Asian Agri and the future of Palm oil
Is Tanoto correct that palm oil has a bright future?
Tanoto is correct that palm oil – aka the “golden corp” of Southeast Asia – has a bright future. It is very economic to be produced, due to its high yield and low cost of production compared with production of other edible oils. With higher economic growth, the demand for food and fuel is rapidly growing in the Asian countries of India and China. So, it is likely that we see a similar positive effect on the demand for Palm oil. Additionally, in today’s world, there are health concerns regarding the rise in the use of trans-fat. This has led consumers and packaged goods to companies limit its use. The increasing health consciousness has would contribute to increased use of this commodity as palm oil is trans-fat free. Furthermore, with increasing requirement for biodiesel, palm oil could well become an important part of the renewable fuel and play a vital role in the energy business.
If yes, how should Asian Agri strengthen its position? If no, what should Yeo’s strategy be? If unclear, what could Yeo do to improve the global use of palm oil?
I think due to the increasing role that palm oil has to play in the global economy, Asian Agri should strengthen its position in the industry and promote the global use of palm oil. They could do this through: Sustainable Production
Asian Agri should aggressively stimulate the use of sustainable palm oil. They can do this by keeping to the set of economic, environmental, legal, and social standards set, in the production process of palm oil. Since sustainability will be an important factor for the company to differentiate itself from competitors and to stay strong in the industry, the company should continue to get all its “properties” certified as “sustainable”. They can also train middle managers, supervisors and workers on sustainable palm oil production.
With palm oil demand rising, Asian Agri should continue to expand their plantation size. Although there are visible difficulties to acquire land in Indonesia, the company should not desert their expansion plans. I feel that it will be a good choice to diversify geographically, predominantly to countries in Africa and South America where land is abundant. This helps the company to diversify risk both politically and financially. It makes good financial sense to not put all their eggs in one basket – Indonesia, and good political sense as political instability or riots are a very real possibility in Indonesia. Additionally, by growing its trading and sourcing operations, Asian Agri can derive more value from its market expertise and refining activities. This will help the company to establish direct linkages with its customers at the destination market. This could also help reduce supply chain related expenses for of the company.
Marketing and Promotion
I think Asian Agri can undertake more marketing and promotional activities, which could help them increase market share. They can play off the fact on health advantages that palm oil has over other edible oils. The point that palm oil is trans-fat“` free can be put to good use in the marketing campaign, which will help address increasing concerns of trans fat consumption. They can do this through advertisements, usage of social media, and distribution of brochures that will help educate customers. With projections indicating that global palm oil production would nearly double by 2020, it makes sense that Asian Agri to be proactive in its expansion, marketing and promotional plans. Although we recognize the rising anxiety from environmental NGOs and other challenges, the fact remains that palm oil business has very high potential, given sustainable production and good promotion.