THE CONFERENCE PROCEEDINGS - IFEAT

Estate Commodity Competition• Increase in the estate commodity prices in the past5-6 years resulted in opening more land forplantation.• Problem is most severe in Sumatra, just for palm oilplantation, 600,000 ha were added between2000-2009.• Other commodities: rubber, corn, cocoa, coffee,sugar-cane, and cassava.• Number of field distilleries in Sumatra hassignificantly decreased (>50%) in the past 6 years.The main source of economic growth inIndonesia’s agriculture sector is estatecommodities like palm oil, cocoa, rubber,coffee and so on. The increase in estatecommodity prices in the past 5-6 yearsresulted in the opening of more land forplantations. This problem is the most severein Sumatra. For the palm oil plantationalone, 600,000 ha were added in 2000-2009. All in all, more than 2 million ha ofnew palm oil plantation were established inIndonesia during the last ten years. This, inaddition to the development of other estatecommodities e.g. cocoa, rubber, and coffee,brings about a very strong competition inacquiring land for plantation fields.Through this situation, the number of field distilleries in Sumatra has significantly decreased up tomore than 50% in the past 6 years.The second factor is the increased labour and energy cost. The labour cost is currently Rp 50-60 K(US $ 5.5-6.5)/day for farmers; in some regions even up to Rp 75 K (US $ 8). For distillers, the cost isRp 100-120 K (US $ 10.5-12.5)/day; in some regions it is up to Rp 150 K (US $ 16). If compared tothe wages of the labour in developed countries, the labour cost in Indonesia is actually still farcheaper. With the increased wage level, we can imagine the level of welfare endured by the farmersand distillers of essential oil in Indonesia.On the other hand, the energy cost in terms of fuel price has risen to Rp 9.5 K (US $ 1)/litre and theelectricity has increased 30% within 5 years. Increased labour and energy costs have significantlyinfluenced the cost structure of essential oil production in Indonesia during recent years.The next factor is income uncertainty. This condition discourages the farmers and the distillers frominvesting or allocating more resources in growing plants and processing the oils. Through harvestfailure, which might be technology related, caused by drought (problems that usually affect seasonalplants), pest (for nutmeg), and diseases (for patchouli), farmers can lose their incomes.The decrease of demand in certainseasons and many farmers’ and smalldistillers’ limited financial capacity tostore the product generally cause the dropof the price of raw materials and essentialoil. Price fluctuations also contribute tothe income uncertainty for the farmersand the small distillers.Time series data show the evolution ofeugenol price between 2005 and 2010 inUS$. Due to extreme climate anomaliesin 2011, the price has rocketed up toabout US$ 32/kg. This year, the eugenolSource : PT Indesso Aroma164