19/02/2011 (Reuters) - Indonesia's palm oil production is estimated to rise by 7-9 percent in 2011, while global consumption will rise 5 percent annually over the next five years, the Indonesian Palm Oil Board (IPOB) said on Friday.
Maturing plantation areas combined with farmers using better harvesting techniques due to heavy rains, is likely to see output in Indonesia, the world's top palm oil producer, hit 22 million tonnes this year, Derom Bangun, vice chairman at the IPOB told Reuters.
"Although we had unusual weather last year, it seems that some companies had good production in January," he said. "We (also) have new mature areas which were planted in 2006/2007."
Benchmark May crude palm oil contract on the Bursa Malaysia Derivatives Exchange hit a near three-year high at 3,967 ringgit last week, on worries about the impact of rains on output, with demand robust.
Prices have gained about 50 percent over the last six months, and analysts see further gains in the short-term.

"Economically speaking we notice that growth has already resumed, which would also trigger demand for vegetable oils," said Bangun, who is also the founder and chairman of PT Kinar Lapiga, an oil palm plantation company.

"The main demand is for food -- starting with cooking oil -- from India and China."

Global palm oil production stood at about 45 million tonnes in 2010, with India buying about 8 million tonnes, China 7 million tonnes, and Europe 6 million tonnes.

"The better the living standards, the higher the consumption of vegetable oils -- so this will increase in India and China as their economies grow," added Bangun.

He said global demand for palm oil in 2011 would rise to 47 million tonnes.

Closer to home, Indonesia has set the export tax for crude palm oil in February at 25 percent versus 20 percent in January, as it seeks to ensure that domestic requirements are met in Southeast Asia's biggest economy.

"It is very painful for producers and farmers," said Bangun. "Many are expecting the government to review this export duty scheme. The only thing we can do, is to request (this) and this has been submitted to the government."

"Not more than 10 percent (can be managed)," he added. "When the export duty (scheme) was designed, the price was fluctuating around $650... It was not expected that prices would go up this high."

Indonesia is seen as a key player in the fight against climate change and is under intense international pressure to curb its rapid deforestation rate and destruction of carbon-rich peatlands.

Last year, Norway signed a $1 billion climate deal with Indonesia, which involves a two-year ban on forest clearing from 2011 and encourages palm oil companies to turn to degraded land to expand.

But Indonesia's government is still trying to thrash out the details of the moratorium on forest clearing, leading it to miss a planned Jan. 1 start.

"The government are devising the rules," said Bangun, who has more than 22 years of experience in the European, Malaysian and Indonesian palm plantation industry. "It will come out within six months."

"The (moratorium) terminology is not very clear," he added. "This is all something that needs to be negotiated. But we have to face the reality that it is necessary to protect the environment."