* Indonesia now unlikely to hit palm output target of 40 mlnT -industry
* Expansion not the only way to boost production,agriculture ministry says
By Yayat Supriatna
JAKARTA, Oct 18 (Reuters) - An Indonesian rule limitingplantation areas to just 100,000 hectares for new palm oil firmsthreatens an ambitious output goal of 40 million tonnes by 2020set by the world's top producer of the edible oil, an industrygroup said on Friday.
Analysts say the new rule aims to protect small plantationfirms from bigger predators, and will close a loophole allowingmajor players to set up firms in different provinces.
The new law exempts state-owned firms, co-operatives andlisted firms in which small individual investors make up amajority stake, and will not affect companies that already haveplantation permits.
"This new regulation is purely to curb oil palm plantationdevelopment in Indonesia," said Timbas Prasad Ginting, anofficial of industry body the Indonesian Palm Oil Association(GAPKI). "Perhaps this government step is merely to satisfyforeign pressures."
Indonesia is a key player in the battle against climatechange and faces international pressure to halt rampantdeforestation and destruction of carbon-rich peatlands.
Forests in the archipelago are being cut for an expandingswathe of palm oil, mining and pulp and paper industries, whichgreen groups blame for hastening climate change and destroyingwildlife.
"The palm oil plantation restriction will slow annualproduction growth so that we will not achieve our target of 40million tonnes in 2020," Ginting told Reuters.
Indonesia, home to the world's third-largest expanse oftropical forests, should not rely solely on expansion to boostyields, said Deputy Agriculture Minister Rusman Heriawan, addingthat better farming techniques could also push up output.
The new law will require new palm plantation firms to offera fifth of their land for development by local farmers wherepossible, and gradually divest 30 percent of new palm oil millsto co-operatives within 15 years of operation, Heriawan said.
He gave no details of whether the new rule would affectplantations with land licenses about to expire or be renewed,and how the law would affect existing firms seeking to expand.
There are doubts as to whether domestic farmers have thefunds or access to finance, to buy stakes in new palm oilventures and plantations, industry officials added.
Output of palm oil, used as an ingredient in food items suchas biscuits and ice cream, as well as biofuel, is expected torise 5 percent this year in the Southeast Asian nation, to rangebetween 27 million and 28 million tonnes.
Palm oil estates sprawl across more than 8 million hectaresof Indonesian land, industry officials estimate.
(Reporting by Yayat Supriatna; Writing by Michael Taylor;Editing by Clarence Fernandez)
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