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Reducing agricultural expansion into forest: analysis of implementation financing gap
RSPO certified company
- Production
Low NA
NA -
Price of FFB High
NA NA
- Availability of inputs
Low NA
NA -
Unforeseen cost hikes Moderate to high
NA NA
- Regulatory
Moderate to high NA
NA
K. Risk adjusted returns
Risks of investment could be adjusted by evaluating the influence of the fluctuations of costs and benefits
in oil-palm management towards financial indicators. Table 2.8
shows that the benefit factor’s components, i.e. production and price, are more sensitive than the cost components in the oil-palm
operation of independent smallholders, but less sensitive to plasma farmers.
Table 2.8. Comparison of business risks for different types of oil-palm operations
Indep. Smallholder BAU
Indep. Smallholder Improvement
Plasma BAU Improved Plasma
NPV BCR
NPV BCR
NPV BCR
NPV BCR
Normal
53,539,530 1.29
80,936,235 1.38
64,910,357 1.20
133,445,291 1.39
Decreasing Price 10
29,813,019 1.17
51,278,096 1.24
26,611,639 1.08
85,571,894 1.25
Increasing Cost 10
35,166,972 1.16
59,371,720 1.71
33,102,675 1.59
51,043,025 1.13
Price sensitivity
44 10
37 10
59 10
36 10
Cost sensitivity
34 9
27 9
49 9
62 18
Table 2.8 shows that decreasing price of 10 will decrease the profit NPV of ordinary independent
smallholders by 44, while decreasing costs of 10 will reduce 34 of profit. The same pattern could
be seen also at the improved independent smallholders and plasma farmers, as well as companies Table 2.9
. The improved plasma farmers, however, has an opposite pattern. For improved plasma farmers, the cost factors are more sensitive than price factors. Therefore, it is supposed that costs effectiveness
strategy, e.g. controlling input prices, will be effectively applied for improved plasma farmers. Table 2.9. Comparison of risk adjusted returns for different types of oil-palm operations
Ordinary company Certified company -
normal price Certified company
premium price Certified company
premium price carbon scheme
NPV BCR
NPV BCR
NPV BCR
NPV BCR
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Reducing agricultural expansion into forest: analysis of implementation financing gap
Normal
132,427,796,086 1.28
87,382,225,976 1.22
114,665,041,793 1.30
109,867,620,401 1.28
Decreasing Price 10
72,586,049,010 1.16
39,508,828,315 1.10
64,397,974,249 1.17
59,550,429,755 1.15
Increasing Cost 10
85,828,828,619 1.17
48,247,050,913 1.11
75,864,478,428 1.18
70,537,191,795 1.16
Price sensitivity
45 10
55 10
44 10
46 10
Cost sensitivity
35 9
45 9
34 9
36 9
This study confirmed that usually the price is much more important than cost factors, the improved plasma farmer is exception. At such situation, a strategy to spend capital for better inputs will be
effectively implemented, if and only if the price is constant or higher. Thus, the fluctuation of price is very risky in the business of oil-palm plantation. A bit decreasing of palm-oil price will reduce
significantly the amount of profit.
L. Financing gap to go from BAU to Alternatives
