KUALA LUMPUR: SD Guthrie Bhd
says evolving regulations in Indonesia could pose challenges to its operations there, as the group navigates both a government review of plantation land and proposed reforms to the country’s palm oil export system.
President and group chief executive officer Mohd Haris Mohd Arshad said approximately 2% of its acreage, or 2,800 ha, is affected by Indonesia’s oil palm land seizure programme, to date.
“Impacted here means that the government is saying this land now belongs to the state because it was illegally opened up, and therefore at some point in time the government will take over, and a fine will be issued,” he said during a press conference after SD Guthrie’s 23rd AGM.
Last year, Indonesia set up a government task force to reclaim forest areas deemed to have been illegally occupied or used for commercial activities, including oil palm plantations. Land recovered under the programme is transferred to state-owned palm oil company PT Agrinas Palma Nusantara (Persero) for management.
In May this year, Indonesia’s forestry task force handed over approximately 2.37 million ha of seized plantation land to Persero.
However, Mohd Haris said the affected land forms part of Minamas Plantation, which SD Guthrie acquired from the Indonesian government through the sale of assets held by the Indonesian Bank Restructuring Agency.
He said the group holds the necessary land-use permits for the plantations and believes the issue arose following an update to government land mapping that reclassified certain areas as forest land.
“We are working with the Indonesian authorities through relevant parties, to say that the permits were issued to us and therefore we did not open up the land illegally. Plus, we did not open up any more land since we acquired Minamas.
“We have not been issued any decree or summons. This is a contingent liability but it is not quantifiable, so we did not put it in our accounts.
“Will there be any more land impacted? Not that the group knows of. Currently, 2,800 ha is what is in our books,” Mohd Haris said.
Meanwhile, Mohd Haris said further clarification is needed on Jakarta’s plan to centralise palm oil exports via PT Danantara Sumber Daya Indonesia.
He said the concern is whether a single entity can manage millions of tonnes of exports to hundreds, if not thousands of buyers.
“Secondly, some buyers want provenance. They want to know where the palm oil is coming from and be able to say that they are buying from the Roundtable on Sustainable Palm Oil (RSPO).
“It has to come from a certain estate and there must be traceability.
“RSPO requires everybody in the value chain to be members. Hence, Danantara may need to become a member of RSPO if it wants to participate in this supply chain. If it does not do that, then everything is going to be lost.
“For companies who do sell RSPO-certified oil and are getting a premium, what is going to happen to that flow? As such, there are many things that are still not clear, and it needs to be thought through,” he said.
SD Guthrie exports between 600,000 and 700,000 tonnes of processed and crude palm oil (CPO) annually from Indonesia.
A third of the group’s landbank is located in Indonesia.
On the impact of higher fertiliser costs stemming from the ongoing Middle East conflict, group chief financial officer Shahrizal Suhainy said the group expects fertiliser costs to rise by 5% to 10% in the second half of the year, although the group does not anticipate having to reduce application rates.
“The increase would mainly affect urea and ammonium chloride. The latter’s price increase is the result of China’s export ban of the fertiliser, which we need to replace with ammonium sulphate.
“Ammonium sulphate has always been trading cheaper than ammonium chloride as its nitrogen content is lesser.
“This means that we may have to apply more and this will have an impact. In totality, it is a 5% to 10% increase for fertiliser costs,” Shahrizal further noted.
That said, Mohd Haris added that fertiliser application depends heavily on weather conditions and that lower application rates would not necessarily result in an immediate decline in yields.
“The thinking here is that just because fertiliser prices are high, the cost impact is also potentially high.
“However, how the higher costs flow into the P&L (profit and loss) depends on how fertiliser is applied. When the weather is too dry or too wet, fertilisers may not be applied.
“I am not too bothered with high fertiliser costs because that does not necessarily translate into your bottom line. What about next year? Let’s say in the worst case scenario, fertiliser costs go up very high, will we be forced to cut fertiliser? We do not know.
“But in the case that no fertiliser is being supplied at all for, say, a year, does that mean it is the end for producers like us? Absolutely not.
“I am not trying to downplay it, but we have to take factors like weather and fertiliser regime into account,” he said.
Meanwhile, the group expects CPO prices “to be very firm and very well supported”, with RM4,400 per tonne as the floor as “there is strong buying coming in”.
The upside is expected to go up to approximately RM4,700 per tonne.
“Prices could go further up, but it has a limit in the sense that soybean oil prices are competing neck and neck. That is putting pressure on the upside of CPO.
“Otherwise, we expect CPO to continue trading within the RM4,400 to RM4,700 range.
“In the short term, it will depend on how El Nino shapes up in the second half of 2026.
“If El Nino supplies become very concerning, then we might see further upside.”