accessedJuly 2010. a “RSpO Certified-As of to date,” RSPO website,http:/ /www. rspo. rgl? q=page/9; against PaIm Oil,” TheEconomist,June24,2010, accessed August 2010. and “The Campaign e Dean Best, “The WWF and Palm Oil,” Just-Food website, October 29, 2009, Just-Food Interview-the http:/ /www. just-food. com/interview/the-just-food-interview-the-wwf-and-palm-oil-id108504. aspx, accessed August 2010. 10″Olam Eyes Growth in Sugar, PaIm Oil Assets,” Reuters, August 8,IOLO. 11 “Ghana: New Strategy to Boost Palm Oil Production,” TenilersInfo, lune9,2010; and “Gabon Plans ot Become Leading Palm Oil Producer in Africa,” Sierra ExpressNerus,August 20,20L0, via ISI Emerging Markets, accessed August 2010. 2″Bunge SeeksPalm Plantation in brdonesia,” Reuters, August 2010. 13 “About the WBCSD,” World Business Corurcil for Sustainable Development website, httpt/ /www. wbcsd. orgltemplates/TemplateWBCSD4 /layo*. asp? type=p=MzM5=1 Menu=LeftMenu#, accessedSeptember 2010. la PT Astra Agro Lestari Tbk, “2009 Annual Report” pp. 7, index. php, accessed luly 2010. 15 IOI Corporation Bhd, “Group corp-groupstructure. cfm#, accessedJuly 2010. Structure,” L2,22-23, http://www. aska-agro. co. idl hftp:/ /www. ioigroup. com/corporatelnfo/ 16IOI Corporation Berhard, “Annual Report 2009,” z}}g,trttpt/ /www. ioigroup. om/tnvestor/ioicorp,/ J:uu,;re 2009_AR. pdf, pp. 29, 31. , accessedJuly 2010. 17 Sime Darby, “About Us: Corporate Corporate-Information. aspx, accessed]uly 20i0. hrformation,” http:,/,/www. simedarby. com/ 18″Sime Darby Berhard, Company Overview,” Thomson Reuters ONE Banker, accessed July 2010. le Sime Darby Berhard, “Annual 411s61-Report/Sime-Darby-AP009. pdf, Report 2009,” http://www. simedarby. com/downloads/pdfs/SDB/ pp. 7-8, accessed July 2010. 25 511-015 Asian Agri and the Future of Palm Oil 20 Sime Darby Berhard, “Sime Darby Plantation Overview,” Sime-Darby-Plantation-Overview. aspx, accessed July 201. 0. 7 Wilmar lntemational Limited, “Consumer july 20L0. business-consumerpack. htm, accessed Pack,” httpt//www. simedarbyplantation. com/ http:/ /www. wilmar-intemational. com/ 2 Wilmar Intemational Limited, “Annual Report 2009,” 1nrdrpt/ /www. wilmar-international. com/investor/ annualreports /2009 /Wlbnar-lrtemational-Limited-2009-Annual-Report. pdf, pp. 14, 26, 28, 30, accessed ]uly 2010. a Wilmar International Limited, “Armual Report 2009,” http:/ /www. wilmar-intemational. com/investor/ annualreports /2009 /Wtlmar-lnternational-Limited-2009-Annual-Report. pdf, pp. 22,28,29, accessed]uly 2010. 24 Wilmar International Limited, about-index. tm, accessedJuly 2010. “Corporate Profile,” http://www. wilmar-intemational. com/ http:/ /www. goldenagri. com. sg,/ 2s Golden Agri-Resources Ltd. , “Products and index. php? page=products-and-brands, accessed July 2010. Brands,” 26 Golden Agri-Resources Ltd. , “Enhancing Value Enriching Lives, Annual Report 2OOg,” http:/ /www. goldenagri. com. sglupload/E5H/Annual%20Reports/Completed%20Repofis/2009/GoldenAgriA R09-final. pdf, p. 8, accessedJuly 2010. 27 Golden Agri-Resources Ltd. , “Company index. php? page=company-overview-cs, lccessed July 2010. Overview,” http:/ /www,eoldenagri. com. sgl accessed July 201. 0. ttpt/ /www. klk. com. my,/ lnttpt/ /www. klk. com. myl 28Kuala Lumpur Kepong Berhad, “Business,” lnttpt/ /www. klk. com. my/main. htm, 29 Kuala Lumpur Kepong Berhad, “Manufacturing busi-manufacturing-so. htm, accessed July 20L0. Kuala Lumpur Kepong Berhad, busi-retailing-so. htm, accessedJuly 2010. 2010. 32 Kuala Lumpur Kepong Berhad, busi_plantation_loc. htm, accessed]uly 2010. 33 Kuala Lumpur accessed]uly 2010. “Plantatiort Estates & Others,” 30 “Retailing Sector Overview,” Sector Overview,” 31 “Kuala Lumpur Kepong Berhad, Company Overview” via Thomson Reuters ONE Banker, accessed July http:,//www. klk. com. my,/