Asian Agri Group and the Future of Palm Oil
"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,
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,